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Where to safely stash your cash in 2014

28 April 2014

FE Trustnet asks where investors can put their money if they think markets are due a setback.

By Jenna Voigt,

Features Editor, FE Trustnet

The economic outlook in the UK is rosier than it has been since before the credit crunch in 2008. Unemployment is down, wages are finally beginning to outstrip inflation and house prices are soaring.

However, the UK stock market has begun to wobble, and is essentially flat year-to-date.

Performance of FTSE in 2014

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Source: FE Analytics


One other worry for UK investors is that sterling strength is hitting the bottom line of many of the largest stocks on the market. Over the last 12 months, sterling has gained 8.94 per cent against the dollar, hitting a five-year high.

ALT_TAG Chelsea Financial’s Darius McDermott (pictured) highlights three funds he expects to hold up if markets should take a tumble from here.


Artemis Strategic Assets

The £972.9m fund, managed by William Littlewood and Giles Parkinson, invests in a mix of asset classes, though McDermott says it is primarily a long-only equity fund.

However, the mix of bonds, cash and commodities should help the fund stay afloat if UK equities take a hit, he says.

“I would expect it to protect if there is a pullback. It would still be down if the market was down 10 per cent. But I would expect it to fall half as much,” he said.

The equity tilt of the portfolio, with 52 per cent of the fund in the asset class, should also help it capture upside if there’s more from here.

The fund has chugged steadily along since launch in May 2009, delivering returns roughly in line with its peers. The fund has trailed its benchmark – the FTSE WMA Stock Market Growth index over the period by about 10 per cent.


Performance of fund vs sector and index since launch

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Source: FE Analytics


The fund has held up better than its peers when markets are down, losing less in the down markets of 2011 when it fell 8.3 per cent. The average fund in the IMA Flexible Investment sector lost 9.4 per cent.

Artemis Strategic Assets has clean share class ongoing charges of 0.84 per cent.


BNY Mellon Absolute Return Equity

On the absolute return front, McDermott tips the £1.6bn BNY Mellon Absolute Return Equity fund, managed by the same team behind the cautious Insight Absolute Insight Equity Market Neutral portfolio.

“It has a higher risk budget than the Insight Market Neutral fund, so it potentially has a little more upside,” he said.

McDermott said he’d be happy to own the fund and sleep easy knowing it would provide a level of protection in turbulent times.

The Dublin-domiciled portfolio aims to achieve positive absolute returns over a rolling twelve month period, something it has managed to do in each of the last three calendar years.

Since launch in January 2001, the fund is up 20.18 per cent. The IMA Target Absolute Return sector gained 14.14 per cent over the period while the LIBOR CHF 1 month benchmark [the Swiss interbank rate] is up just 6.77 per cent, according to FE Analytics.

Performance of fund vs sector and index since launch

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Source: FE Analytics


Like the Insight portfolio, the fund aims to be market neutral, and is comprised of a number of long and short positions. Its biggest long position is to consumer products while financials are the largest short position in the fund.

BNY Mellon Absolute Return Equity has ongoing charges of 0.96 per cent.


Legg Mason US Equity Income

Should the strength of the UK currency against the dollar let up, US equities are a good way to play that dynamic, according to McDermott. To do this, he likes the Legg Mason US Equity Income fund, managed by US-based Legg Mason subsidiary ClearBridge Investments.

“If sterling were to weaken against the dollar, then US equities would be a good play,” he said.

The fund has a yield of 2 per cent, less than the majority of UK equity income portfolios, but does give the benefit of a currency hedge if the UK pound does fall.

Legg Mason US Equity Income, managed by trio Harry Hersh Cohen, Michael Clarfeld and Peter Vanderlee, has delivered lacklustre returns over the last 12 months and trailed both the IMA North America sector and the Russell 3000 Value index, but it has surged ahead of its peers and the benchmark over the short term.


Since launch in October 2011, the fund is up 47.93 per cent, behind both its peers and the index, according to FE Analytics.

Performance of fund vs sector and index since launch

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Source: FE Analytics


However, the fund managers take a strict, value-based approach and may be able to capture more upside from US equities though they have already seen a long bull run. The fund has ongoing charges of 1.12 per cent.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.