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The risk-targeted funds leading the pack across a tough 2016

19 December 2016

FE Trustnet looks at FE’s bespoke risk-targeted sectors to find out how their members have performed with one month left of what has been a challenging year for global markets.

By Jonathan Jones,

Reporter, FE Trustnet

Given the large amounts of uncertainty in markets generated by unexpected political events this year, it may be understandable if investors have tried to take some risk off their portfolios.

Though some investors may now be relieved that their assets are placed in risk-targeted funds, comparisons between these portfolios can be difficult, as FE Trustnet has previously noted.

The FE’s bespoke Risk-Targeted Multi-Asset (RTMA) sectors were built with this in mind, placing funds into categories on their historic risk score - a measure of volatility relative to the FTSE 100 index. The blue-chip index has a Risk Score of 100, while funds that have been less risky have a correspondingly lower score.

Below, we look at the RTMA risk bands to see which funds have made the highest returns compared with the FTSE All Share index in the first 11 months of the year while also experiencing an appropriate level of volatility.

 

UK RTMA Risk Band 1

Funds in this sector are deemed to be the portfolios with the lowest risk, with an FE Risk Score of less than 30. Of these, only the Old Mutual Cirilium Conservative fund has beaten the FTSE All Share – which has an FE Risk Score of 92.

The £247m fund, managed by Paul Craig has returned 11.48 per cent to investors over the year, just 30 basis points ahead of the FTSE All Share but some 6.1 percentage points higher than the sector average.

Performance of fund vs sector and FTSE All Share

 

Source: FE Analytics *Results to 30/11/2016

However to achieve this the fund, which has an FE Risk Score of 29 has experienced the second highest volatility in the sector (5.19 per cent) with only HC Stirling House Defensive more volatile. It should be noted though that both still exhibited lower volatility than the FTSE All Share (6.86 per cent).

In comparison, the sector average volatility is 3.58 per cent and the least volatile fund within the Aberdeen Diversified Core Conservative, which has returned 1.54 per cent in 2016, has experienced 1.36 per cent volatility to the end of November.

Given its cautious approach, the fund has 38.43 per cent of its portfolio invested in global fixed income, 22.11 per cent in equities (of which many are investment trusts) and 20 per cent in cash.

Other notable top quartile performers in the sector include FP Verbatim Portfolio 3, CF Canlife Portfolio III and L&G Multi-Index 3.

 

UK RTMA Risk Band 2

In this band, which holds funds with an FE Risk Score between 30 and 50, Architas leads the way with its MA Blended Intermediate, MA Passive Moderate and MA Blended Moderate among the top four performers.

However, the only fund to beat the FTSE All Share while also sitting in the top quartile in the sector for volatility is the Fidelity Multi Asset Allocator Strategic.


The £91m fund run by Kevin O’Nolan and Nick Peters, has returned 11.61 per cent, beating the sector average by 2.31 percentage points and the FTSE All Share by 43 basis points.

Performance of fund vs sector and FTSE All Share in 2016

 

Source: FE Analytics *Results to 30/11/2016

It has done so with volatility of 5.39 per cent, slightly above the sector average of 5.35 per cent but still good enough to place it in the top quartile.

The fund, which has a Risk Score of 50, invests primarily in funds, including those managed by Fidelity, with the Fidelity Index UK Fund and Gross Accumulating Cash fund making up 30.1 per cent of the portfolio.

Other notable top quartile performers in the sector include Threadneedle Defensive, Rathbone Strategic Growth, Old Mutual Cirilium Balanced and Premier Liberation V.

 

UK RTMA Risk Band 3

Topping this sector – which is home to funds with FE Risk Scores between 50 and 70, is the £141m Allianz RiskMaster Moderate Multi-Asset fund, run by David Hollis.

The fund has a bias towards investments which are considered higher risk but may invest, to lesser degree, in investments considered lower to medium risk.

It therefore has a higher FE Risk Score and has been one of the more volatile in the sector (9.2 per cent) against the sector average (7.97 per cent).

The only fund to beat the FTSE All Share while experiencing the same or lower volatility is Fidelity Multi Asset Allocator Growth, which has returned 14.4 per cent and seen 6.86 per cent volatility – (the same as the FTSE All Share).

Performance of funds vs sector and FTSE All Share in 2016

 

Source: FE Analytics *Results to 30/11/2016

The £196.5m fund, also run by Kevin O’Nolan and Nick Peter, invests in global assets and more than a third of the portfolio is invested in the Fidelity Index UK and Index US funds.

Other notable top quartile performers in the sector include Architas MA Blended Progressive, Old Mutual Cirilium Moderate, BlackRock Volatility Strategy I and II and SVS Cornelian Progressive.


 

UK RTMA Risk Band 4

Once again Allianz tops this sector, which measures funds with an FE Risk Score of 70 to 85, with the RiskMaster Growth Multi Asset fund returning the most in the 11 months to the end of November.

David Hollis’ £73m fund is a higher-risk prospect, with 87.3 per cent invested in equities with 37 per cent in the UK market, 23 per cent in North American equities and almost 17 per cent in the emerging markets.

However, again it has been more volatile, with 10.64 per cent experienced so far this year compared to a sector average of 9.45 per cent.

Another top performer is the £68.2m MGTS Greystone Global Growth, run by James Menzies since 2014, which has returned 18.4 per cent over the period.

Performance of funds vs sector and FTSE All Share in 2016

 

Source: FE Analytics *Results to 30/11/2016

The fund is almost entirely invested in equities (99 per cent) with a 45 per cent weighting to the US and just 7 per cent in the UK.

The four crown-rated fund has been the second most volatile fund in the sector this year, with only the Architas MA Active Dynamic ahead of it, but over a the last three years the fund has been the best performer, returning 40.88 per cent against the sector average 27.73 per cent.

Other notable top quartile performers in the sector include HSBC Global Strategy Dynamic Portfolio, Fidelity Multi Asset Adventurous and Zurich Horizon Multi-Asset V.

 

UK RTMA Risk Band 5

The highest risk sector in our risk-targeted universe, which holds those funds with FE Risk Scores of more than 85, has the fewest number of constituents (15), though this has increased from just three funds a year ago.

Again, the top two performers come from Fidelity (Allocator World) and Architas (MA Passive Dynamic) which have returned 23.28 and 22.85 per cent respectively.

At the bottom end of the sector is the largest fund, the £884m M&G Episode Growth run by Eric Lonergan and Jenny Rodgers, which has returned 6.33 per cent over the last 11 months compared to the sector average 17.95 per cent while also experiencing more volatility (12.76 per cent compared to the sector’s 11.45 per cent).

In comparison, the second largest £807m Fidelity Wealthbuilder has returned 15.66 per cent with volatility of 11.19 per cent, one of the best in the sector.

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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.