Global equities endured a rough ride between 4 September and 17 October after investors fled risk assets in light of multiple concerns, including the end of quantitative easing in the US, conflict in the Middle East and weakness in the eurozone.
Over the course of these six weeks the FTSE All Share dropped 8.05 per cent, underperforming the developed market-focused MSCI World’s 5.84 per cent fall.
Other major equity indices suffered losses over the period, as the graph below shows.
Performance of indices during sell-off
Source: FE Analytics
FE Analytics shows every one of the 471 funds in the IMA Flexible, Mixed Investment 0%-35% Shares, Mixed Investment 20%-60% Shares and Mixed Investment 40%-85% Shares sectors made losses over this period, although only 21 dropped more than the All Share.
The worst performance came from the £11.6m CCM CFS Balanced Opportunities fund, which was down 9.50 per cent. The fund sits in the IMA Flexible Investment sector’s fourth quartile over one, three and five-year periods.
NFU Mutual Mixed Portfolio Max 100% Shares, meanwhile, lost 8.94 per cent, CF Purisima EAFE Total Return 8.86 per cent, JPM Portfolio 8.81 per cent and Close Strategic Alpha 8.78 per cent.
All four are also in the IMA Flexible sector.
Performance of sectors during sell-off
Source: FE Analytics
The funds that did the best job of protecting their investors’ money over the turbulent period come from the IMA Mixed Investment 0%-35% Shares and Mixed Investment 20%-60% Shares sectors, which by their nature have a higher allocation to bonds.
While equities suffered over the six weeks in question, bonds rallied as investors flocked to perceived safe havens.
The yield on 10-year gilts is currently around the 2.2 per cent mark, having started the year at close to 3 per cent, while 10-year US treasury are also at 2.2 per cent.
The £122.2m Vanguard LifeStrategy 20% Equity fund was the best performing, posting a loss of just 0.40 per cent.The fund allocates to a range of Vanguard trackers, with the bulk of its holdings being in fixed-income products.
The fund, which has a clean ongoing charges figure of 0.24 per cent and holds five FE Crowns, is first quartile in the IMA Mixed Investment 0%-35% Shares sector over one and three years.
Indeed, it’s the sector’s second best performer over one year and the top returner over six months.
Other highly rated funds that did a good job of dodging the worst of the sell-off include Scottish Mutual Cautious and Jupiter Distribution, which lost a respective 0.98 per cent and 1.68 per cent.
Performance of funds vs index during sell-off
Source: FE Analytics
John Kelly's £233.6m Scottish Mutual Cautious fund holds five FE Crowns and is in the IMA Mixed Investment 0%-35% Shares sector’s first quartile over one, three and five years as well as over three and six months. It has ongoing charges of 0.18 per cent.
The five FE Crown-rated Jupiter Distribution, which is managed by Alastair Gunn and Rhys Petheram, is in the sector’s second quartile over one year and first quartile over three and five. It has a clean OCF of 0.64 per cent.
Jupiter Distribution appears on the FE Select 100 list of recommended funds.
The FE Research team says it could be an option for investors who prioritise capital preservation, although it notes that its higher allocation to equities - currently 27.1 per cent - means it can be riskier than its peers.
Several larger multi-asset funds were also successful in minimising losses, with several falling less than half the All Share’s decline. The £1.5bn Schroder MM Diversity fund was down 2.51 per cent, the £3.1bn Invesco Perpetual Distribution fund lost 3.43 per cent and the £991.1m F&C MM Navigator Distribution fund fell 3.84 per cent.
The IMA Targeted Absolute Return sector, on the other hand, features a number of funds that were able to make money despite the widespread falls in equities.
The average fund here lost just 1.39 per cent, compared with the All Share’s 8.05 per cent fall.
Some 12 funds are up over the period, although only two of these hold four or more FE Crowns - which indicates superior performance in terms of stockpicking, consistency and risk control over the past three years.
Threadneedle Absolute Return Bond, managed by Matthew Cobon, made the highest return with a 2.37 per cent gain.
The fund focuses on fixed income, which benefited as investors pulled back from equities in the sell-off.
However, while it has outperformed over 2014 so far, the fund has returned just 0.54 per cent over the past five years against a sector average of 13.80 per cent. It has clean ongoing charges of 0.72 per cent.
Looking at the highly rated funds, Ian Heslop, Amadeo Alentorn and Mike Servent’s £1.1bn Old Mutual Global Equity Absolute Return fund made 0.88 per cent over the sell-off. It holds five FE Crowns.
It has outperformed the sector over one, three and five years as well as shorter time frames. An investor over five years would be sitting on a 36.58 per cent return - more than 20 percentage points more than delivered by the average fund in its peer group.
The four crown-rated Kames UK Equity Absolute Return fund also made 0.88 per cent over the course of the correction.
The £339m fund, which is managed by David Griffiths and David Pringle, launched in February 2010 and has outperformed the sector by just over 2 percentage points since then.
Kames UK Equity Absolute Return has a clean OCF of 0.85 per cent.
Performance of funds vs index during sell-off
Source: FE Analytics
