With many people nervous about extreme valuations across all major asset classes, having a manager that can navigate the environment appropriately for your level of risk is becoming more important for investors.
Over the last decade bonds and equities have rallied as low inflation and ultra-loose monetary policies from central banks around the world have offered a tailwind for many of the major asset classes.
However, with interest rates rising in recent years and concerns over valuations in both the equity and bond markets, many investors have started to look at other asset classes to navigate the tricky period.
While some attempt to do this themselves, many prefer to use multi-asset strategies that take into account their risk appetite.
However, taking more or less risk should not compromise returns. Indeed, over the last five years, for example, a cautious investor could have missed out on some strong returns had their fund managers moved to a risk-off position.
As shown in a previous study, higher volatility has not always guaranteed greater returns, and aggressive fund managers that were selective about the risk they took would have avoided some of the disappointing, more volatile areas.
With bonds and equities rallying over the last decade finding diversification and a spread of risk assets that fit an investors profile is becoming more difficult.
Below FE Trustnet looks at the six new multi-asset funds in the Investment Association universe of the 174 funds that launched in 2012 that sit in the top quartile of their respective sectors during their first five years.
Previously we have looked at the young equity funds shooting the lights out over five years as well as those in the bond space.
IA Mixed Investment 40-85% Shares sector
In the highest risk equity ranged sector, MI Hawksmoor Distribution is the only fund to make top quartile returns during its first five years.
Since its inception in April 2012 to April 2017, the fund has produced a total return of 71.32 per cent, above the sector average and FTSE UK Private Investor Income benchmark of 51.29 and 50.01 per cent respectively.
Performance of fund vs sector over 5yrs since launch
Source: FE Analytics
Run by Daniel Lockyer, FE Alpha Manager Richard Scott and Ben Conway, the fund invests in a diversified range of open and closed-ended funds as well as individual fixed interest securities.
The managers’ primary focus is on income, with an aim to ensure the £99.3m fund's yield will always be at a premium to a composite index of financial asset classes.
In terms of asset classes, the fund has a 37.2 per cent exposure to conventional equities, 29.7 per cent is invested in bonds, 22 per cent in property, 4.7 per cent in private equity, 4.6 per cent in cash and 1.8 per cent in resources.
The fund is also diversified across regions with 45.4 per cent of its portfolio exposure held in UK assets, 21.5 per cent in Europe, 12.6 per cent in the US and 6.1 per cent in the emerging markets.
MI Hawksmoor Distribution has a yield of 3.38 per cent and a clean ongoing charges figure (OCF) of 1.72 per cent.
IA Mixed Investment 20-60% Shares sector
Moving down the risk spectrum, the five FE Crown-rated Artemis Monthly Distribution fund run by Jacob de Tusch-Lec and James Foster has also made a strong start to life.
The £635m fund has returned 91.51 per cent to investors in its first five years since inception, beating the IA Mixed Investment 20-60% Shares sector by 49.15 percentage points.
Performance of fund vs sector over 5yrs since launch
Source: FE Analytics
The fund is heavily weighted to financials – the only individual sector with a double-digit weighting at 39.4 per cent – although the team remain wary of insurers.
In its latest factsheet, the managers said insurance companies could potentially face large losses due to several severe hurricanes this year.
They noted: “Insurers' equities may come under some pressure if they need to reduce their dividends.
“Our biggest exposure to the insurance industry, however, comes on the bond side. These are unlikely to be affected – assuming we don't have too many more storms, that is.
“Previous experience suggests that insurers will raise premiums sharply in the wake of these losses such that their profits will be enhanced in the longer term.”
The fund, which has a yield of 4.18 per cent and an OCF of 0.89 per cent, is 45.4 per cent weighted to equities with 54.6 per cent held in bonds.
The other fund in the sector is the £10m fund-of-funds product EF Brompton Global Income run by Gill Lakin.
Since its launch in July 2012 the fund has returned 51.17 per cent, beating the sector average by 11.21 percentage points.
The fund is 36.21 per cent weighted to fixed income and 58.3 per cent in equities with no exposure to property or commodities.
The fund has a yield of 1.93 per cent and an OCF of 1.68 per cent.
IA Mixed Investment 0-35% Shares sector
There are two funds in the risk-averse IA Mixed Investment 0-35% Shares sector that have made strong starts to life; up first is the five crown-rated OM Cirilium Conservative Portfolio run by FE Alpha Manager Paul Craig.
The fund-of-funds offering was launched in March 2012 and during its first five years returned 36.15 per cent, 9.90 percentage points ahead of the sector, as the below chart shows.
Performance of fund vs sector over 5yrs since launch
Source: FE Analytics
The fund currently holds 73.64 per cent in cash and fixed income (21.49 per cent cash), 9.84 per cent in alternatives – including hedge strategies and property funds – and 16.44 per cent in equities.
Importantly for investors looking to protect on the downside, the fund’s performance was achieved while experiencing the second-lowest volatility (3.92 per cent) in the sector; its Sharpe ratio – which measures risk-adjusted returns – is also among the highest in the sector.
The £353m fund has a yield of 1.57 per cent and an OCF of 1.09 per cent.
The other fund in the sector to get out to a strong start is the five crown-rated BlackRock NURS II Consensus 35 fund run by Stephen Walker.
In its first five years since its launch in July 2012, the £115m fund has returned 36.61 per cent against the sector average’s 26.06 per cent, though it has been among the most volatile in the sector.
The fund-of-funds uses a passive approach, meaning the risk and return profile is skewed to asset allocation and top-down decision making rather than bottom-up stockpicking.
The lower fees of the underlying passive holdings means the fund has an OCF of 0.23 per cent. It has a yield of 1.62 per cent.
IA Flexible Investment
The only fund in the IA Flexible Investment universe to make a top quartile start to life is the £52.3m Sarasin Fund of Funds - Global Equity fund run by Lucy Walker and deputy Jamie Fletcher.
The fund has returned 84.6 per cent over the first five years since its inception in June 2012, beating the average peer’s return of 61.86 per cent.
Performance of fund vs sector over 5yrs since launch
Source: FE Analytics
The fund, which aims to achieve long-term growth through investments in global equities across several management groups, currently has a 53.9 per cent weighting to North America, 15.3 per cent in Europe ex UK stocks and 12.9 per cent held in emerging markets.
It has a yield of 1.7 per cent and an OCF of 1.61 per cent.