Only one fund in FE’s risk-targeted multi-asset peer groups remains in positive territory over the time since the FTSE 100 tumbled from the record high set in April last year, the latest FE Trustnet research shows, although the majority of risk-targeted funds have held up better than the index.
The FTSE 100 posted a record closing high of 7,103.98 on 27 April (which also included a record intra-day high of 7,122.74) but has been on a steady downward trend since as plunging commodity prices, slowing economic growth in China and geo-political concerns have weighed on investor sentiment.
In total return terms, the blue-chip index is now down 15.82 per cent in total return terms from its peak while the FTSE All Share – which is a broader index but is still 80 per cent weighted towards FTSE 100 companies – had shed 14.33 per cent. Throughout the rest of the article, we’ll refer to the All Share as it covers more of the UK equity market.
Performance of indices since 27 Apr 2015
Source: FE Analytics
FE has five bespoke fund sectors designed to house risk-targeted funds that do not easily fit into Investment Association sectors and allow for comparisons between them. The sector range from Risk band 1, for those funds deemed to be the lowest risk, through to risk band 5, which is for those with the highest risk profiles.
Out of the 256 funds within these five sectors, only Marlborough Defensive – a member of the lowest risk peer group – is in positive territory over the months since 27 April. It must be kept in mind that this is a short period of time on which to judge performance.
Marlborough Defensive, managed Nicholas Cooling, Gurjit Soggi, Rajesh Manon and Sarah Sampson, has posted a 0.50 per cent return over the period in question. The fund was previously a member of risk band 2, but its risk profile means it now resides in the risk band 1 sector.
The fund of funds, which targets an absolute return on a rolling 12-month basis, has 25 per cent of assets in global equity funds, 22.5 per cent in property and 18.7 per cent in absolute return strategies, with 7.3 per cent in cash.
Despite its low weighting to cash, Marlborough Defensive has been the least volatile member of the risk-targeted universe over the sell-off with annualised volatility of just 1.92 per cent. Its maximum drawdown, or the amount an investor would have lost if they bought and sold at the worst possible time, was also the lowest at 1.35 per cent.
However, it is worth pointing out that Marlborough Defensive is one of its peer group’s lowest returners on three and five-year views and failed to make a positive return last year and in 2013.
Performance of funds vs index since 27 Apr 2015
Source: FE Analytics
Caspar Rock and Nathan Sweeney’s Architas MA Active Reserve, which is another fund of funds product and is also in the lowest risk sector, comes in second place after losing just 0.17 per cent. It is also in second for annualised volatility and maximum drawdown.
The fund has a good longer term track record, beating its average peer over three and five-years with respective gains of 13.17 per cent and 21.50 per cent. It has also made a positive return in each of the past seven full calendar years.
Square Mile Investment Consulting & Research, which gives the fund a ‘recommended’ rating, 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.”
Although only one fund has made positive returns since the FTSE’s peak, risk-targeted funds have on the whole managed to avoid the worst of the index’s falls, aided by their multi-asset approach and ability to invest around the globe.
The graph on the following page shows that the average fund in each of the four risk-targeted sectors has outperformed the FTSE All Share since 27 April, much in the manner that would be expected.
Risk band 5, the highest risk sector, has underperformed but this is home to just three funds.
Performance of sectors vs index since 27 Apr 2015
Source: FE Analytics
The best performer in the risk band 2 sector has been FP 8AM Multi-Strategy Portfolio II, which is down 0.89 per cent. It’s followed by Zurich Horizon Multi-Asset I and IFSL Sinfonia Income Portfolio.
When it comes to the best performing risk band 3 funds, Zurich Horizon Multi-Asset IV has lost 5.31 per cent while Architas MA Passive Progressive and FP 8AM Multi-Strategy Portfolio III are in second and third place.
M&G Episode Macro, which was recently awarded five FE Crowns, tops the risk band 4 sector with a 4.70 per cent gain. Zurich Horizon Multi-Asset V and Close Growth Portfolio follow.
All the three of the risk band 5 funds have made a double-digit loss since 27 April. Alliance Trust Sustainable Future Global Growth is in top spot with a fall of 10.79 per cent but FP Multi-Asset DRP VIII has made the worst return of the risk-targeted universe after losing 19.34 per cent.
Other funds that have lost more than the FTSE All Share include 7IM AAP Adventurous, Margetts Venture Strategy, FP Multi-Asset DRP VII, 7IM Adventurous and CF Canlife Portfolio VII. All of these reside in either risk band 4 or 5, though.
