Old Mutual Managed, Invesco Perpetual Managed Growth and Invesco Perpetual Managed Income are amongst the best fettered funds of funds, according to research by FE Trustnet.
A fettered fund of funds is a portfolio where the manager only invests in funds that are also managed within the same investment house as its own.
Funds of funds in general can be useful for those investors looking for a ‘one stop shop’ portfolio with a broader spread of asset classes than a single-strategy fund. However, unfettered multi-manager funds are often seen as having a clear advantage over those that are fettered as they are able to select funds from any investment house.
Although fettered funds can negotiate cheaper deals with their colleagues, thus allowing for lower charges which can only be a boon to outperformance, it hard to escape the reality of potentially having to make do with a sub-par strategy and/or manager to fill a portfolio.
With the imminent departure of FE Alpha Manager Stewart Cowley– who will leave the highly rated £200m Old Mutual Managed fettered fund of funds in June – several readers have asked us to take a look under the bonnet of other consistently top performing fettered funds of funds.
According to FE Analytics, the fund has been a top decile performer over three and five years but performance has waned in the past year and it has fallen to third quartile. Since Cowley took over in 2011 it has returned 60.99 per cent – the ninth best return of 112 funds – compared to an IA Mixed Investment 40%-85% Shares sector average of 45.84 but narrowly behind the FTSE All Share’s gain of 61.88 per cent.
Performance of fund and sector since September 2011
Source: FE Analytics
While Old Mutual Managed’s new managers Anthony Gillham and Lee Freeman-Shor both have experience at Old Mutual, their lack of a track record on the fund may prove off-putting for those who have backed Cowley for several years so we now take a look at how other fettered funds of funds have fared over the past few years.
Looking at metrics including risk-adjusted returns, consistent outperformance of the broader equity market and their IA sectors, and volatility, two Invesco Perpetual funds are ahead of their peers in most respects.
There are only two funds apart from Old Mutual Managed to have beaten the FTSE All Share in terms of higher returns as well as doing so with lower volatility over one, two and three-year measures: the £456m Invesco Perpetual Managed Growth and the £309m Invesco Perpetual Managed Income funds.
Invesco Perpetual chief investment officer Nick Mustoe has managed both funds since June 2013, which is a relatively short period over which to judge performance. However, over this period the funds have returned more than the FTSE All Share as well as with significantly less volatility.
No other fettered funds of funds did the same with the likes of Baillie Gifford Managed, F&C Managed Growth, M&G Managed Growth and Schroder Managed Balanced all beating the FTSE All Share and FTSE World indices in terms of volatility but returning less over one, two and three years.
In the case of M&G Managed Growth, returns and volatility are worse than the IA Flexible sector average as well over the three time periods.
The Invesco Perpetual funds are also the only two in the group to beat their respective sector averages in 2014 and 2013 as well over the year so far.
They are both very concentrated, with the majority of assets covered by the portfolios’ top-10s.
Invesco Perpetual Managed Growth is up 20.88 per cent since Mustoe took over, meaning it is significantly ahead of the average fund in the IA Flexible Investment sector and just behind the MSCI World.
Performance of fund and sector since June 2013
Source: FE Analytics
However, as the global index has been fallen – hurting the fund’s return – it has lost less meaning the gap has closed.
Invesco Perpetual Managed Income has also beaten its sector – IA Mixed Investment 40%-85% Shares – over Mustoe’s tenure but is a touch behind the FTSE World index.
Performance of fund and sector since June 2013
Source: FE Analytics
Invesco Perpetual Managed Growth returned more than Invesco Perpetual Managed Income by just over two percentage points although the former had lower volatility compared to UK and global equities.
Both are top decile for total returns in their respective sectors over one year and in the second decile since Mustoe took over.
As the names suggest, Invesco Perpetual Managed Growth has more of an emphasis on the group’s growth funds, while Invesco Perpetual Managed Income targets a competitive yield as well as growth. Its yield is currently 2.73 per cent.
The growth fund almost entirely holds equity funds and sits in the IA Flexible Investment sector, with its largest bet on Europe through the Invesco Perpetual European Equity fund, followed by the US and Asia.
The income fund can invest a maximum of 85 per cent in equities, which currently means it has just under 14 per cent in bonds via the £5.6bn Invesco Perpetual Corporate Bond fund. Its largest position, however, is in Mark Barnett’s £1bn Invesco Perpetual UK Strategic Income.
Invesco Perpetual Income – also managed by Barnett – and Invesco Perpetual US Equity have just over a combined 30 per cent weighting in each fund.
Invesco Perpetual Managed Income and Invesco Perpetual Managed Growth have ongoing charges figures of 1.08 per cent.
The fettered structure appears to indeed be helping cut down costs, with both charging below most fund of funds as well as less than all other fettered peers – except Schroder Managed Balanced which charges just 0.6 per cent.
