Morgan, pension and investment analyst at the firm, believes that even investors with a medium- to long-term time horizon are at risk of severe disappointment if they limit themselves to a select number of asset classes, such as equities or even bonds, which are typically viewed as being low-risk. He points to the five crown-rated Jupiter Merlin Income fund, headed up by the FE Alpha Manager trio of John Chatfeild-Roberts, Algy Smith Maxwell and Peter Lawery, as a perfect fit for those who are unsure where to put their money.
"Investing is certainly challenging at the moment," said Morgan. "Policy makers across the developed world clearly want weaker currencies and higher inflation in order to reduce the value of debts. This poses a quandary for cautious investors."
"With markets at the mercy of central bankers' utterances, they offer a bumpy ride. Yet err too far on the side of caution (by owning too much cash and government bonds) and your returns could dramatically undershoot inflation."
"As Algy Smith-Maxwell (pictured), co-manager of Jupiter's Merlin multi-manager fund range, explained in a recent meeting, a flexible, diversified approach is best."
"He is determined that investors in Jupiter Merlin Income should not lose out by being 'boxed in' to owning the wrong assets at the wrong time."
Morgan explains that the manager is currently negative on bonds, for example, as he believes inflation will be a big problem for the asset class in the coming years.
"He points out that although central banks are unlikely to allow yields on government debt to rise significantly, there is no point in owning bonds that offer a negative return after allowing for inflation," he said.
The Jupiter Merlin Income fund’s only constraint is that it must hold between 20 and 60 per cent in equities at any one time. Apart from this, it has total flexibility to invest where it wants, regardless of asset class or region.
It is a fund of funds, meaning that it invests in other collective vehicles rather than individual shares. This, Morgan explains, gives it an extra dimension of diversification, as the funds and trusts the team invests in are themselves diversified.
The fixed interest part of the fund, which currently has a weighting of 35 per cent, is primarily exposed to strategic bond funds, which are able to move in and out of various bond types, potentially avoiding parts of the market affected most by rising inflation and interest rates.
The team has little exposure to sovereign debt; corporate bonds – including higher yield bonds – are more widely represented.
Among their favoured funds at the moment are Kames High Yield Bond and Liontrust Global Strategic Bond.
Given the economic stimulus provided by central banks and a general thirst for both yield and returns, Smith-Maxwell and the Merlin team are relatively positive on equities; however, they retain a keen eye on downside protection, favouring the security of more stable companies with sustainable dividend yields.
"Much of the exposure is currently via equity income funds such as Neil Woodford's Invesco Perpetual Income, and M&G Global Dividend and Newton Asian Income. However, they are also conscious that prices, especially in some traditionally defensive areas such as consumer staples stocks, may get ahead of themselves."
UK equities currently have a 31 per cent weighting. The remaining third of the portfolio is split between global equities and alternative assets including gold, which currently has a 5 per cent weighting.
The team holds gold as an insurance policy against potential crises and the inflationary effects of quantitative easing, and regarded the recent fall in the metal as a buying opportunity.
Performance of indices over 1yr
Source: FE Analytics
"They believe [the gold price] will eventually peak at a level considerably higher than today's," explained Morgan.
"They are comfortable with this position in the knowledge that if gold doesn't do well, most other parts of the portfolio should. Exposure is via a physically backed exchange traded fund (ETF)."
While some investors like to do their own asset allocation and fund picking, Morgan points out that only investors with a huge amount of time and resources should go about doing it themselves.
For those who are unsure where to park their cash, he says Jupiter Merlin Income is well worth considering, and points to its stellar performance record on both a cumulative and discrete basis as a reassuring feature.
Performance of fund vs sector and index over 15yrs
Source: FE Analytics
According to FE data, the fund has returned 141.66 per cent over 15 years, more than doubling the returns of its IMA Mixed Investment 20%-60% Shares sector.
The team does not take a benchmark, but by point of reference, the FTSE All Share has returned almost 50 percentage points less in this time, with more volatility.
Jupiter Merlin Income has also beaten both its sector and the index over five and 10 years. It has fallen short of the All Share over one and three years, but it is still comfortably ahead of its sector.
Arguably even more impressive than the fund’s cumulative return is its consistency, which Morgan says is down to the team’s reading of the macro.
"It has highly experienced managers at the helm, moving the component parts around with the aim of enhancing returns," he said. "They have a highly successful record in this regard and have been adept at reading the economic picture."
Year-on-year performance of fund vs sector 2006-2012
| Name | 2012 returns (%) |
2011 returns (%) | 2010 returns (%) | 2009 returns (%) | 2008 returns (%) | 2007 returns (%) | 2006 returns (%) |
|---|---|---|---|---|---|---|---|
| Jupiter - Merlin Income |
10.12 | -0.63 | 12.46 | 17.42 | -10.84 | 2.77 | 11.05 |
| IMA Mixed Investment 20%-60% Shrs | 8.35 | -1.89 | 8.56 | 15.9 | -15.84 | 1.39 | 6.96 |
Source: FE Analytics
Our data shows that the Jupiter Merlin Income fund has beaten its sector average in each of the last 13 calendar years.
The fund is currently yielding a little over 3 per cent, and pays out a dividend quarterly.
Lawery started running the fund a little over 16 years ago, and was joined by Smith Maxwell in 1999 and Chatfeild-Roberts in 2001.
Jupiter Merlin Income requires a minimum investment of £500 and has an ongoing charges figure (OCF) of 2.36 per cent.
This is well above average for an open-ended fund, but the FE Research team points out that the fund's strong performance takes costs in to account.
"One downside to the fund-of-funds approach is the additional layer of charges, and the cost of the fund is high compared with many other mixed-asset portfolios," said the FE Research team.
"However, the strong returns have more than made up for this. The fund is best used as a single investment solution rather than as part of a portfolio and this further justifies the high charges."
