While it’s impossible to time the market, this strategy could help investors protect against some of the biggest bumps and take advantage of stronger gains – even if the timing isn’t precisely at the top or bottom of the market.
One of the best-performing funds over the last several years – the Standard Life UK Equity Unconstrained fund – is the first portfolio we’ll look at in this series.
As the name suggests, the portfolio is a go-anywhere strategy that doesn’t have a benchmark, but it has been one of the best performers in the IMA UK All Companies sector over the last one, three and five years.
Since launch in September 2005, the fund made 314.6 per cent, more than four times the return of the sector, which gained 76.91 per cent over the period.
Performance of fund vs sector since 2005
Source: FE Analytics
The size of the portfolio is also becoming a concern, after it has nearly doubled over the last year. However, in a recent FE Trustnet article, the manager said he will look to stem flows into the portfolio if the size increases dramatically from here.
So while this fund could have more room to run, investors may be thinking of some profits and invest them elsewhere.
Head of FE Research Rob Gleeson (pictured) says investors who are simply looking to rotate out of a growth strategy and into a value-based approach should consider putting some of their money into the SLI UK Equity Income Unconstrained fund.
“If it’s a straightforward rotation from growth to value then the SLI UK Equity Income Unconstrained fund makes sense. It’s got a lot of the same qualities that make the other fund successful, but with a more value-based approach,” he said. The four FE Crown Rated SLI UK Equity Income Unconstrained fund, run by Thomas Moore, has also outperformed its sector – IMA UK Equity Income – over the last one, three and five years, though it has lagged the growth portfolio over each period.
Since Moore took over the fund in January 2009, it’s made 178.84 per cent. The sector gained 98.18 per cent over the period.
Performance of fund vs sector since 2009
Source: FE Analytics
The fund has the added benefit of a dividend yield, at 3.36 per cent. It has ongoing charges of 0.9 per cent.
However, for investors who are starting to feel the stocks in the portfolio, or even equities generally are overvalued, Gleeson and Hargreaves Lansdown’s Mark Dampier say another approach is needed.
Dampier, head of research at Hargreaves Lansdown, likes the Troy Trojan fund, managed by Sebastian Lyon.
The fund has suffered a sustained period of underperformance, lagging the sector and benchmark over the last one, three and five years, largely owning to the manager’s cautious view of the market and high exposure to gold.
Over the last year, the portfolio has lost 3.84 per cent while the FTSE All Share is up 9.64 per cent, according to FE Analytics.
However, over the long-term the fund has beaten its peers in the IMA Flexible Investment sector, though it has trailed the FTSE All Share, gaining 115.16 per cent.
Performance of fund vs sector and index over 10yrs
Source: FE Analytics
However, Dampier says a long period of underperformance is exactly when investors should be looking to buy, especially if they think the markets could turn around.
“Personally, I wouldn’t sell the [SLI UK Equity Unconstrained] fund. It’s been a cracking fund over the last five to six years, so it’s one you hold anyway,” he said.
“SLI UK Equity Unconstrained is a good fund and Leggett is a good manager. So I would probably stick with it. But I’m not bearish.”
“But if you are more nervous of the stockmarkets, that’s when you look to things like Trojan. On the whole, if you’re going to change, the only reason to change that fund is you think the market is not going to be so good over the next few years.”
Dampier (pictured) says it’s key that investors diversify their portfolio and ensure they have funds pointing in different directions, which is why funds like the SLI portfolio and the Troy Trojan fund sit well together.
He adds that unlike the latter half of 2012 and 2013, he expects this year to be more volatile, so investors looking to take profits from their best performing portfolios should look to out of favour areas for capital protection or growth. “You need to look at things that haven’t done so well and think they might start to do better,” he said.