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The cautious funds that have offered the best protection this year

15 September 2015

FE Trustnet takes a look at the funds that have shielded investors from as much volatility as possible in 2015, following a period of turbulence in the markets.

By Lauren Mason,

Reporter, FE Trustnet

2015 has certainly kept investors on the edge of their seats so far. Tensions ran high in markets at the start of the year following an impending UK election, the ongoing Greek debt crisis, the plummeting oil price and the recession in Russia.

Meanwhile, the Chinese market continued to soar until it eventually sold off in June, causing panic across the globe and initiating the so-called ‘Black Monday’ in August.

Not only this, but the impending rate rise has hung over investors’ heads this year as speculation continues as to when the Federal Reserve and the Bank of England will hike rates.

Performance of indices in 2015

 

Source: FE Analytics

Because of the sheer number of conflicting headwinds and tailwinds in different areas of the market, investors would be forgiven for repositioning their portfolios and increasing their exposure to cautious investment vehicles.

According to data from FE Analytics, only 20 funds within the Investment Association universe with a cautious investment style have provided a return in excess of 1 per cent in 2015, while only 53 out of the 150 funds have avoided losses this year.

The five FE Crown-rated Kames Ethical Cautious Managed fund, which is managed by Audrey Ryan and FE Alpha Manager Iain Buckle, has delivered the strongest performance this year, providing a return of 4.38 per cent year-to-date and outperforming its sector average by 4.77 percentage points.

Performance of fund vs sector in 2015

 

Source: FE Analytics

The fund has an FE Risk Score of 46, which suggests that the fund has historically shown 46 per cent of the volatility of the FTSE 100 index.

It has experienced some of the highest annualised volatility this year out of the cautious open-ended funds, but is in third place for its Sharpe ratio, which measures risk-adjusted returns.

Kames Ethical Cautious Managed is a UK equity and bond fund that can hold up to 60 per cent in stocks and can hold a cash weighting of up to 20 per cent. Its ethical screening process involves excluding businesses involved in tobacco, alcohol, military equipment and gambling, among other themes.

It has a clean ongoing charges figure (OCF) of 0.8 per cent and yields 2.07 per cent.  


 In second place for its return of 3.61 per cent this year is the SF Cautious fund, which also has five FE Crowns and is managed by Andy Parsons and Sheridan Admans.

Despite providing a lower return, the £15.3m fund shares the top spot with JPM Cautious Managed for its Sharpe ratio and is 14th on the list of 150 funds for its annualised volatility this year.

It also has an FE Risk Score of 39 and aims to achieve income distributions of around 4 per cent per year through a fund of funds portfolio.

However, SF Cautious, which has a clean ongoing charges figure (OCF) of 1.17 per cent and yields 2.17 per cent, is small in size and is unavailable on most platforms.

The third top-performing cautious fund is JPM Cautious Managed, which is more of a household name and has returned 3.08 per cent this year, outperforming its IA Mixed Investment 0%-35% Shares sector by 3.44 percentage points.

Performance of fund vs sector and benchmark in 2015

Source: FE Analytics

The £174m global multi-asset fund currently has a 48.8 per cent weighting in global fixed interest, a 16 per cent weighting in North American equities, 9.1 per cent in UK fixed interest and 8 per cent in Japanese equities.

Managed by Talib SheikhGareth Witcomb and James Elliot, the fund has a clean OCF of 1.43 per cent.

Next up for its performance is Barmac The Castleton Growth fund, which has been managed by Andrew McCarthy since 2006 and has returned 2.97 per cent since the start of the year.

The five FE Crown-rated fund has £5m under management, having halved in size over three years and is in 50th place for its annualised volatility.


Hot on its tail though is Jupiter Distribution, which returned just 20 basis points less this year but is £584m in size. It has been managed by Rhys Petheram and FE Alpha Manager Alastair Gunn for the last five years and has been awarded four FE crowns.

Performance of fund vs sector and benchmark in 2015

Source: FE Analytics

Out of all the funds mentioned previously, it has the lowest FE Risk Score of just 27 and sits in the IA Mixed Investments 0%-35% Shares sector, although its annualised volatility is in the third quartile compared to its peers in 2015.

The global fund has a clean OCF of 0.64 per cent and yields 3.1 per cent.

For those investors who are less worried about total returns and more concerned with the risk profile of their investments, the two FE Crown-rated Sentinel Defensive Portfolio won the top spot for its annualised volatility this year and has a risk score of just 11.

Currently, the £76m fund’s largest weighting is in alternative investment strategies at 38.83 per cent. It also has a 5.1 per cent cash weighting and holds 4.7 per cent in equities in total.  

Since the start of the year it has returned just 1.16 per cent, although when looking at the number of cautious funds that have returned less than 1 per cent in 2015 or even made a loss, this is comparatively a solid return.  It is also in eighth place for its Sharpe ratio.

Sentinel Defensive Portfolio, which is managed by Paul Smith, has a clean OCF of 0.65 per cent.

Other cautious funds that have achieved particularly low levels of volatility this year, albeit with lower Sharpe ratios to boot, are Smith & Williamson MM Cautious Growth, Optimum Strategic Income, Architas MA Active Reserve, Architas MA Blended ReserveSmartfund Defensive and Thesis Optima Income.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.