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The volatility-busting multi-asset funds to help you sleep at night

18 August 2016

Following Baring Asset Management’s findings that multi-asset funds are most popular for busting Brexit fears, FE Trustnet looks at the funds in the market area that have achieved the smoothest performances over 10 years.

By Lauren Mason,

Reporter, FE Trustnet

Troy Trojan, Henderson Cautious Managed and Fidelity Moneybuilder Balanced are among 13 multi-asset funds to have made it into the top quartile for four major risk measurements over 10 years while having the same manager at the helm over this time frame, according to data from FE Analytics.

However, not a single fund in the supposedly lowest risk IA Mixed Investment 0%-35% Shares sector made it onto the list of multi-asset funds that have given investors the smoothest ride over 10 years, a time scale which factors in the financial crisis of 2008 and the European debt crisis in 2011.

This comes following Baring Asset Management’s survey released this week, which shows that more than a quarter of financial advisers questioned are encouraging investment into multi-asset products to override any potential market volatility.

Performance of sectors vs index over 5yrs

 

Source: FE Analytics

The report also found that one in 10 participants are “very” favourable towards the multi-asset growth space and that a similar number is “very” favourable towards multi-asset income.

The survey also found that one in eight respondents expect clients to increase exposure to multi-asset funds by more than 20 per cent over the next year, while only 5 per cent expect them to decrease exposure.

When it comes to the reasoning behind their favourability towards multi-asset funds, almost three-quarters of financial adviser participants view the Brexit vote as the biggest global macro headwind to investment growth as we head through the year, ahead of China’s growth slowdown, the impending US elections and the amount of overleveraged debt in the system.

Marino Valensise, head of multi-asset and income at Barings, said: “Given the market uncertainty, it is good to see a high percentage of IFAs who are recommending clients increase exposure to multi-asset products, which can limit downside risks while making the most of growth opportunities.”

As a result of this report, FE Trustnet has taken a look at all the funds within the four Investment Association multi-asset sectors (IA Flexible Investment, IA Mixed Investment 0%-35% Shares, IA Mixed Investment 20%-60% Shares and IA Mixed Investment 40%-85% Shares) that have had the same manager at the helm for more than 10 years.

We then removed any fund from the list that isn’t in the top quartile for its Sharpe ratio (which measures risk-adjusted returns), annualised volatility, maximum drawdown (which measures the most potential money lost if bought and sold at the worst times) and downside risk (which predicts a fund’s potential to decline in price during falling markets) over the same time frame.

Out of a total of 486 funds across the sectors – 74 of which have had the same manager for a decade or more – the list was whittled down to 13 funds. The largest number of these reside in the allegedly ‘highest risk’ IA Mixed Investment 40%-85% Shares multi-asset sector, while not one was found in the ‘lowest risk’ IA Mixed Investment 0%-35% Shares sector.

The IA Mixed Investment 20%-60% Shares and the IA Flexible Investment sectors held hree funds each.


Funds with top-quartile risk measurements and same manager over 10yrs

 

Source: FE Analytics

Within the 40 to 85 per cent shares sector, the fund with the strongest risk metrics and risk-adjusted returns over 10 years is FE Alpha Manager Ian Spreadbury and Michael Clark’s five crown-rated Fidelity Moneybuilder Balanced fund.

The fund, which is £586m in size, has a diversified portfolio of 171 holdings. Some 34 per cent of these are fixed income holdings – while a vast majority of these are AAA-rated, it has small weightings in AA, A, BBB and BB holdings.

The remainder is mostly in UK equities which it has a 56.93 per cent weighting in, although it also has smaller holdings in European and North American equities as well as a 1.5 per cent cash pile.

The fund is in the top quartile for its total returns over three, five and 10 years, returning 108.66 per cent over the last decade compared to its average peer’s return of 67.83 per cent.

Performance of fund vs sector and benchmark over 10yrs

 

Source: FE Analytics

It also has an FE Risk Score of 61, deeming its past performance just 61 per cent as risky as the FTSE 100 index. Fidelity Moneybuilder Income has a clean ongoing charges figure (OCF) of 0.67 per cent and yields 3.7 per cent.

Over in the IA Mixed Investment 20%-60% Shares sector, Henderson Cautious Managed takes the lead for its combined risk-adjusted returns, maximum drawdown, annualised volatility and downside risk.

It has been managed by Chris Burvill since 2003 who was then joined by FE Alpha Manager Jenna Barnard and John Pattullo in 2013 top look after the portfolio’s bond allocation.

The two crown-rated fund has a sterling-focused mandate and invests in a combination of UK equities, UK fixed income and cash. Given its sector requirements, its equity weighting is capped at 60 per cent and this currently stands at just 46.42 per cent.


While Burvill manages the equity portion of the fund as well as the overall structure of the fund and its asset allocation, Barnard and Patullo focus on the fixed income weighting and specifically the investment grade bond holdings (exposure to sub- investment grade bonds is limited to 10 per cent).

The fund, which has an FE Risk Score of 50, has outperformed its sector average over five and 10 years although it has underperformed recently, returning 4.61 per cent over the last year compared to its sector average’s return of 8.22 per cent.

It has a clean OCF of 0.71 per cent and yields 3.2 per cent.

Within the IA Flexible Investment sector, FE Alpha Manager Sebastian Lyon’s £3.2bn Troy Trojan fund is in the top spot for its annualised volatility, maximum drawdown, Sharpe ratio and downside risk over the last decade.

The manager is renowned for his bearish views on markets and, in an article published earlier this week, he warned that central bank policy won’t be able to prop up the global economy forever.

“Low interest rates and quantitative easing have led to ballooning asset prices. Over $12trn of government bonds now offer buyers a negative nominal yield. This is not even an example of ‘picking up pennies in front of a steam roller’. Instead, it is throwing your own pennies in front of one – courting danger with the deliberate intention of losing money,” he said.

Troy Trojan aims to provide investors with both capital growth and income, which it does through a combination of equities, fixed income assets and inflation-linked securities.

A noticeable trait of the fund is often its high cash weighting, which currently stands at 28 per cent and is the highest asset weighting in its portfolio.

With a risk score of just 40, the fund has still managed to achieve a top-quartile total return of 102.91 per cent compared to its sector average and benchmark’s returns of 65.56 and 78.42 per cent respectively.

Performance of fund vs sector and benchmark over 10yrs

 

Source: FE Analytics

Perhaps due to its high cash weighting during rising markets though, it is in the bottom quartile for its return of 29.51 per cent over five years, which is less than half of the return of its FTSE All Share benchmark.

Troy Trojan has a clean OCF of 1.05 per cent and yields 0.4 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.