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Flexible funds, Sebastian Lyon and a bond market collapse: Our best stories of this week

15 May 2015

The FE Trustnet team picks out their favourite stories of the week, including exclusive interviews, myth-busting research and expert opinions on where to invest your money.

Following Friday’s election result, headlines have been dominated by politics again this week as investors welcome a majority government while pondering the repercussions of a potential Brexit.

Elsewhere, equity markets are continuing to slump across the board - the FTSE 100, the S&P 500 and the Nikkei 225 indices have all dipped for varying reasons since the markets opened on Monday. 

However, it’s been an even sadder state of affairs for bond investors this week following a further sell-off on Tuesday, which could have been caused by a number of factors including economic growth and higher expectations of inflation.

In fact, according to data from Capital Economics, 10-year government bond yields in Germany, the UK and the US are all up by approximately 70 basis points since the start of the year. This, the new government and a number of exclusive interviews, has meant the FE Trustnet team have had plenty of news and research to sink their teeth into.

In light of this, here is a selection of our favourite stories from this week.

Have a great weekend!

 

Sebastian Lyon: Investors are in for a “particularly unpleasant” ride

First up is a bearish warning from star manager Sebastian Lyon which was given at Cantor Fitzgerald’s recent Opportunities in Multi-Asset Investing seminar, attended by senior reporter Alex Paget.

Speaking candidly at the event, Lyon predicted that a combination of very low returns and high volatility due to central bank intervention will hit the market.

“Since the crisis, we have lived in a rather bizarre and phoney world of zero interest rates and QE. Savers have effectively become handcuffed volunteers, moving into the bond market and also into equites in order to make a return,” he said.

The fund manager, who runs both the Troy Trojan fund and the Personal Assets Trust, has been famously bearish on financial markets for a number of years.

However, he believes that private investors are now at risk of setting themselves up for a fall more than ever.

“The threat is that you no longer have that protection of negative correlation between bonds and equities which you have had in the past. In fact, as we have seen in the past few days, when an asset class falls they all will,” Lyon added.

 

The strategic bond funds beating Richard Woolnough at his own game

News editor Gary Jackson scoured the IA Sterling Strategic Bond sector this week to find the funds that have beaten FE Alpha Manager and bond guru Richard Woolnough at his own game.

His £24.5bn M&G Optimal Income fund is the second-largest portfolio in the Investment Association universe and dominates the bond fund market.

However, through research using FE analytics, Jackson found that Aviva Investors Strategic Bond, Artemis Strategic Bond and Jupiter Strategic Bond have all outperformed the fund on a number of important metrics over three years.

Out of the three funds, Chris Higham’s five FE Crown-rated Aviva Investors Strategic Bond achieved the highest performance over three years, achieving a 26.87 per cent gain over the time period.


Performance of funds over 3yrs

Source: FE Analytics

Alex Ralph and James Foster’s Artemis Strategic Bond led on alpha generation with a score of 2.32 over three years, while FE Alpha Manager Ariel Bezalel’s Jupiter Strategic Bond fund is one of the best in its sector at steadily grinding out returns.

 Buxton: I’m worried about a bond market collapse

Next on the list is reporter Daniel Lanyon’s interview with the notoriously bullish Richard Buxton, who kicked off the week by visiting the FE Trustnet headquarters on Monday.

While still believing that the market is in a bull run, he doesn’t believe that we’ll be entering the UK market’s finest hour any time soon.

 “Ironically, in the last five years of the coalition government, bonds and equities were pretty strong and went up most years,” he told FE Trustnet.

“In the next five years equities will continue to make progress but it is going to be more volatile.”

“They [equities] will continue to make progress because the economy will be growing and other international economies will be growing and therefore profits will be growing. But there will be more volatility because we will have to negotiate the turn in the interest cycle and central banks slowly but ever so surely nudging interest rates and bond yields up and that is bound to cause more volatility.”

Buxton wasn’t the only star manager to visit our HQ this week, as Franklin Templeton’s Mark Mobius came in for a chat on Tuesday. Keep an eye out for his exclusive interview, which will be released this weekend.

 

Investors are ditching flexible funds – should you follow suit?

Using data from the Investment Association, Reporter Lauren Mason wrote how the IA Flexible Investment sector has seen constant outflows over the last 18 months.

 

Source: The Investment Association

In a bid to find out why, she spoke to a panel of five financial experts including Chase de Vere’s Patrick Connolly, Parmenion’s Meera Hearnden and senior analyst at Hargreaves Lansdown Laith Khalaf.

While a number of issues were raised about the sector, including the broad range of assets it covers and the lack of marketing support or promotion it receives, the general consensus was that mass outflows aren’t necessarily justifiable.

Hearnden said: “This flexibility should be welcomed.”

“Existing long-term investors should not be deterred by a month or two of outflows from the sector. Instead, the focus should be on whether their specific fund is delivering the right returns for their tolerance for risk.”

Connolly added that many investors who have pulled out of the sector to chase stronger performance elsewhere may regret their decision in the future. 


 Are funds of funds really the “biggest con in this industry”?

Last but not least, senior reporter Alex Paget challenged whether the hatred that many investors have for funds of funds is really justified.

Complaints about their hefty ongoing charges and their underperformance are commonplace, so in light of this, Paget used data from FE Analytics to put these theories to the test.

In surprising results, he found that a number of fund of funds have outperformed the FTSE All Share index over five years.

The stand-out UK fund of fund was undoubtedly the HL Multi Manager Income & Growth portfolio which is managed by Lee Gardhouse and Ellen Powley.

The £1bn fund holds a five FE Crown rating and has been a top-decile performer in its sector since its launch in October 2002, delivering returns of 255.2 per cent and beating the FTSE All Share by 60 percentage points.

Other honourable mentions were the five crown-rated Standard Life Investments Dynamic Distribution, the five crown-rated Premier Multi-Asset Monthly Income fund and the £1.1bn F&C MM Navigator Distribution fund. 

 

Funds that tick all the right boxes: Asia Pacific ex Japan

 On Trustnet Direct, Anthony Luzio looked at which funds in the Asia Pacific ex Japan sector have five FE Crowns, an FE Alpha Manager at the helm and made it on to the Trustnet Direct 100.

Only two funds made the grade: First State Asia Pacific Leaders and Schroder Asian Income.

First State Asia Pacific Leaders needs little introduction – it is £8.3bn in size and is headed up Angus Tulloch, who is one of only 30 people to have received the FE Alpha Manager award in every year since its inception seven years ago.

Schroder Asian Income is one of the highest-paying Asian funds and has managed to increase the amount it pays out to shareholders every year, even through the financial crisis.

 

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