Funds such as Artemis Strategic Bond, Invesco Perpetual Income and M&G Property Portfolio have been consistently backed by financial advisers for investors with a balanced risk tolerance, data from FE’s AFI indices show.

The FE Adviser Fund Index (AFI) is made up of the recommended portfolios of a panel of leading UK financial advisers and is based on the funds they actually recommend to their clients. The AFI has been running since November 2007 and has gone through 24 rebalancings since then.

Performance of AFI Balanced vs IA Mixed Investment 40%-85% Shares over 10yrs

Source: FE Analytics

The above chart shows that the AFI Balanced index, which we’ll be taking a closer at in this article, has outperformed its equivalent Investment Association sector over the past 10 years. It has done so with a slightly lower annualised volatility than the average fund in this peer group.

In the following article, we find out which current AFI Balanced members have been recommended by the advisers on our panel for at least 19 rebalancings and see how they’ve performed over the past decade.

Artemis Strategic Bond

Source: FE Analytics

The first of three funds that have been in the AFI Balanced index for the past 19 rebalancings is Artemis Strategic Bond, which has been managed by James Foster and Alex Ralph since its launch in June 2005. Given that it’s an IA Sterling Strategic Bond member, the fund has a flexible mandate to invest in government bonds, high-quality corporate bonds and riskier high-yield bonds as well as more esoteric fixed income assets. Artemis Strategic Bond has made a 69.22 per cent return over the past 10 years, beating the sector but lagged its benchmark. The FE Invest team notes that the £977.3m fund tends to be more aggressive than its average peer. As a consequence, the fund is in the third quartile for annualised volatility and maximum drawdown but has one of the sector’s highest maximum gains over the past decade.

Henderson Strategic Bond

Source: FE Analytics

Next up we have another strategic bond offering appearing in 19 rebalancings: John Pattullo and FE Alpha Manager Jenna Barnard’s £1.7bn Henderson Strategic Bond fund. Over the last 10 years, the fund has made a first quartile total return of 71.52 per cent, albeit with higher annualised volatility than its average IA Sterling Strategic Bond peer. Pattullo and Barnard base their portfolio around their outlooks for risks of default, the future course of interest rates, economic trends and supply & demand in the various fixed income markets. The managers believe that the global economy is going through a period of stagnation – marked by low growth, low volatility, low default rates and low interest rates – and have positioned the fund for a disinflationary environment, which has aided performance over recent years.

Newton Global Income

Source: FE Analytics

Also included in 19 AFI Balanced rebalancings is the £5.5bn Newton Global Income fund. Managed by Nick Clay since December 2015 (James Harries was the manager prior to this), the four FE Crown-rated fund has made a 162.89 per cent total return – the highest of the IA Global Equity Income sector. The investment process of based on Newton’s thematic approach, whereby stock selection is guided by a number of overarching macro trends that the group believes will have a meaningful impact on markets. Furthermore, stocks owned by the fund have to pay a yield that is 25 per cent higher than the FTSE World index. This income discipline is strict and holdings will be sold if the dividend yield falls below that of the benchmark.

Invesco Perpetual Income

Source: FE Analytics

This £5.7bn fund, which is managed by FE Alpha Manager Mark Barnett and was run by Neil Woodford for most of the period in question, has been present in the balanced index for the past 20 relabancings. Invesco Perpetual Income has also been an AFI Aggressive member for the same amount of time. The fund is now in the IA UK All Companies sector but was in the IA UK Equity Income peer group until 2014, so we’ve shown its performance against both: its 10-year total return of 92.04 per cent is comfortable outperformance of both sectors. Like Woodford before him, Barnett aims to offer an attractive total return, rather than focusing on income alone, and is known for a long-term approach when building his portfolio.

M&G Property Portfolio

Source: FE Analytics

Fiona Rowley’s £4bn M&G Property Portfolio has been an AFI Balanced member for the past 21 rebalancings. Rowley has been manager of the fund since 2007 and was joined by deputy manager Justin Upton in 2012; both have spent their entire careers in property investing. The portfolio is diversified by geography and sector, with holdings in the prime and high quality secondary parts of the property market. The M&G property team prefers properties that are high quality, well located and income generating although a small part of the portfolio is in ‘recovery’ properties that require more intensive management – such as a refurbishment before it can be rented out. Properties currently owned by the fund include New Square Bedfont Lakes Office Park at Heathrow, Riverside House Office in London and Riverside Retail Park in Northampton. Over the past 10 years, the fund has made 4.83 per cent total return.

Dimensional Global Short Dated Bond

Source: FE Analytics

In second place with inclusion in 23 rebalancings is the £3.5bn Dimensional Global Short Dated Bond fund. As the chart above shows, the fund has outperformed its benchmark over the past 10 years with a 39.55 per cent total return. This puts the fund in the bottom quartile of the IA Global Bonds sector; however, it must be kept in mind that it is difficult to make comparisons in this sector due to the specialist nature of many of its members, while the strong run in long-dated bonds – which this fund does not invest in – has pushed up the return of the ‘average’ fund. The fund is managed by a team that makes use of Dimensional’s investment approach, which is based around “putting financial science to work for investors”. The process is built on academic research into the behaviour of markets and attempts to avoid “futile forecasting or trying to outguess others”; instead the firm looks for certain characteristics that suggest an asset will offer higher than expected returns.

Stewart Investors Asia Pacific Leaders

Source: FE Analytics

Finally, we have the £9.3bn Stewart Investors Asia Pacific Leaders fund – which has been included in the AFI Balanced index in every one of its 24 rebalancings. The five FE Crown-rated fund was also top of the list when we looked at the AFI Aggressive index, having featured in each of that index’s rebalancings. The fund is headed up by FE Alpha Manager David Gait and Sashi Reddy, although Asian equity veteran Angus Tulloch ran the fund for the bulk of the period in question (Tulloch is still involved in the investment process). Stewart Investors Asia Pacific Leaders is known for a cautious approach to investing and has a strong record of protecting capital in uncertain markets – which has bolstered its overall total return. It has outperformed its average IA Asia Pacific ex Japan peer and its MSCI AC Asia Pacific ex Japan benchmark by a significant margin during the past decade, doing so while being in the top decile for metrics such as alpha generation, maximum drawdown, annualised volatility and Sharpe ratio.

Source: FE