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The three flexible unfettered funds outperforming their fettered rivals

26 January 2017

Having last week compared performance of fettered and unfettered funds, FE Trustnet drills down into the individual sectors. This week we look at the IA Flexible universe.

By Jonathan Jones,

Reporter, FE Trustnet

Three unfettered funds in the IA Flexible sector have managed to outperform the average fettered fund, according to FE Analytics.

In a previous article, we revealed that fettered multi-manager funds in the IA Flexible, IA Mixed Investment 0%-35%, IA Mixed Investment 20%-60% and IA Mixed Investment 40%-85% have outperformed their unfettered peers.

The study showed that investors would have been better off in fettered funds than unfettered over one, three, five and 10-year periods in all of the above sectors.

Looking at the flexible sector, overall, fettered funds returned more than their unfettered peers by 7.9 percentage points over the last decade, as the below graph shows.

Performance of indices over 10yrs

 
Source: FE Analytics

Unfettered multi-manager funds are traditionally seen as having an advantage over fettered funds, as they are able to draw from a wider pool of investment houses, but this has not been the case.

However, there are some unfettered fund that have been able break this trend and outperform the fettered fund sector average.

Indeed, seven of the qualifying 26 funds in a bespoke IA Flexible unfettered fund sector have outperformed the average fettered fund over 10 years.

Meanwhile, three funds within the IA Flexible sector have managed to outperform consistently, returning more than the average fettered fund over one, three, five and 10-year periods.

The best performer in the sector over the last decade is the £54m Architas MA Active Dynamic fund, which has returned 96.76 per cent.

Manager Nathan Sweeney has 28.48 per cent invested of the portfolio in North American equities, 26.96 per cent in Asia Pacific equities and 15.72 per cent in emerging markets. The fund’s largest holding – Asia Pacific Leaders – represents 10.91 per cent of the portfolio.

The fund has outperformed the average fettered fund in each of the last five calendar years, making positive returns in each and has made positive returns in eight of the last 10 years.

Architas MA Active Dynamic, which is a concentrated portfolio of 23 holdings, has a clean ongoing charges figure (OCF) of 1.79 per cent and currently yields 0.56 per cent.


Meanwhile, Architas MA Active Growth is also among the top three funds in the sector over the past decade, returning 85.46 per cent.

Performance of funds vs sectors over 10yrs

 
Source: FE Analytics

The £105m fund, also run by Sweeney, is 38.487 per cent invested in North American equities, its next largest weighting is UK equities representing 19.28 per cent of the portfolio.

The fund also has 15.7 per cent invested in Asia Pacific equities and 13.66 per cent in emerging markets. Its largest holding – JPM US Equity – making up 13.19 per cent of the portfolio.

Similar to the Dynamic fund, Architas MA Active Growth has also outperformed the average fettered fund in each of the last five calendar years, making positive returns in each.

The portfolio consists of 24 holdings and has an OCF of 1.76 per cent and currently yields 0.68 per cent.

In its latest research note, Square Mile said: “Architas's key focus is building multi asset solutions for clients in the UK and Europe.

“The Architas investment team is experienced and well-resourced and provides a depth of research covering asset class and manager selection.

“We believe Architas has the necessary strength and skills required to provide robust risk targeted funds and are a viable option for investors seeking an approach which aims to more carefully control risk.”

The other fund to outperform over all relevant periods is the £41m Unicorn Mastertrust, run by Peter Walls.

The fund, which invests solely in listed investment companies to provide diversification across a range of asset classes and geographical areas, returned 95.80 per cent over the last decade.


The portfolio consist of 52 holdings with no individual weighting more than 3.5 per cent (Foreign & Colonial Investment Trust is the largest at 3.4 per cent).

Performance of fund vs sectors over 10yrs

 

Source: FE Analytics

Interestingly, the fund has made the bulk of its returns over the past five years, returning 97.19 per cent.

The fund recorded a 38.56 per cent loss during 2008 in the wake of the global financial crisis before rebounding in more recent years, with one significant down year in 2011 when markets fell in response to fears over the European sovereign debt crisis.

Unicorn Mastertrust has an OCF of 0.87 per cent and currently yields 0.9 per cent.

However, none of the funds mentioned above have outperformed the best performing fettered fund – Invesco Perpetual Managed Growth overseen by Nick Mustoe.

The fund has returned 99.27 per cent over the last decade, slightly ahead of the Architas MA Active Dynamic fund.

In its latest factsheet, the manager said: “We continue to favour equities over bonds. “Whilst we are broadly cautious on equities at these levels, we believe that significant valuation disparity in the market means that there are opportunities in certain areas, such as Europe.”

As a result, the £497m fund, which solely invests in funds from the same group, has an 18.06 per cent weighting to the Invesco Perpetual Us Equity fund, a 17.97 per cent holding in the Invesco Perpetual European Equity and is 96.49 per cent invested in equities.

The fund has a higher OCF of 1.07 per cent but currently yields slightly more at 1 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.