Only two of the 496 multi-asset funds within the Investment Association’s four dedicated sectors have managed to beat the FTSE All World index over the course of this year, according to data from FE Analytics.
Multi-asset funds have struggled to keep up with strong returns achieved across asset classes in 2016 so far. Year-to-date, the FTSE All World index is up 28.73 per cent, while the FTSE Global Government Bond All Maturities index has returned 18.55 per cent.
Performance of indices in 2016
Source: FE Analytics
This market behaviour is unusual, given that equities and fixed income assets tend to have an inverse relationship - equities often outperform when sentiment is positive and bonds outperform when the outlook is more cautious.
Given this backdrop, it is perhaps unsurprising that multi-asset funds have struggled to beat their benchmarks this year. However, the Orbis Global Balanced and M&G Managed Growth funds have both comfortably outperformed the FTSE All World index as well as their respective benchmarks.
The former has five FE crowns and has been headed up by Alec Cutler since the start of 2014. While it is just £19.1m in size, it has packed a punch with its performance this year, having more than tripled the performance of its average peer in the IA Mixed Investment 40%-85% Shares sector with a return of 35.43 per cent.
Performance of fund vs sector and benchmarks in 2016
Source: FE Analytics
The manager partially attributes this outperformance to his bias towards value stocks, given they tend to outperform over the very long term. While value stocks have indeed done well this year though, Cutler says the fund is not riding on a tailwind that has now been exhausted.
“Even if we were textbook value investors, we believe value shares have plenty of room left to run. While value’s outperformance this year looks substantial, it is a blip in an otherwise punishing decade,” he pointed out in his latest fund report.
“There have been other blips since 2006, and they have so far been false dawns. But either way, value shares’ relative performance—and attractiveness, on a quantitative basis—remain a long way from historical norms.”
The fund currently has 84 per cent in equities and 15 per cent in fixed income. Its largest holdings include the likes of Royal Dutch Shell, Qualcomm and BP.
While it has performed well in this year’s unusual market environment, it is also comfortably in the second quartile for its returns over one and three years to the end of 2015.
M&G Managed Growth – the second fund to outperform the FTSE All World index this year – has fared less well in the past and is in the bottom quartile over one, three and five years to the end of 2015.
Year-to-date, though, it has outperformed its FTSE World benchmark and average peer in the IA Flexible sector by a respective 4.18 and 20.35 percentage points. However, it’s worth noting that the IA Flexible sector is home to a wide range of different funds with varying purposes, so should not be used to analyse a fund’s relative performance in isolation.
Performance of fund vs sector and benchmark in 2016
Source: FE Analytics
The £909m fettered fund-of-fund – which has one FE crown - has been headed up by David Fishwick since September last year, although deputy manager Craig Moran has been working on the fund since 2013.
It aims to achieve capital growth over a period of five years or more and, despite predominantly investing in M&G’s funds, is able to invest in collectives where the firm does not have the expertise. For instance, its largest holding is Source Financial S&P US Sector at 11.8 per cent.
Examples of other multi-asset funds that have performed well this year but have lacklustre longer term track records include Capital Group Emerging Markets Total Opportunities, MFS Meridian Global Multi-Asset and Allianz RiskMaster Growth Multi Asset. That said, these funds have still fallen short of beating the FTSE All World index year-to-date.
As to be expected, there are also multi-asset funds that boast stellar long-term track records but have struggled in this year’s challenging environment.
Standard Life Investments Dynamic Distribution, for instance, is one of the top 10 worst-performing multi-asset funds in 2016 so far.
However, it is in the top quartile for its one, three and five-year total returns to the end of 2015. It has been managed by Jacqueline Lowe since 2006 and co-managed by Iain McLeod since 2015.
As with M&G Managed Growth, it aims to provide long-term growth and income through predominantly holding funds managed or operated within the firm, although it is also able to hold collectives operated outside of Standard Life.
These funds hold a variety of different asset classes and, as such, SLI Dynamic Distribution resides in the IA Mixed Investment 20%-60% Shares sector. Its largest fund weightings include SLI UK Equity High Income, SLI Global Absolute Return Strategies and SLI Higher Income.
This has led to a significant exposure to the likes of HSBC, BT and Vodafone, which could be why the fund has struggled this year, having returned just 1.33 per cent to-date.
Over five years to the end of 2015 though, the three crown-rated fund has more than doubled the return of its sector average with a total return of 50.03 per cent.
Performance of fund versus sector and benchmark over 5yrs to end of 2015
Source: FE Analytics
Another example of a multi-asset fund that has struggled this year but has a strong long-term track record is CF Odey Portfolio, which joins SLI Dynamic Distribution in the list of top 10 worst performers year-to-date for its return of 1.34 per cent.
The £215m fund mostly invests in shares, both directly and through open-ended and closed-ended funds. It is also able to hold fixed income, assets which offer gold exposure and derivatives. Its largest individual weighting is currently a FTSE 100 index future at 20.7 per cent.
The fund – which has been headed up by Peter Martin since 2010 – is in the top quartile for its returns over one, three and five years to the end of 2015. Other multi-asset funds that have fallen short this year but have performed well over the long term include Kames Ethical Cautious Managed, Jupiter Distribution and Growth and Premier Multi-Asset Monthly Income.