It is an understatement to say that much has happened in markets over the past decade, with the great financial crisis, a mass ‘taper tantrum’, the European debt crisis and the boom and bust of commodity prices all rocking markets over this frame.
In the face of adversity, however, there are a number of funds that have still managed to achieve their aims and provide stellar returns for investors while markets are buckling around them.
In a new series, FE Trustnet asks our Adviser Fund Index (AFI) panellists which funds in their model portfolios have pleasantly surprised them over the past 10 years.
For those who are unfamiliar with our AFI indices, they consist of funds chosen by a panel of 15 carefully selected wealth managers and discretionary fund managers. The three indices – AFI Cautious, AFI Balanced and AFI Aggressive – are made up of model risk-adjusted portfolios compiled by each panellist.
Gordon Smith, analyst at Killik, shares his three fund picks with Trustnet in the below article:
Cautious: Troy Trojan 
First up, Smith has chosen FE Alpha Manager Sebastian Lyon’s £3.6bn Troy Trojan fund, which resides in the IA Flexible Investment sector and is benchmarked against the FTSE All Share index.
The fund aims to provide investors with both growth and income through a cautiously-positioned portfolio spanning across asset classes. The fund is also renowned for holding high levels of cash and physical gold, which currently account for a respective 31 and 9 per cent of the portfolio.
“Under the stewardship of Sebastian Lyon (pictured) this fund has delivered on its objective of preserving capital whilst looking to grow in real terms over the longer term,” Smith said.
The fund has returned 85.76 per cent over the past decade, outperforming its benchmark by 14.6 percentage points. It has done so with approximately half of the annualised volatility and downside risk (which predicts susceptibility to fall during bear markets) than the FTSE All Share. It also boasts a maximum drawdown (which measures the most money lost if bought and sold at the worst times) that is less than a quarter of its benchmark’s over the same time frame.
Performance of fund vs benchmark over 10yrs
Source: FE Analytics
“The strategy has delivered an annualised return of over 6.2 per cent over the last 10 years. Importantly these returns have continued to be achieved with low levels of volatility, close to that of the UK Gilt market,” Smith explained.
“We continue to like the portfolio diversification, focus on valuation and importance placed on capital preservation.”
“In an environment where so many investments have moved higher in tandem the case for allocating to a less correlated set of assets is strengthened and crucially the strategy has shown little signs of increased correlations to broader equity and bond markets, therefore the diversification benefits of allocating to the fund have been maintained.”
Troy Trojan has a clean ongoing charges figure (OCF) of 1.05 per cent and yields 0.41 per cent.
Balanced: Chelverton UK Equity Income
This £431m fund has been co-managed by David Horner and David Taylor since its inception in 2006, and aims to provide a growing stream of income as well as capital growth through a portfolio of UK equities outside of the FTSE 100.
For instance, it currently has 23 stocks with a market cap above £1bn, 15 stocks above £500m in size, 21 above £250m and 19 above £100m. It also holds 10 stocks which with a market cap of less than £100m.
As such, its performance differs widely from the large-cap skewed FTSE All Share index, which it has outperformed by more than 20 percentage points over the last decade.
That said, its index-agnostic approach means it is benchmarked against the IA UK Equity Income sector average, which it has outperformed by 27.68 percentage points over this time frame.
Performance of fund vs sector over 10yrs
Source: FE Analytics
Smith said: “This equity income fund from the UK smaller companies specialist, Chelverton Asset Management, has delivered consistently strong outperformance of the UK equity income sector since the financial crisis.”
“The fund offers an attractive yield which is well supported by underlying dividend cover. The managers’ policy of only buying new holdings above a 4 per cent yield and selling when this contracts below 2 per cent has acted as a useful safety net against overvaluation building up in the portfolio over the course of the fund’s life.”
Had an investor put £10,000 into the fund 10 years ago, they would have received £5,399.62 in income alone.
Chelverton UK Equity Income has a clean OCF of 0.92 per cent and yields 1.59 per cent.
Aggressive: Schroder ISF Asian Total Return
For the less risk-averse investor, Smith says Schroder ISF Asian Total Return has delivered the most pleasantly surprising performance over the last decade.
The fund – which will hit its 10-year anniversary later this year – aims to provide both growth and income through holding predominantly large-cap growth stocks, which are either headquartered in Asia Pacific countries or derive most of their revenue from the region.
Since its launch, the $2.4bn Sicav (which is domiciled in Luxembourg) has returned 269.23 per cent, more than tripling the performance of its MSCI AC Asia Pacific ex Japan benchmark.
Performance of fund vs benchmark since launch
Source: FE Analytics
In terms of its risk metrics, the four crown-rated fund has a slightly higher annualised volatility than its benchmark but has a 56.36 per cent maximum gain (which measures its longest running consecutive gain without making a loss) compared to its benchmark’s max gain of 33.87 per cent.
“Returns have been very impressive since launch, far exceeding that of the MSCI Asia Pacific ex Japan Index,” Smith said.
“Returns from the concentrated equity portfolio have been aided by the tactical use of the hedging overlay. This has led to impressive upside and downside capture ratios of over 80 per cent and under 50 per cent respectively.”
“The fund therefore continues to provide an excellent way of benefitting from growth opportunities in the region without being fully exposed to potential downside.”
Schroder ISF Asian Total Return – which is managed by King Fuei Lee and FE Alpha Manager Robin Parbrook – has a clean OCF of 1.33 per cent and yields 1.07 per cent.