Investors now face a very difficult task; in fact many experts have said it has never been harder to build a portfolio.
The main reason is the huge amounts of central bank intervention, such as ultra-low interest rates and quantitative easing programmes, that have pushed nearly all asset classes up thanks to all the extra money sloshing around financial markets.
It means that bond yields, although they have spiked recently, are still very low while equities have not seen a significant sell-off since the last financial crisis of 2008.
All told, experts tend to agree it seems incredibly likely that there will be a point over the coming five or so years when markets will properly fall out of bed. Unfortunately, given the unprecedented nature of central bank policies over recent years, no-one has a clear idea of how events will pan out.
The only piece of advice which has been given is that investors need to make sure their portfolios are fully-diversified. With that in mind, we highlight three more esoteric funds which have recently been added to Square Mile’s Academy of Funds list for investors to consider.
Polar Capital Global Insurance
First on the list is five crown-rated Polar Capital Global Insurance fund, which is headed up by Alec Foster and Nick Martin and primarily invests in companies that operate in the international insurance sector.
Square Mile has awarded the fund with an AA rating.
“We have a high regard for the managers and their proven investment approach which has been in place since inception,” Square Mile’s senior investment research analyst Amaya Assan said.
“We believe this fund, which invests in non-life insurers operating in property and casualty businesses around the world, might appeal to investors who are seeking an attractive risk reward opportunity through exposure to this part of the equity market.”
According to FE Analytics, the £354m fund has comfortably outperformed over the longer term.
Our data shows Polar Capital Global Insurance has gained 287.04 per cent since its launch in December 1998, beating its benchmark – the MSCI AC World Insurance Index – by 225 percentage points in the process.
Performance of fund versus index since Dec 1998
Source: FE Analytics
The fund has beaten its benchmark in six out of the last 10 calendar years, meaning it is also outperforming over five and 10-year periods.
Polar Capital Global Insurance is a highly concentrated portfolio of just 34 holdings and counts the likes of Arch Capital Group, Markel Corp and Berkshire Hathaway as top 10 positions.
Its ongoing charges figure (OCF) is 0.94 per cent.
Matthews Asia Asia Small Companies
Asia is one area of the equity market which experts believe is well-positioned given the central bank intervention in China, business-friendly reforms in India and low valuations on offer relative to developed markets.
As a result, investors may wish to consider Matthews Asia Asia Small Companies which Square Mile has given an A rating.
“We have a high regard for the group as well as the portfolio manager and the Matthews Asia team overall,” Assan said.
“These markets can be quite volatile and vulnerable to changes in sentiment, but we consider fund manager Lydia So a safe pair of hands who has managed the strategy in a consistent manner, seeking sound longer-term investments.”
She added: “We believe this fund could be used by investors who require exposure to the more domestic Asian economy and who have a higher tolerance for risk and a long-term investment horizon.”
According to FE Analytics, the nimble £12m fund has returned 16.95 per cent since its launch in the Investment Association universe in April 2013, beating both its IA Asia Pacific ex Japan sector and its MSCI AC Asia ex Japan Small Cap benchmark.
Performance of fund versus sector and index since April 2013
Source: FE Analytics
However, as can be expected from a small-cap portfolio, it has fallen further than its peers in the recent sell-off as the graph above shows.
The fund is underweight China/Hong Kong, Taiwan and South Korea but is overweight India, Singapore, Malaysia, Indonesia and the Philippines.
Matthews Asia Asia Small Companies has a 1.75 per cent OCF.
AXA Sterling Credit Short Duration
The final fund on the list is Nicolas Trindade’s £225m AXA Sterling Credit Short Duration fund, which Square Mile has awarded with an A rating. The group believes that it is a good choice for those who need fixed income-like exposure, but are concerned about the outlook for bonds due to the prospect of rising yields.
“This is a relatively simple corporate bond fund investing in short-dated bonds which produce an income, but with less volatility than the market,” Victoria Hasler, head of research at Square Mile, said.
“About 20 per cent of the portfolio matures each year, which gives some protection against any future rises in interest rates, as the manager should be able to re-invest maturing bonds at higher yields.”
“The biggest drawdowns in the life of the fund occurred in 2011 and 2013, both difficult periods for credit markets, and were limited in size at just 1.7 per cent and 1.2 per cent respectively. Both of these were subsequently recovered.”
“We believe the fund may be attractive to investors who are sensitive to the capital volatility of their investments and wish to preserve capital over the longer term, but who still require some level of income.”
Since launch in November 2010, AXA Sterling Credit Short Duration has returned 11.2 per cent meaning it has underperformed against its IA Sterling Corporate Bond sector which isn’t surprising as longer duration credit has led the rally over recent years.
Performance of fund versus sector since Nov 2010
Source: FE Analytics
However its maximum drawdown – which measures the most an investor would have lost if they had bought and sold at the worst possible times – has been just 1.67 per cent over that time, which is more than three times less than that of the sector average.
It has also performed well during recent bond market sell-offs such as in May/June 2013 when the US Federal Reserve warned it would taper quantitative easing and over recent months when government bond yields have risen.
The fund has a yield of 1.7 per cent and an OCF of 0.43 per cent.
