Given that the Fed’s quantitative easing programme is now over, interest rates could well rise in the UK and US and as the global economic recovery is still fragile, both equities and bonds are in danger of falling over the coming 12 months.
With that in mind, and with more and more bearish investment outlooks being bandied around by fund groups, we ask the experts which multi-asset funds investors should turn to if they want capital protection within their portfolios.
CF Ruffer Total Return
Charles Younes, fund analyst at FE Research, rates the £3bn CF Ruffer Total Return fund – which is headed up by the FE Alpha Manager duo of David Ballance and Steve Russell. The multi-asset fund sits on the FE Select 100 and Younes says it suits investors who want to prioritise capital protection and are looking to diversify their portfolios.
“The fund falls in the IMA Mixed Investment 20%-60% sector rather than IMA Absolute Return, but its managers focus on protecting investors’ money rather than beating rivals,” Younes (pictured) said.
“Unlike many absolute return funds, the team has a good record of meeting its objectives, with only a few exceptions over the fund’s history. The investment process relies on a constant review of the fund’s allocation between greed and fear assets, which requires the team to correctly call the state of the global economy.”
“It also depends on the team’s capacity to identify a range of assets with contrasting behaviours.”
He added: “This task is becoming more complicated as the current economic challenges are having an equally negative effect on most types of investment. Nevertheless, we are confident the team have enough experience to maintain the fund’s strong performance.”
Ballance and Russell have run the fund since October 2006.
According to FE Analytics, it has been the best performing portfolio in the sector over that time with returns of 86.86 per cent. Its composite benchmark – FTSE Actuaries UK Conventional Gilts All Stocks index and FTSE All Share 50/50 split – has returned 56.65 per cent.
Performance of fund vs sector and benchmark since Oct 2006
Source: FE Analytics
CF Ruffer Total Return has made a positive return in every year since Ballance and Russell have been in charge, including a 20.86 per cent gain in the crash year of 2008.
Its maximum drawdown, which measures the most an investor would have lost if they bought and sold at the worst possible times, is the lowest in the sector over that time at just 9.91 per cent.
Russell and Ballance have maintained a defensive portfolio, with high weightings to index-linked bonds, cash and bonds. There largest equity weighting is Japan, which makes up 18 per cent of the fund.
CF Ruffer Total Return has an ongoing charges figure (OCF) of 1.03 per cent.
Newton Real Return
Square Mile, the investment consultancy and research firm, holds FE Alpha Manager Iain Stewart’s Newton Real Return fund on its Academy of Funds list.
Richard Romer-Lee, managing director at Square Mile, recently told FE Trustnet that he was concerned about investors piling into “untested” absolute return funds. However, he said the £9.2bn Newton fund is one which has proven itself in varying market conditions.
“Iain Stewart is a veteran investor who has worked at Newton for over 25 years, managing both multi-asset and global equity mandates,” Square Mile said.
“He has the able support of the experienced Newton Real Return team. The key attractions of this fund are the established Newton global thematic approach that is at the core of the process, combined with the experience of Stewart.”
“We think this is an appealing option for investors seeking a fund that is focused on capital preservation and delivering positive absolute returns over the long term.”
Stewart launched the fund in March 2004 and, according to FE Analytics, it has returned 124.1 per cent over that time, comfortably beating its LIBOR 1m plus 4 per cent benchmark in the process. As a point of comparison, the FTSE All Share has returned 124.1 per cent but has been twice as volatile and has had a maximum drawdown which has been 2.6 times greater than the fund’s over the period.
Performance of fund vs indices since Mar 2004
Source: FE Analytics
Newton Real Return has made a positive return in nine out of the last 10 calendar years, including a 3.98 per cent gain in 2008. The only year it lost money was in 2011, though it was only down 0.75 per cent.
Stewart has a bearish view on global markets, suggesting that some of the biggest bubbles of all time have been created by mass central bank intervention.
He holds roughly 60 per cent in equities, though they are often high quality defensive stocks which pay dividends. The rest of the portfolio is in government, corporate and index-linked bonds, commodities, infrastructure and floating rate notes.
Stewart also uses index futures and options to hedge against equity market risk.
Its OCF is 1.11 per cent.
Investec Cautious Managed
The team at Square Mile also rate Alastair Mundy’s Investec Cautious Managed fund for investors who want to add a layer of defence to their portfolios.
It carries its A-rating and the team are particular fans of the manager’s clear-cut contrarian approach, as Mundy will only buy equities within his fund where the shares have underperformed by at least 50 per cent relative to the market from the shares' price peak, where sentiment is poor and where they perceive there to be significant value.
Mundy then diversifies that exposure by holding fixed income assets such as conventional and index-linked bonds as well as a chunky weighting to gold and gold miners.
“We have a high regard for Alastair Mundy and his team. They are seasoned investors with an investment approach that has stood the test of time,” Square Mile said.
“It is somewhat unusual to find an investor with such a clear cut and focused approach that has been so consistently applied by the manager. By retaining this focus the manager is able to avoid being distracted by the constant noise of the market and news media, and to focus on where he adds value most effectively.”
“The fund is designed to appeal to investors seeking some exposure to the equity market but who are nervous about the risks and volatility associated with equity markets. The long-term returns from the fund continue to reward its investors.”
Mundy has managed the £2.6bn Investec Cautious Managed fund since August 2002.
Our data shows the portfolio has returned 112.82 per cent over that time, beating the IMA Mixed Investment 20%-60% sector and its UK consumer price index benchmark which have gained 85.97 per cent and 34.24 per cent, respectively, over the period.
Performance of fund versus sector and index since Aug 2002
Source: FE Analytics
The fund has also beaten the sector average in nine out of the last 10 calendar years, the exception being 2007 when it fell 3.96 per cent. It is, however, in the bottom quartile year to date as it is down 1.25 per cent.
Investec Cautious Managed has an OCF of 0.84 per cent.
