Brooks Macdonald offers a range of four funds of funds – Defensive Capital, Balanced, Cautious Growth and Defensive Income.
Mark Shields, investment management director on Brooks Macdonald’s funds of funds team, says he prefers steady, consistent portfolios that take a more defensive approach, due to the large number of potential headwinds on the horizon.
"We’re aiming more for consistency of returns. With the funds in our portfolio, we don’t want them to shoot the lights out one year and then have a very difficult year the next," he said.
FE Trustnet takes a look at some of the high-conviction funds the team is backing in the current market, as well as some of the mainstays of its portfolios.
Standard Life European Equity Income
Shields says that while Europe is still plagued with issues – as the crisis in Cyprus has highlighted – valuations in Europe are so low that the team has decided to increase its weighting to the region.
The team has chosen the five crown-rated Standard Life European Equity Income fund because it is capable of protecting capital if the situation on the continent worsens.
"We like it because it’s still a reasonably cautious portfolio with more exposure to Nordic countries and safer Europe," he said.
The £1.3bn portfolio, headed up by FE Alpha Manager Will James, has beaten both the IMA Europe ex UK sector and the FTSE World Europe ex UK index over one and three years.
Since launch in April 2009, it has made 71.65 per cent while the sector and index have gained 63.88 per cent and 61.84 per cent, respectively.
Performance of fund vs sector and index since launch
Source: FE Analytics
It has a yield of 3.75 per cent.
Among the fund’s top holdings are Anheuser-Busch Inbev, Roche and Sanofi.
The fund requires a minimum investment of £500 and carries an ongoing charges figure (OCF) of 1.61 per cent.
Fidelity Enhanced Income
A major theme in Brooks Macdonald’s Defensive Income portfolio is yield and Shields says one of the best income-paying funds available to retail investors is the five crown-rated Fidelity Enhanced Income portfolio.
Head of FE Research Rob Gleeson recently tipped the fund, citing both its income and growth properties.
Its yield of 6.93 per cent is the second-highest in the IMA UK Equity Income sector.
While the fund has not shot the lights out in terms of total return, it has performed in line with the FTSE All Share year-to-date, making 9.75 per cent, according to FE Analytics.
"It tends to sacrifice capital uplift for capital protection," Shields said. "You get a modest level of capital growth with a decent yield. We think a fund like that is pretty useful and we like it."
Shields adds that the fund is one of the least volatile in the sector over three years.
Managers Michael Clark and David Jehan use a derivatives overlay to boost the overall yield on the portfolio – a strategy FE Trustnet explained in depth in a previous article.
The fund requires a minimum investment of £1,000 and has an OCF of 1.74 per cent.
Royal London UK Equity Income
Shields also likes the four crown-rated Royal London UK Equity Income fund, pointing out its consistent approach has "done very well" for his funds of funds.
The £401.8m fund, headed up by Martin Cholwill, is the most consistent fund in the UK Equity Income sector over the last five calendar years, according to FE Trustnet research.
It is also a top-quartile performer on a total return basis over one, three, five and 10 years.
Over the last decade, it has made 179.37 per cent, while the sector and FTSE All Share have gained 155.25 per cent and 164.22 per cent respectively.
Performance of fund vs sector and index over 10yrs
Source: FE Analytics
The fund requires a minimum investment of £1,000 and has an OCF of just 1.3 per cent.
It has a yield of 3.82 per cent
Short-duration high yield
Shields says he likes the consistent, low-volatility returns of short-duration high yield bond funds.
He explains that the team has held AXA US Short Duration High Yield Bond and Neuberger Berman Short Duration High Yield Bond almost since the Brooks Macdonald fund of funds range was re-launched in 2011.
"They’re funds we’ve held for quite a long time and they’ve done very well for us," he said. "They provide superior returns, with a fraction of the volatility."
Both have been launched within the last three years. The AXA portfolio, which sits in the IMA Global Bonds sector, has made 5.19 per cent over the last year while the IMA Sterling High Yield Neuberger Berman fund has gained 9.33 per cent. Both have underperformed their sector over the period.
Both funds have been less volatile than their respective sectors and the FTSE All Share over the past year.
The AXA fund is the least volatile, with an annualised score of just 1.19 per cent over the last 12 months. The Neuberger Berman fund scores 2.68 per cent, compared with 11.12 per cent for the FTSE All Share, according to FE Analytics.