Risk-targeted funds from the likes of Aviva Investors, Architas and Marlborough have navigated recent years with the lowest volatility of their peers, according to the latest FE Trustnet research.
As noted in a recent article, risk-targeted funds are becoming an increasingly popular option with advisers and their clients but comparisons between the differing products is difficult given they tend to reside in the Investment Association’s Unclassified, Specialist or various multi-asset sectors.
Last year, FE launched a universe for risk-targeted, multi-asset funds to make it easier to research these offerings. The universe has five sectors, with funds assigned to them on the basis of their FE Risk Score – which measures historic volatility against the FTSE 100.
We recently looked at the top-performing funds in each of these sectors and found that the MyFolio funds run by Standard Life Investments’ Bambos Hambi are topping the tables in most.
But in this article we will focus on the funds that have given the smoothest ride over the years, as indicated by their annualised volatility. While many of these may post lower total returns that some of their peers, they may be more appropriate to an investor who keeps a close eye on downside protection.
Given the short track record of many of these funds, we have only looked back to the start of 2011. While this is shorter than the 10 years we’d usually prefer, it does include the down market of 2011, the rising markets of 2012 and 2013, the flat 2014 and 2015’s turbulent conditions – meaning a range of conditions are covered.
UK RMA Risk-targeted Multi Asset Risk Band 1
Caspar Rock and Nathan Sweeney’s Architas MA Active Reserve has the lowest volatility in this sector; the peer group which is deemed to be the lowest risk as its members have FE Risk Scores of 30 or below. Since the start of 2011, the annualised volatility of the four FE Crown-rated fund has been just 2.38 per cent.
Performance of fund vs sector since 1 Jan 2011
Source: FE Analytics
The funds seeks to offer long-term growth from a combination of income and capital but with a very cautious approach, having an FE Risk Score of only 16. This is shown in its top holdings: the BlackRock Sterling Liquidity, BlackRock UK Gilts All Stocks Tracker and HSBC Global Sterling Liquidity funds.
Square Mile, which has the fund on its ‘recommended’ list, said: “Architas believes that the key to running successful multi-asset strategies is a deep and thorough understanding of the funds and managers which they invest in, particularly the potential range of risk and return traits of each.”
“They consider that this indepth knowledge of fund strategies and styles provides them with a valuable advantage over competitors.”
Standard Life Investments also has the next three funds with the lowest annualised volatility: the MyFolio Managed I, MyFolio Multi Manager I and MyFolio Market I, which are all managed by Hambi.
UK RMA Risk-targeted Multi Asset Risk Band 2
In this sector, which is home to funds with FE Risk Scores between 30 and 50, it is Marlborough Defensive that scores best for annualised volatility at 3.60 per cent. The fund is managed by Nicholas Cooling, Gurjit Soggi, Rajesh Manon and Sarah Sampson.
Performance of fund vs sector since 1 Jan 2011
Source: FE Analytics
The fund seeks to achieve capital growth with low to medium risk, but as the graph above shows this has weighed on returns over recent years. Since the start of 2011, it has made a total return of 7.93 per cent, ranking it 50th out of 53 funds in the sector.
When we look at maximum drawdown – which measures the most an investor would have lost if they had bought and sold at the worst possible times – then Hambi’s Standard Life Investments MyFolio Multi Manager II comes in top.
This is another fund favoured by Square Mile, which gives it a ‘recommended’ rating. The investment research house said: “The three main facets to the fund’s strategy – strategic asset allocation, tactical asset allocation and fund selection – are all well-resourced and contain suitably experienced individuals.”
“This includes the SLI multi-asset investment team, who are responsible for the very successful Global Absolute Return Strategy [GARS] product, providing the tactical overlay.”
Standard Life Investments MyFolio Multi Manager II has the sector’s third lowest volatility over the period in question. 7IM Personal Injury, Standard Life Investments MyFolio Market II and IFSL Brooks Macdonald Defensive Income are also topping the tables here.
UK RMA Risk-targeted Multi Asset Risk Band 3
Next up is this sector, which houses funds with 50 to 70 FE Risk Scores. The Close Conservative Portfolio, which is headed up by Riitta Hujanen, has annualised volatility of 5.93 per cent – which is more than a percentage point lower than the next fund on the list.
Performance of fund vs sector since 1 Jan 2011
Source: FE Analytics
Close Conservative Portfolio invests primarily in equities and bonds, with top holdings include Visa, ITV, Shire, Apple and KDDI Corporation. However, it does hold some funds and has recently been allocating to absolute return, property and infrastructure vehicles on the back of their attractive risk/reward profile.
Its most recent update also says that the manager has been putting more money in UK blue-chips such as Imperial Tobacco and British American Tobacco: “We have been now focusing on increasing holdings in companies with steady cash flows and shareholder returns, combined with reasonable valuation.”
The £544.27m fund also has the lowest maximum drawdown and maximum loss in the sector, while it is first-quartile when it comes to alpha generation, downside risk and risk-adjusted returns shown by the Sharpe, Sortino and Treynor ratios.
FE Analytics also shows that Standard Life Investments MyFolio Multi Manager IV, M&G Episode Allocation, 7IM Balanced and Premier Liberation V have witnessed some of the lowest annualised volatility in the peer group.
UK RMA Risk-targeted Multi Asset Risk Band 4
Nick Samouilhan and Peter Fitzgerald’s £199.2m Aviva Investors Multi Asset IV fund has gone through annualised volatility of 8.77 per cent over the period covered. It has outperformed its average peer as well, as can be seen below.
Performance of fund vs sector since 1 Jan 2011
Source: FE Analytics
Taking a fund of funds approach, the portfolio’s top holdings are trackers. BlackRock North American Equity Tracker has the largest allocation at 30.3 per cent, followed by BlackRock Continental European Equity Tracker and BlackRock Japan Equity Tracker.
It also tops the sector, which is for funds with FE Risk Scores of 70 to 85, when it comes to maximum loss and maximum drawdown, while sitting in the top quartile for Sharpe, Sortino and Treynor ratios as well as alpha.
M&G Episode Growth, M&G Episode Macro, Alliance Trust Sustainable Future Managed and Close Growth Portfolio are the next four funds in the space when it comes to annualised volatility.
UK RMA Risk-targeted Multi Asset Risk Band 5
There are only three funds in this sector with long enough track records - Aviva Investors Multi Asset V, Alliance Trust Sustainable Future Global Growth and Alliance Trust Sustainable Future Absolute Growth.
The Aviva offering has the lowest annualised volatility at 10.65 per cent, which is 1.45 percentage points lower than the next on the list.
It’s also run by Samouilhan and Fitzgerald, being a higher risk version of Aviva Investors Multi Asset IV. Many of its top holdings are in common with the other fund, although there is more exposure to equities and less in bonds.
