Most retail investors will stick to funds within the more mainstream IMA sectors for their equity, bond or multi-asset exposure.
However, our data shows certain fund of funds managers are willing to dip into some of the less popular sectors – such as IMA Specialist, Telecom & Technology, China & Greater China and Unclassified – to diversify their portfolios.
In this article, we look at which ones feature in the most multi-managers’ top 10 holdings.
Source: FE Analytics
As the table above shows, the £900m Majedie Tortoise fund, which is co-managed by Matthew Smith and Tom Morris, is the joint most popular niche fund with multi-managers as it features in 14 lists of top 10 holdings.
Holders include the £1.5bn Schroder MM Diversity fund, which is co-run by Robin McDonald and FE Alpha Manager Marcus Brookes, FE Alpha Manager Bill McQuaker’s Henderson MultiManager Absolute Return fund and various funds from Rob Burdett and Gary Potter’s F&C MM Navigator range.
The portfolio is a long-short equity fund and will only ever have a maximum of 40 long positions, while the managers will short using contract for differences (CFDs).
It is understandable why Majedie Tortoise is such a popular holding.
According to FE Analytics, it has returned 124.42 per cent since its launch in August 2007. Its comparative benchmark, the FTSE All Share, has returned 40.12 per cent over that time.
Performance of fund vs index since Aug 2007
Source: FE Analytics
Its outperformance has come during times of market stress such as in the crash of 2008, when the index fell 30 per cent. Then, the fund returned 7 per cent. Even more impressively, it went on to outperform in the rebound year of 2009. The only year the fund lost money was in 2010, when it fell 0.24 per cent.
However, in 2011 when the market lost money, it returned more than 10 per cent.
Unfortunately for retail investors, Majedie started to stem inflows into the portfolio last year.
RWC Enhanced Income fund, which sits in the IMA Specialist sector but primarily invests in UK equities, is also a top 10 holding in 14 funds of funds.
These include Richard Scott and Daniel Lockyer’s PFS Hawksmoor Distribution and Vanbrugh funds, the Aberdeen Multi Manager Multi Asset Distribution Portfolio and several from Brookes and McDonald’s Schroder MM range.
John Teahan, Ian Lance and Nick Purves, who had all worked together on the Schroder Income Maximiser fund, launched the £320m portfolio in October 2010.
From a total return point of view, the fund’s gains of just 15.3 per cent are half the amount of its FTSE All Share benchmark.
However, the managers aim to deliver 7 per cent annual yield – with the help of call options – and try to outperform over a full market cycle but with much less volatility.
It has performed well in this year’s flat market as it is up against the index and has been less volatile.
The reason why the fund doesn’t sit in the IMA UK Equity Income sector is because the managers want a higher degree of flexibility in terms of their regional and cash weightings.
Third on the list is the five crown-rated PFS TwentyFour Monument Bond fund, which solely invests in residential mortgage backed securities [RMBS], as nine fund of funds managers hold it in their top 10.
One of the major reasons why the fund has attracted attention is, due to the assets it invests in, it is seen as a way of diversifying away from equity market risk, while offering a hedge against higher interest rates. Nevertheless, it currently only yields 2.14 per cent.
One of the most niche portfolios on the list is the five crown-rated Polar Capital Global Insurance fund. The £290m fund, as its name suggests, only invests in companies operating in the global insurance sector and features in seven funds’ list of top 10 holdings.
One of those is the Premier Worldwide Growth fund. Alec Foster launched the portfolio in October 1998 and Nick Martin joined him as co-manager in September 2001.
Our data shows the fund has returned 148.14 per cent over 10 years, while its MSCI AC World Insurance sector has returned 74.59 per cent.
Performance of fund vs index over 10yrs
Source: FE Analytics
It has also beaten its benchmark over five and seven-year periods due to its performance in the crash year or 2008 – when it made a positive return – but is lagging the index over one and three years.
Its holds 55 per cent in the US and counts Warren Buffett’s Berkshire Hathaway as a top 10 holding.
Polar Capital’s Global Tech fund also features on the list, but is only a top 10 holding in four funds of funds.
Other specialist equity funds on the list include Aberdeen Global Indian Equity and Schroder ISF Asian Total Return.
The once immensely popular BlackRock Gold & General fund, which is run by Evy Hambro, is also up there.
However, given the poor performance of gold mining equities and the price of gold bullion over recent years, it isn’t too surprising that only a handful of managers have the conviction to count it in their top 10.
The very specialist Invesco Perpetual Global Financial Capital fund is held by five funds of funds.
The fund, which was launched in January 2012, is headed-up by the highly experienced duo of Paul Read and Paul Causer and invests across the capital structure of financial institutions, including senior bonds, subordinated bonds, equities and hybrid instruments.
As a recent FE Trustnet article highlighted, it is one of Square Mile “positive prospects” as though it has a short track record, the investment research firm rates its strategy.
“The nature of the investments in the fund mean that there may be a substantial degree of capital volatility over the short to medium term, with the fund likely to perform well in an environment of investor optimism but to lag in times of weaker market performance,” Square Mile said.
“Over the longer term we expect the fund to capitalise on the opportunities available, and performance of the fund since launch has been very strong.”
Performance of fund vs sectors since Jan 2012
Source: FE Analytics
According to FE Analytics, the fund has returned a hefty 69.12 per cent since its launch; far outperforming the various IMA fixed income sectors in the process.
It also has an attractive yield of 4.9 per cent.
The only other fixed income focused portfolio to feature on the list is Luke Hickmore and Roger Webb’s £1.1bn SWIP Sterling Credit Advantage fund, which also sits in the IMA Specialist sector, as it is held by five funds of funds.
