In previous articles in this series we have looked at the funds which might have been overlooked because they reside in the IMA Specialist peer group or one of the 15 AIC specialist sectors. We now turn our attention to the IMA Unclassified sector to see which funds might be worth taking a closer look at.
One thing that jumps out about the sector is the larger number of multi-manager funds that can be found in there. Fund ranges from managers like Architas’ Caspar Rock, F&C’s Gary Potter and Rob Burdett, Fidelity’s Trevor Greetham, Old Mutual Global Investor’s John Ventre and Standard Life Investments’ Bambos Hambi are housed in the sector.
One manager who has won a high rating from FE is Rathbone Unit Trust Management’s David Coombs (pictured), who holds FE Alpha Manager status. Coombs has three funds in the IMA Unclassified sector - Rathbone Multi Asset Enhanced Growth, Rathbone Multi Asset Strategic Growth and Rathbone Multi Asset Total Return.
Rathbone Multi Asset Strategic Growth, which is the manager’s largest portfolio at £88.5m, has returned 27.14 per cent over the past three years with annualised volatility of 5.63 per cent, which is below its target of two-thirds the volatility of the MSCI World index.
Performance of fund over 3yrs
Source: FE Analytics
Coombs aims to build his portfolios in a way that maximises their returns from a given risk budget. He pays especially close attention to the risks within his funds, as well as the liquidity and correlation of the underlying funds he holds.
In a recent blog post, Rathones’ chief executive Mike Webb that the funds’ strict risk targets mean they will behave differently from the risk-rated funds found in the IMA’s multi-asset sector, hence why they reside in the overlooked sector.
“[A] problem risk-targeted funds face is an ‘apples to pears’ comparison with funds in the mixed sectors, which do not have equivalent risk-parameters. This has pushed many risk-targeted providers into the Unclassified sector, making them even harder for advisers to find, let alone evaluate,” he said.
Rathbone Multi Asset Strategic Growth has an ongoing charges figure (OCF) of 1.57 per cent, Multi Asset Enhanced Growth charges 2.32 per cent and Multi Asset Total Return has a 1.56 per cent OCF.
Other highly regarded multi-managers have funds in the IMA Unclassified peer group, such as FE Alpha Manager Bill McQuaker, Christopher Paine and Paul O'Connor's £225.4m Henderson Diversified Growth fund.
Henderson Diversified Growth has returned 19.90 per cent over three years. While this is much less than the almost 60 per cent rise in developed equities, its annualised volatility over three years is just 4.37 per cent, compared with the MSCI World’s 11.34 per cent.
As its name suggests, the portfolio is invested in a wide spread of funds from all asset classes. It currently has 34 per cent in developed market equity funds, 13.8 per cent in absolute return strategies and 9.9 per cent in corporate bonds, with smaller positions in other asset classes.
Henderson Diversified Growth has ongoing charges of 0.35 per cent but is only available to professional investors.
Investing in equities, there is one IMA Unclassified fund that is run by an FE Alpha Manager - the £471.4m SJP UK & International Income fund, which is managed by Artemis’ Adrian Frost and Adrian Gosden.
FE Alpha Manager Frost has helmed the fund with Gosden since its launch in October 2010, since when it has returned 52.77 per cent. As a point of comparison, the average fund in the IMA UK Equity Income sector has a total return of 48.11 per cent over this time.
Performance of fund vs sector and index since launch
Source: FE Analytics
The five FE Crown-rated fund counts BP as its top holding with a 4.2 per cent position, followed by Royal Dutch Shell at 4.2 per cent and Imperial Tobacco at 4.1 per cent. Its largest sector positions are in financials, health care and consumer discretionary.
SJP UK & International Income has an OCF of 1.93 per cent and yields 3.40 per cent, but is only available to clients of St James’s Place.
Investors seeking absolute returns also have options in the unclassified space. The £2.4bn CF Ruffer Absolute Return fund is run by FE Alpha Managers Steve Russell and David Ballance, who also look after the £2.96bn CF Ruffer Total Return fund.
CF Ruffer Absolute Return has significant outperformed the average portfolio in the IMA Targeted Absolute Return sector since launch in February 2006 and beaten the gain of the CF Ruffer Total Return fund with an return of 86.93 per cent.
Performance of funds vs sector since launch
Source: FE Analytics
However, this has come with greater volatility that the typical absolute return fund and a higher maximum drawdown, which shows the loss an investor would have seen if they bought and sold at the worst possible time.
The fund’s portfolio is broadly similar to that of CF Ruffer Total Return, which appears on the FE Research team’s Select 100 list of preferred funds. However, it has double the cash at 12 per cent and less in both non-UK index-linked bonds and North American equities, with slightly more in gold and European equities.
CF Ruffer Absolute Return has a 1.22 per cent OCF and is available to professional investors.
