The Premier Multi-Asset Conservative Growth and Thesis Optima Income funds are among the best performing funds of funds over the past four months of falling markets, according to research by FE Trustnet, with many of the other portfolios run by the same teams also outperforming their peers.
In what some snappily dubbed the ‘Great Fall of China’, the country’s equity markets have suffered a huge nose dive in recent months and despite the authorities’ cut in interest rates yesterday, the market has kept on falling.
On this week’s ‘Black Monday’ the Shanghai Composite index fell more than 8 per cent, while yesterday it fell a further 8 per cent and closed today’s trading session with a 1.3 per cent loss.
This puts its total falls from its high in June at close to 50 per cent, while the FTSE 100 has also been caught up in the bearishness with it falling 15.7 per cent from the end of April until Monday, as most global equity indices sold off.
Performance of indices 27 April to 24 April 2015
Source: FE Analytics
While developed equity markets have bounced back from the worst of Monday’s panic selling the most, Wall Street’s VIX ‘fear gauge’ is at its highest since 2011. This suggests the crisis may have further to run and the spectre of major bear market is clearer than at any time since 2008, according to many fund managers FE Trustnet has spoken with this week.
Performance of index since 2011
Source: FE Analytics
Multi-asset funds are supposed to suit this sort of environment by providing much needed diversification across different asset classes and investment styles, as well as hunting for sources of uncorrelated returns.
The best performing fund of funds portfolio over this four-month period is the £15.6m SF Cautious fund run by Andy Parsons and Sheridan Admans, which lost just 0.51 per cent. Over the same time frame, the FTSE 100 lost 15.7 per cent as it went from its highest ever level of 7,104 points in April to Monday’s huge fall.
Parsons, who is head of research at The Share Centre, has more than two-thirds of his portfolio in UK equities with more than 10 per cent in the CF Woodford Equity Income fund. Fixed interest is just 15 per cent of the fund and is spilt between GAM Star Credit Opportunities, Jupiter Strategic Bond and Rathbone Ethical Bond.
Source: FE Analytics
Steven Richards at Thesis and the four co-managers heading up Premier’s range of multi-asset funds have some of the most consistent outperformance across their respective ranges during the 2015 period of weakness, beating the likes of the hugely popular Jupiter Merlin funds of funds which have all sat the third quartile over the crisis period.
Richards’ Thesis Optima Growth, Thesis Optima Balanced, Thesis Optima Multi-Asset Strategy and Thesis Optima Income funds are all in the top quartile of their sectors over this period for total return.
David Hambidge, Ian Rees, David Thornton and Simon Evan-Cook are all co-managers on the Premier multi-asset range, which includes the £110m Premier Multi-Asset Absolute Return, £680m Premier Multi-Asset Distribution, £56m Premier Multi-Asset Global Growth, £213m Premier Multi-Asset Growth & Income and £374m Premier Multi-Asset Monthly Income funds.
All of these funds are top quartile in their respective sectors, with the exception of Premier Multi-Asset Global Growth which is second quartile, and all are also in the top quartile of all the funds of funds in the Investment Association universe.
Source: FE Analytics
Rees recently told FE Trustnet that he was selecting funds where managers had the ability to go off benchmark – ie being unconstrained – particularly in the UK equity space.
“Looking now over the next five to 10 years, I think it could well be that we see indices like the FTSE offer quite volatile returns but stay relatively flat overall,” he told us back in April, a few weeks before markets sold off.
Among his favourite funds in the IA UK Equity Income sector are Franklin UK Equity Income, Evenlode Income and Schroder Income, which feature prominently across his portfolios.
Both Richards and the team at Premier eschew traditional fixed income exposure in favour of, in the case of Richards’ four funds, the likes of TwentyFour Monument Bond, TwentyFour Dynamic Bond and Royal London Corporate Bond, which tend to have flexible and more cautious approaches to the bond market.
The team at Premier also tends to favour the more alternative bond exposure such as the TwentyFour funds as well as the Kames Absolute Return Bond fund.
Alternatives are also made use of to a reasonably high degree in the Premier funds, with some more esoteric vehicles such as the Ferox Salar Convertible Absolute Return, GS 4YR Commodity Basket Call Certs and BNP Absolute Dispersion Collateralised funds being found in their portfolios.
Richards also has alternative exposure but he opts for the Standard Life Investments Global Absolute Returns Strategies fund which he holds across his four portfolios.
Both Richards and the Premier team also think investors are better off looking away from some of most popular funds in favour of emerging talents.
Richards says this is often because the most heavily funds can then go on to soft-close – a clear sell sign for the manager – and underperform as their assets have grown too large.
“Funds groups do of course soft close their funds and we sometimes take this as an early warning sign – it’s a self-admission of problems, although they will tell you it’s in investors future interests,” he told FE Trustnet.
“We’ve seen a number of funds soft close and then underperform for periods thereafter. Ironically, some of these have then reopened again as they’ve gone and lost investors through their periods of underperformance and capacity has opened up again. This only adds to my cynicism.”
