FE data shows that 17 multi-asset funds have made a positive return in at least nine of the past 10 calendar years – 14 of which are on course to make money in 2014 as well.
Admittedly there are only five absolute return funds with a long enough track record, but of these only one – Newton Real Return – has made money in nine of the last 10 years. Unfortunately the highly popular Standard Life GARS fund was launched mid-way through 2008, though between May and 31 December of that year it lost over 5 per cent.
Looking at the past six years, only seven of the 15 absolute return funds with a long enough track record have managed to deliver positive returns in at least five. Insight Absolute Insight Equity Market Neutral is the only fund that’s managed it every year.
Sebastian Lyon’s Trojan fund is also well worth a mention; the fund sailed through the down years of 2008 and 2011, delivering 1.11 per cent and 8.52 per cent respectively. The only year that it didn’t make money was 2013, when it lost 3.13 per cent. It’s already made up for these losses, however, returning just under 9 per cent year-to-date.
CF Miton Special Situations, formerly headed up by Martin Gray but now run by David Jane, has a similar record. 2008 and 2011 were top-decile years for the fund, but Gray’s ultra-bearish stance saw it lose money – albeit only 0.63 per cent – in 2012.
Jane remains dedicated to protecting investors against the downside, though has added risk into the portfolio since taking over. Gray and former Miton colleague James Sullivan are set to launch a new range of multi-asset funds in the new year.
From a group point of view, many won’t be surprised to hear that Ruffer stands out, though less will have expected Threadneedle to top the tables.
Source: FE Analytics
FE Alpha Manager Steven Russell’s CF Ruffer Total Return fund took the plaudits in 2008, somehow managing to make its investors more than 20 per cent. The manager says that weighty positions in gold, Japanese yen and Swiss government bonds were among the biggest contributors to performance.
The only year the fund has lost money came in 2006, when it shed 2.76 per cent. Russell admits that the group was too early in calling a full-blown financial crisis, which contributed to a couple of years of underperformance; however, given what the fund has achieved since 2008, this was well worth it.
As well as protecting effectively against the downside, Russell (pictured) managed double-digit returns in 2005, 2009 and 2010, and was only a matter of percentage points short in 2013.
The four-crown rated CF Ruffer European portfolio, managed by Timothy Youngman and Guy Thornewill, has been even more impressive on the upside. The fund made more than 20 per cent in 2004, 2005, 2006 and 2007, but while most funds with such a record suffered badly in 2008, the duo somehow generated a positive return of just under 10 per cent.
Performance of funds since Jan 2004
Source: FE Analytics
2011 was unsurprisingly a difficult year given what happened in the eurozone, but it followed up losses of just over 6 per cent with strong performance in 2012 and 2013. The fund, which invests in a mixture of UK and European equities and bonds, as well as cash, is currently down 2 per cent for the year, but could still yet break even.
Ruffer Equity & General has a similar process though manager Alex Grispos can invest across the globe. Again, the only year it lost money was in 2006, though gains of over 7 per cent in 2008 more than compensated for this.
Whereas the likes of Troy and Ruffer have high conviction portfolios that have spiked when equity markets fall but struggle when they rise, Threadneedle Navigator Cautious Managed, Defensive Equity & Bond and Defensive have a risk/return profile more akin to those in the Targeted Absolute Return sector.
The three funds, which all sit in the IMA Mixed Investment 0-35% Shares sector, lost between 0.23 and 3.21 per cent in 2008, but managed a positive return every other year. However, with the exception of Threadneedle Defensive Equity & Bond in 2009, none have ever managed a double-digit return in any one year since 2004.
Jim Cielinski heads up the Defensive and Defensive Equity & Bond funds, while Alex Lyle runs Threadneedle Navigator Cautious Managed. All three are fettered funds of funds, meaning they only invest in portfolios run by Threadneedle. This helps to keep costs to a minimum, as well as providing investors with a high level of diversification.
FE Trustnet will profile the funds in more detail in an upcoming article.
Mike Deverell, an investment manager at Equilibrium, counts the likes of Trojan and CF Ruffer Total Return in the same bracket as absolute return funds. While some funds are designed for investors with a higher risk tolerance than others, he says they are effectively trying to achieve the same goal – protect against the downside and participate on the up.
“We put these types of funds into the alternative equity bucket,” he said. “Equities are clearly at the riskier end of the market, and we’ll use multi-asset funds, which include absolute return funds, to diversify this risk.”
“There’s no major difference between GARS and Trojan, except GARS is more complex. When you look at these funds you’ve got to look at their correlation to equities, and though Trojan will have a slightly higher correlation, even absolute return funds have some correlation.”
Our data shows that Trojan has a correlation of 0.64 to the FTSE All Share, compared to GARS’ 0.53. Both scores are defined as being low by FE.
While Deverell thinks the bigger bets made by Lyon and Russell mean they should be considered as longer-term plays than most absolute return managers, he says even GARS shouldn’t be considered a short-term play.
“This can still lose you money over one year. It should be held for at least a three-year horizon,” he added.
Of the 17 funds that have made money in nine of the last 10 calendar years, CF Ruffer European has both the best annualised return and Sharpe ratio since the beginning of January 2004. While it’s been more volatile than both Newton Real Return and Standard Life GARS, its superior returns on the upside has resulted in a far better risk-adjusted return.
The likes of Trojan, CF Miton Special Sits and Threadneedle Defensive not only have a higher annualised return and Sharpe ratio, but also a lower volatility.
Source: FE Analytics
All of the remaining multi-asset funds that made money in nine out of the 10 years lost more than 9 per cent in 2008. Among the standout names are Marcus Brookes and Robin McDonald’s Schroder MM Diversity fund, which has the flexibility and willingness to be tactically bullish and bearish at certain points in the cycle.
The duo lost just under 10 per cent in 2008, but a high weighting to cash and bonds helped it eke out a positive return in 2011. The managers are currently defensively positioned, as Brookes explained in a recent FE Trustnet article.
Henderson Cautious Managed, Scottish Mutual Cautious, Fidelity Moneybuilder Balanced, AXA Distribution, Aberdeen Managed Distribution, Aberdeen Multi Asset, Jupiter High Income and Consistent Practical have also made money in nine of the last 10 years.
No funds have achieved the feat in the IMA UK Equity & Bond Income.
