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Top-performing multi-asset funds struggle to stay in top quartile

29 November 2016

FE Trustnet digs into the four multi-asset sectors to see how many previously strong performers have managed to stay ahead of their peers.

By Gary Jackson,

Editor, FE Trustnet

Many of the multi-asset funds with the strongest total returns of recent years have found it difficult during 2016’s turbulent conditions and have fallen out of the top quartile of their peer group over the short term, research by FE Trustnet shows.

The year-to-date has seen relatively strong returns from both stocks and bonds, even though it has been marked by periods of heightened risk and surprise events such as the UK’s vote to quit the EU and Donald Trump’s victory in the US presidential election.

FE Analytics shows the FTSE All Share index has posted a 11.99 per cent total return since the start of the year while the Barclays Sterling Gilts index is up 8.26 per cent – even after selling off since September. The MSCI AC World index has made 25.41 per cent, in sterling terms, over the same period.

Performance of indices over 2016

 

Source: FE Analytics

However, many multi-asset portfolios have struggled to keep pace with indices over the year. Our data shows all four multi-asset sectors have failed to beat the return made by the FTSE All Share index while two of them are behind the Barclays Sterling Gilts index.

The average fund in the IA Flexible Investment sector has made 10.88 per cent while the average IA Mixed Investment 40%-85% Shares member is up 9.93 per cent, meaning they have beaten the gilts index but are lagging equities; with respective gains of 7.91 per cent and 6.71 per cent, the average IA Mixed Investment 20%-60% Shares and IA Mixed Investment 0%-35% Shares funds are behind both indices.

We thought it would be interesting to see how many of the sectors’ strong performers had been able to navigate the tricky conditions thrown up in 2016 and remain at the top of their peer group over 2016.

Across these four sectors, there are a total of 74 funds that posted first quartile returns in the three years to the end of 2015 or, if their track records are long enough, were first quartile in both the three and five years to the end of 2015.

However, many of these have fallen out of the top quartile this year and our data reveals only 18 of these funds have continued their sector-topping run into 2016.


Within the IA Flexible Investment sector, there were 24 funds with top quartile numbers over the longer time frames but only four of these are first quartile year-to-date.

The chart below shows the returns made by these funds - TB Wise Income, Invesco Perpetual Managed Growth, Premier Multi-Asset Global Growth and Old Mutual Cirilium Dynamic – over 2016. All have beaten the FTSE All Share by a wide margin.

Performance of funds vs sector and index over 2016

 

Source: FE Analytics

The funds have outperformed by having the bulk of the portfolio’s in equities and through being diversified away from the UK – which has struggled relative to its global peers because of the Brexit result.

The funds are not avoiding the UK completely though and the best performer is somewhat of the exception as it currently has a large proportion of its assets in domestic names.

TB Wise Income, which has been headed by Tony Yarrow since launch in May 2005, has one-quarter of its portfolio in UK small-caps with 13.7 per cent in UK mid-caps and 13.2 per cent in UK large-caps.

When it comes to the IA Mixed Investment 0%-35% Shares sector, there are 20 funds in the top quartile for the three years or three and five years to the end of 2015; six of these have stayed in the top quarter of the peer group this year.

Five of the outperformers are active funds: Baillie Gifford Managed, MI Hawksmoor Distribution, Scottish Widows Progressive Portfolio, Invesco Perpetual Managed Income and Royal London Sustainable World Trust. Their total returns range from 12.5 per cent to 15 per cent over 2016.

However, it’s a passive product that tops the table here – and by a wide margin.


Vanguard LifeStrategy 80% Equity has made 19.15 per cent over the year to date, beating the next fund on the shortlist by more than 4 per cent points. In fact, it’s the second highest overall returner of the sector over 2016 so far and has been outpaced only by Orbis Global Balanced.

The product is a fund of funds made up other Vanguard index trackers. The portfolio has a static allocation across global equities and bonds; it is automatically rebalanced to stop it drifting from this target asset allocation.

Over in the IA Mixed Investment 20%-60% Shares sector, just five funds have continued their run in the top quartile this year. Some 22 have first-quartile numbers for the longer periods we looked at.

Performance of funds vs index over 2016

 

Source: FE Analytics

As the above chart shows, Artemis Monthly Distribution is the best performer on our shortlist having made 14.84 per cent.  Old Mutual Cirilium Balanced, FP New Horizon Balanced Income & Growth, Invesco Perpetual European High Income and Architas MA Active Intermediate Income are other funds continuing their top-quartile run.

James Foster and Jacob de Tusch-Lec’s Artemis Monthly Distribution fund has less than half of its portfolio in equities but does have one-third in high yield bonds – which have significantly outperformed government bonds this year.

Commenting on the weak bond performance since in October, the managers said: “The weakness in government bonds carried over to investment-grade bonds. Moreover, the euphoria associated with the Bank of England’s corporate bond purchase programme proved overdone and some market makers were left holding long positions.

“In contrast, high-yield bonds, which are the mainstay of this fund, proved more resilient. Issuance has been strong, which is a sign of a healthy market. Inflation is less of an issue for issuers of higher yield bonds, and will tend to make servicing debt easier.”


Finally, the IA Mixed Investment 0%-35% Shares sector has three funds remaining in the top quartile out of an eight-strong short list: Old Mutual Cirilium Conservative, Vanguard LifeStrategy 20% Equity and Fidelity Multi Asset Income.

Old Mutual Cirilium Conservative is the strongest performer here with an 11.41 per cent total return. Given their structural low weighting to equites, none have beaten the FTSE All Share but the Old Mutual fund has come close; all are ahead of the gilts index.

Performance of funds vs index over 2016

 

Source: FE Analytics

Manager Paul Craig has just 22.11 per cent of his portfolio in equities, with 17.36 per cent in alternatives funds such as Catco Reinsurance Opportunities and NextEnergy Solar, and 60.48 per cent in bonds and money markets – with 16.33 per cent in cash.

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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.