At the time of writing, around lunchtime on Friday, markets were selling off amid continued fears that Greece will default on its debts after talks between it and the European community seemingly faltered.
The FTSE 100 was down 0.85 per cent by 13:15, while the Euro STOXX 50 had lost 1.62 per cent while European nations’ markets were showing losses. Yesterday, Standard & Poor’s cut Greece’s credit rating again and said it was at substantial risk of a default.
Today’s fall, however, comes after a generally strong start to the year. The Euro STOXX 50 has gained more than 10 per cent, the FTSE 100 is up 8.85 per cent and MSCI Emerging Markets has gained 15 per cent, while the Nikkei 225 has surged almost 20 per cent.
But today’s market falls isn’t the only thing that has been happening in the investment world this week. Here’s a round-up of our favourite stories of the week.
The funds to overhaul your “prehistoric” cautious portfolio
FE Trustnet has looked several times over recent months on the challenges of running a cautious portfolio at the moment, given the low yields on government bonds and expensive valuations in seemingly lower risk assets, such as defensive stocks and commercial property.
This week, Psigma Investment Management chief investment officer Tom Becket explained why he believes “it has never been more difficult to be a cautious investor” and called on those running such portfolios to overhaul their asset allocation.
Becket ran through the details of Psigma’s cautious portfolio, shown in the chart below, and explained how the group is taking exposure to bonds, why cautious investors should consider investing in emerging markets and why commercial property is not as low risk as many investors assume.
Source: FE Analytics
“The valuations of the vast majority of cautious assets are now prohibitively expensive,” the CIO said. “More importantly if you, like us, consider your key risks to be losing money and not keeping up with inflation then cautious investors might well be surprised by just how risky their portfolios are.”
The most consistent UK funds for risk-adjusted returns
Determining whether a fund manager’s performance is down to luck or skill is a persistent question in investing and a 100 per cent certain answer to the dilemma has not been found. However, advocates of the Sharpe ratio believe it offers a degree of insight as it shows the return a manager generates per unit of risk taken on.
FE Trustnet put the IA UK All Companies, IA UK Equity Income and IA UK Smaller Companies sectors under the spotlight using the Sharpe ratio, to see which funds have delivered the most consistent risk-adjusted returns over the past five years.
We found that CF Lindsell Train UK Equity, Neptune UK Mid Cap and Rathbone Income are among the UK funds that have outperformed their peers when it come to the ratio in 2010, 2011, 2012, 2013 and 2014. To find out which other funds are consistent outperformers, take another look at the article.
However, FE Research analyst Thomas McMahon said investors should not base all their investment decisions on the ratio: “Like any quantitative measure it is backward-looking, so investors shouldn’t assume that the same patterns will persist into the future and the managers will generate the same Sharpe.”
Tineke Frikkee: Why I'm backing FE Trustnet's Income Campaign
Last year, we launched a campaign to improve the income information available to investors, after pointing out that it is difficult to find out how much an income fund has paid out in a pounds and pence figure.
The campaign was met with a positive reaction by our readers and some parts of the fund management industry, with several groups deciding to include income earned on their factsheets as well as a portfolio’s yield.
Smith & Williamson’s Tineke Frikkee, who manages the £43m Smith & Williamson UK Equity Income fund, has long been a believer in dividend transparency, pointing out that have a high yield does necessarily make a fund attractive from an income point of view.
“People just look at headline yield because that has been disclosed and if next year it is higher the intuitive deduction is that income has grown, but it is probably just that the unit price has dropped. It is just a mathematical equation. It is important to include both,” Frikkee told us in a video interview.
Buxton: Why I’m not sold on the Shell/BG deal
Last week saw Royal Dutch Shell confirm a £47bn deal to buy oil and gas exploration firm BG Group, which led to a massive jump in BG’s share price.
However, Old Mutual Global Investors’ Richard Buxton says that he is not convinced that the acquisition will work out exactly how Shell hopes it will. Buxton has Shell as a top 10 holding in his Old Mutual UK Alpha fund.
While saying the deal is a good strategic fit for Shell, the manager pointed out that oil prices have to move higher in the next three years to make it worthwhile for the firm. However, he does not think this will happen any time soon, given the likelihood that the US is poised to start exporting shale gas en masse.
“In which case, if that happens over the next three to five years, then I don’t think that Shell will actually make the returns it wants,” he said.
“If I’m wrong on oil and gas prices and in three to five years’ time both of those have rallied nicely, then Shell would have swooped opportunistically at a brilliant moment and got a great deal.”
Aberdeen Asset Management: Its best funds under the spotlight
Trustnet Direct, meanwhile, took a closer look at some of Aberdeen’s top-rated funds. Although the asset manager is best known for its emerging markets portfolios, large inflows have caused it to soft-close most of these in the past couple of years to stop them from ballooning to unmanageable levels.
However, many of its other funds are still highly rated by the FE Research team – Aberdeen Asia Pacific Equity and Aberdeen Latin American Equity are both members of the Trustnet Direct 100 list of elite funds, while Aberdeen Emerging Markets Bond has the maximum FE Crown Rating of five.