“It’s the only fund I hold. I used to look down the list of options and all I was doing was rebuilding this,” he said.The multi-asset fund, which Spinks runs alongside Philip Saunders, is divided into three sections – growth, defensive and uncorrelated holdings, which the manager says gives investors broad exposure to the overall market and can function, as he uses it, as a standalone portfolio.
Underneath the growth umbrella are equities, high yield and emerging market bonds; however, Spinks says he’s been reducing high yield exposure in favour of equities over the last several months.
“We haven’t had high yield since the middle of last year and we’ve been short since the first quarter of this year,” he said.
Defensive holdings in the fund include government bonds, put options and shorting while uncorrelated holdings are things like infrastructure and pairs trades.
The fund has a target of inflation plus 5 per cent.
“It’s a challenging target and a stretching target,” the manager said. “As important as the return is risk. The fund is perfect for investors who want to sleep well and don’t want to be surprised by the rates they see when they open their portfolio.”
Investec Diversified Growth aims to deliver long-term real returns a ’la Troy Trojan and CF Ruffer Total Return.
However, Spinks says he and Saunders are more optimistic about equities than other asset classes because they think they have the strongest fundamentals, which has helped the portfolio outperform its Troy and Ruffer peers over one, three and five years.
“We’re not as anti-equity as some of our competitors,” he said. “It’s still not a heavily owned asset class and [being anti-equity] ignores some of the fundamentals.”
Since Spinks started managing the portfolio in May last year the fund is up 2.61 per cent.
CF Ruffer Total Return is up just 0.10 per cent over that period while the Troy Trojan fund is down 2.35 per cent, according to FE Analytics.
Performance of funds since May 2013
Source: FE Analytics
The Investec fund has also outperformed its benchmark, the UK Consumer Price Index, which is up 1.91 per cent over the period, though it has lagged its peers in the IMA Mixed Investment 40-85% Shares sector, which made 3.78 per cent.
However, for truly cautious investors who can’t stomach big losses in any calendar year, the Investec Diversified Growth fund is left wanting compared to the Ruffer and Troy alternatives.
While the Troy Trojan fund did have a difficult year in the rising markets of 2013, down 3.13 per cent, that is the only calendar year it has suffered any losses.
CF Ruffer Total Return has fared better, only shedding 2.76 per cent back in 2006.
Investec Diversified Growth, on the other hand, took a big hit in 2008, falling farther than its peers in the sector and inflation, when it lost 25.05 per cent. The fund had another difficult year in 2011 when it fell 5.62 per cent. The UK CPI index was up 4.2 per cent that year.
Source: FE Analytics
Over the last five years, all three portfolios have been significantly less volatile than the FTSE All Share, but the Investec fund was more volatile than Ruffer and Troy with annualised volatility of 8.49 per cent.
What is more important for cautious investors is the fund’s max drawdown, or what investors stand to lose if they bought at the top and sold at the bottom. Again, both Ruffer and Troy stand to lose less in difficult markets, but according to FE Analytics figures over the last five years, the Investec Diversified Growth fund isn’t likely to fall as far as the market.
In light of last week’s FTSE fall, Spinks thinks the market should brace for more volatility, but he argues “dips at the moment are buying opportunities”.
“There’s been crushingly low volatility,” he said. “The level of volatility is unprecedented and will pick up to a normal level, but it’s manageable.”
Prior to joining Investec, Spinks spent eight years at London-based asset manager Schroders where he ran the Schroder Diversified Growth fund and the Schroder Diversified Completion fund.
While he says the process has remained unchanged since he joined Saunders as co-head of multi-asset at Investec, the pair have been increasing their exposure to emerging markets.
“Emerging markets is a big shift. We had none when I joined. We changed that in February this year,” he said.
“Equities have also come down somewhat. We had 57 per cent in the middle of last year. Now we have 45 per cent.”
“We’re less bullish than we were last year but we’re still pretty positive.”
Spinks says he and Saunders take a simple, three-part approach to managing the fund. First off, they look at the whole range of the investment universe, so there’s a broad opportunity set to choose from. Then the managers delve into the details, taking a bottom-up approach within asset classes. Finally, they actively manage each holding.
They also tactically employ cash in the portfolio. The cash weighting currently stands at 15 per cent, which is roughly in the middle of the range for the managers. On the high end they’ve held as much as 25 per cent and as little as 0 per cent on the low end.
Investec Diversified Growth has ongoing charges of 0.88 per cent. This compares to 1.57 per cent for the soft-closed Trojan fund and 1.53 per cent for CF Ruffer Total Return.
