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Five funds for a five-year horizon

27 February 2013

Two industry experts reveal the funds they would recommend to investors who want their money back in the next five years.

By Thomas McMahon,

Reporter, FE Trustnet

Investing for a relatively short time-frame such as five years can be a delicate balancing act.

There is enough time to take on some risk, but the drawdown date is near enough to make the prospect of capital loss very real.

FE Trustnet asked advisers to pick funds that offer a compromise between these two considerations, and found their answers were quite different.


Fidelity Strategic Bond


Chris Spear, managing director of Spear Financial Services, said: "I often see clients who have a limited timescale of investment, perhaps five years."

ALT_TAG "Many would say that they are prepared to take a reasonable level of risk, yet they also need to understand the effects of losing money, particularly at the time when they might need to draw upon it."

"The FSA calls this 'risk of loss' and it is quite apt in this scenario. Clearly some lower-risk investments are not presently very low risk, particularly gilts and the potential knock-on effects to corporate bonds."

"I rate Ian Spreadbury's Fidelity Strategic Bond fund. It will not be the best fund in rising markets, yet has an incredible track record when things go wrong, such as in the credit crunch.

Data from FE Analytics shows that the fund is one of the top performers in the IMA Sterling Strategic Bond sector over five years, having made 57.01 per cent while the average fund is up 36.91 per cent.

Performance of fund vs sector over 5yrs

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Source: FE Analytics

It scores highly on measures that gauge its ability to protect capital.

The annualised volatility of 5.74 per cent is among the lowest in the sector, while the maximum drawdown – the most investors could have lost if they bought and sold at the worst possible moments – is just 6.66 per cent, compared with a sector average of 17.56 per cent.

The fund requires a minimum initial investment of £1,000 and has a total expense ratio (TER) of 1.21 per cent.


Fidelity Multi Asset Income

"I might also look at another Fidelity fund, the Multi Asset Income fund, which has a number of ideal qualities," Spear added.

"It has an income yield of about 4 per cent as an ISA, is lower risk, as shown in the FE Risk Score of 25, uses a spread of asset types and is not expensive."

Richard Skelt’s £32m Fidelity Multi Asset Income fund has five FE Crowns and is currently yielding 2.04 per cent.


It is a fund of funds, with a number of Fidelity bond portfolios among its largest overweights: overall it has 68 per cent in fixed income and 28 per cent in UK equities.

The fund has committed to keeping at least 60 per cent in bonds at all times, including 45 per cent in investment grade.

The fund was launched just prior to the financial crisis and fell lower than the average fund in the IMA Mixed Investment 0-35% Shares sector.

However, since then it has powered ahead, making 34.94 per cent against the 21.7 per cent returned by the sector over five years.

Performance of fund vs sector over 5yrs

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Source: FE Analytics

The fund is available with a minimum initial investment of £1,000 and has a TER of 1.77 per cent.


Cazenove Multi Manager Diversity

"I have used this for its capital preservation qualities," Spear continued.

"Remember, we are considering a five-year timescale, so I would rather aim for moderate returns with lower risk than aim for better returns but where the client could suffer from market-timing risk."

Marcus Brookes and Robin McDonald’s £1bn Cazenove Multi Manager Diversity fund has beaten the IMA Mixed Investment 20%-60% Shares sector over one, three and five years.

The managers have 28 per cent of the fund in alternatives such as absolute return funds and also have a high weighting to income-paying portfolios. They have not been able to beat their benchmark, however.

The managers aim to produce returns at least 4 per cent higher than the consumer prices index inflation measure, but have fallen short over the past five years.

Performance of fund vs sector and benchmark over 5yrs

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Source: FE Analytics

The fund is available with a minimum initial investment of £5,000 and has a TER of 1.74 per cent.



M&G Global Dividend

Chris Mayo, investment director at Wells Capital Solutions, thinks that equity income rather than multi-asset funds offer the best prospects over five years.

"I would pick a global equity income fund. I want to get quality companies, good cash-generating companies, and with time the compounding effect of dividends, so I would go for M&G Global Dividend," he said.

"It has been around for a while and has done very well, with good solid returns behind it."

Data from FE Analytics shows that FE Alpha Manager Stuart Rhodes’ £4.4bn fund is a top-decile performer since it was launched in July 2008.

Performance of fund since launch vs sector and benchmark

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Source: FE Analytics

The fund has made 78.9 per cent while its benchmark index has risen by just 48.45 per cent, according to FE Analytics.

Although it is global in nature, it invests almost entirely in developed markets, with the US, UK, Switzerland and Canada its biggest weightings.

The fund is currently yielding 3.08 per cent, requires a minimum initial investment of £500 and has a TER of 1.66 per cent.


Rathbone Income

Mayo also likes this £506m fund, managed by Carl Stick, which FE Analytics data shows is yielding 3.89 per cent.

Over five years it has returned close to its sector average, although over three it has pulled away, with returns of 45.13 per cent putting it in the top quartile.

"Carl has a value bias, the whole Warren Buffett style of investment, so we invest in his fund and it has had good results," Mayo added.

Mayo points out that it has a multi-cap approach, meaning that it is more diversified than many of the biggest funds in the sector.

The fund has 43 per cent in the FTSE 100, 26 per cent in the FTSE 250 and around 11 per cent in both the FTSE Small Cap and AIM indices.

The minimum initial investment is £1,000 and it has a TER of 1.56 per cent.

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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.