The majority of investment advisers plan to increase their clients’ exposure to multi-asset funds, with particular interest being shown towards to those that are managed on an absolute return basis.
A survey of UK-based financial advisers by NN Investment Partners found 63 per cent expect to put more of their clients’ money into multi-asset funds over the coming three years.
When asked for reasons behind the move, 34 per cent cited automatic diversification, 24 per cent said it reduces the amount of time needed to monitor asset allocation and 17 per cent believe are an ideal strategy to use as the core of portfolios.
Furthermore, 47 per cent expect the demand of multi-asset funds managed with the aim of securing absolute returns will increase in the coming years, with only 16 per cent disagreeing with this view.
Valentijn van Nieuwenhuijzen, head of multi-asset strategy at NN Investment Partners, said: “Many UK financial advisers increasingly appreciate the benefits of delegating strategic and tactical investment decisions to managers with the resources to navigate today’s increasingly complex and globalised markets.”
“Just managing the asset allocation is not enough, however: it is crucial that this is done with a close eye on risk allocation too in order to deliver the absolute returns that are clearly important to investors and their advisers.”
With this in mind, here are some of the most highly rated multi-asset funds from the mainstream sectors, drawing on the views of the FE Research team and FE strategic partner Square Mile Investment Consulting & Research.
IA Flexible Investment
As its name suggests, this peer group offers funds the greatest degree of freedom in where they invest – setting no minimum requirements on which assets have to be held to qualify for membership. It is home to 139 funds with combined assets under management of £18.2bn.
The most highly rated IA Flexible Investment fund is John Chatfeild-Roberts and Algy Smith-Maxwell’s £2bn Jupiter Merlin Growth Portfolio. This fund is headed by two FE Alpha Managers, appears on the FE Research Select 100 and holds the top ‘AAA’ rating from Square Mile.
FE Analytics shows the fund of funds has beaten its average peer over one, three, five and 10-year periods. The FE Research team highlights two reasons for this outperformance.
“First, the team independently defines its strategic views. This part of the process is credited with helping the team anticipate the recent economic slowdown, which in turn has seen the fund outperforming in the past,” the analysts said.
“The second source is fund selection, which allows the team to enhance returns if the chosen manager adds value. Like all managers at Jupiter, the team enjoys a great degree of freedom when investing, and there is no house view on strategy.”
Only one other member of the sector appears on the Select 100: FE Alpha Manager Christopher Metcalfe’s £1.5bn Newton Multi-Asset Growth fund.
In common with other Newton funds, Metcalfe’s investment process starts with the group’s house view of dominant global economic themes. He then searches for holdings that he believes are set to benefit from these themes.
The fund has a more cautious tilt than some of its rivals, as Newton expects market uncertainty to continue in the years ahead. As a result, the manager is concentrating more on the income side of things with major holdings including dividend favourites Reed Elsevier, Smith & Nephew and Reynolds American.
Since Metcalfe took over Newton Multi-Asset Growth in March 2011, it has returned 51.77 per cent against the sector’s 34.18 per cent and is first quartile over one and three years.
Performance of funds vs sector over 3yrs
Source: FE Analytics
Four funds also carry a ‘Recommended’ rating from Square Mile: Gary Potter and Rob Burdett’s F&C MM Navigator Select, Robin Geffen’s Neptune Global Alpha, Marcus Brookes and Robin McDonald’s Schroder MM Diversity Tactical and Alex Lyle and Mark Burgess’ Threadneedle Global Equity.
IA Mixed Investment 0%-35% Shares
This is the smallest multi-asset sector – it has just 45 members with total assets of less than £5bn – and therefore has fewer highly rated funds than the other three.
Alastair Gunn and Rhys Petheram’s £552.2m Jupiter Distribution fund is the only member of the sector to appear on the Select 100. This five FE Crown-rated fund aims to provide a monthly income with some capital growth and essentially a mixture of Petheram’s fixed income ideas with Gunn’s equity picks.
The FE Research team said: “Investors should profit from this situation as the two co-managers are young and talented individuals in their respective areas.”
The fund has been more volatile than its average peer over the past five years owing to its willingness to hold more equities, but this has also made it the sector’s second best performer over three and five-year periods.
Performance of fund vs sector over 3yrs
Source: FE Analytics
Aside from the above, two funds in the peer group are headed by FE Alpha Managers. Chris Evans runs the FP Matterley Regular High Income fund while Jupiter Merlin Conservative Portfolio is headed by Chatfeild-Roberts and Smith-Maxwell.
Meanwhile, 7IM Moderately Cautious, Architas MA Active Moderate Income and L&G Multi-Index 3 are ‘Recommended’ by Square Mile but no funds have won a higher rating from the consultancy.
IA Mixed Investment 20%-60% Shares
The IA Mixed Investment 20%-60% Shares sector, which is home to £41.8bn in assets spread across 142 funds, is a much better hunting ground for highly rated funds.
Again, one of Chatfeild-Roberts and Smith-Maxwell’s funds comes out on top as the Jupiter Merlin Income Portfolio is headed by two FE Alpha Managers, appears in the Select 100 and holds Square Mile’s ‘AAA’ rating. Most investors will be familiar with the £4.4bn fund.
Two funds are on the Select 100 and have an ‘AA’ rating from Square Mile: Henderson Cautious Managed and Schroder MM Diversity.
Chris Burvill runs the equity portion of Henderson Cautious Managed while the FE Alpha Manager duo of John Pattullo and Jenna Barnard look after its bonds. Square Mile said: “Mr Burvill is focused on the fund's 'cautious' investor base and he believes in investing in the asset classes that he knows best.”
“This results in a plain vanilla fund that focuses on UK equities, UK fixed income and cash. The fund's investment approach is straightforward. Mr Burvill manages the equity portion with a contrarian and valuebiased approach, focusing on situations and companies that the market has overlooked and mispriced.”
Schroder MM Diversity is managed by Marcus Brookes and Robin McDonald. Although the £1.4bn fund is underperforming its average peer over one, three and five years because of its managers’ very cautious stance, it remains very well regarded.
Square Mile said: “Mr Brookes and Mr McDonald have worked together for a number of years and have considerable experience in managing multi-asset fund of funds strategies. Over the years they have developed a sensible and considered approach and are aware of the more conservative nature of this fund's investor base.”
Another fund looking good from analyst ratings is Audrey Ryan and Iain Buckle’s Kames Ethical Cautious Managed. This was recently added to the Select 100 and has a Square Mile ‘A’ rating, while Buckle is an FE Alpha Manager.
The FE Research team said: “Much of the good relative performance of this fund has been down to the restrictions placed on it by the ethical mandate. Investors should be aware that this could turn against the fund in different market conditions.”
Another notable mention is Paul Causer, Paul Read and Ciaran Mallon’s Invesco Perpetual Distribution fund, which persistently popular with advisers and private investors. The fund is a Select 100 member and Square Mile rates it at ‘AA’.
IA Mixed Investment 40%-85% Shares
The IA Mixed Investment 40%-85% Shares sector is the largest of the four when it comes to assets, with its 138 funds running a collective £52.7bn.
Only two funds appear on the Select 100 and have a Square Mile rating: Jupiter Merlin Balanced Portfolio and Schroder MM Diversity Balanced, both of which are led by management teams mentioned elsewhere in this article.
Three others stand out – Stewart Cowley’s Old Mutual Managed, Mike Fox’s CIS Sustainable World and Robin Hepworth’s Ecclesiastical Higher Income – are all Select 100 members that are headed by FE Alpha Managers.
As the below graph shows, all three have outperformed their average peer over the past three years, but through very different approaches.
Performance of fund vs sector over 3yrs
Source: FE Analytics
CIS Sustainable World, the best performer of the three, is currently the highest returning fund in the whole IA Mixed Investment 40%-85% Shares sector over one, three and five years. Fox seeks companies making products that will benefit society overall and whose capital market value is underappreciated, complementing these equity holdings with bonds for protection.
Cowley has run the Old Mutual Managed fund since September 2011, over which time it has produced the sector’s ninth highest returns with a 62.29 per cent gain. The fund is cautiously positioned, with an underweight to equities and Cowley’s Old Mutual Global Strategic Bond fund being its largest holding.
Hepworth has managed the Ecclesiastical Higher Income fund since November 2011, returning 510.57 per cent and making the sector’s highest return over this time frame. The fund is cautiously positioned and takes a long-term approach, which means tactical opportunities can be missed but it tends to be rewarded over the long run.
Over the coming weeks, FE Trustnet will be running a series of studies to look deeper into multi-asset funds and what they are offering investors.
