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How have fettered funds in this mixed asset sector performed over the long-term?

02 February 2017

Having compared performance of fettered and unfettered funds, FE Trustnet drills down into the individual sectors. This week we look at the IA Mixed Investment 0%-35% universe.

By Jonathan Jones,

Reporter, FE Trustnet

The IA Mixed Investment 0%-35% sector is one of the smallest parts of the mixed asset universe, yet it remains another interesting battlefield for fettered and unfettered strategies. 

In a previous study
, we revealed that fettered multi-manager funds in the IA Mixed Investment 0%-35% sector had outperformed their unfettered rivals over 10 years by 17 percentage points.

Unfettered funds were also beaten in the IA Flexible, IA Mixed Investment 20%-60% and IA Mixed Investment 40%-85% sectors.

While unfettered funds are traditionally seen as having an advantage with the ability to invest in a wider pool of funds compared with their fettered rivals, this has not been born out over the long-term.

Looking more closely at the IA Mixed Investment 0%-35% sector no unfettered funds have managed to outperform the average fettered fund over the past decade, according to data from FE Analytics.

As the below graph shows, fettered funds in the sector have returned 68.22 per cent while unfettered funds have produced 40.58 per cent.

Performance of indices over 10yrs

 

Source: FE Analytics

However, the IA Mixed Investment 0%-35% has the fewest funds with a long enough track record – only three fettered funds and nine unfettered have 10-year records.

To capture more funds, we have reduced the timeframe to five years, providing 22 eligible unfettered and four eligible fettered funds for comparison.

Over this period, fettered funds in the sector are still ahead (32.17 per cent vs 26.32 per cent), however there are three unfettered funds that have outperformed over this period.

The best performing unfettered fund over the past five years is the Architas MA Active Moderate Income, run by Nathan Sweeney since 2015 and previously by Stephanie Carbonneil.


The £98.3m fund has returned 34.70 per cent over the period, beating the average fettered fund by 2.53 percentage points.

Performance of fund vs indices over 5yrs

 

Source: FE Analytics

The concentrated portfolio – consisting of 27 holdings – has 24.08 per cent in UK corporate bonds, 17.29 per cent in UK gilts and 8.40 per cent in UK equities, giving it a 49.77 per cent weighting to UK assets.

Its largest holding is the BlackRock UK Gilts All Stocks Tracker fund, which makes up 12.66 per cent of the portfolio.

The fund, which has been 0.15 percentage points more volatile than the average fettered fund (4.44 versus 4.29 per cent) currently yields 2.64 per cent and has a clean ongoing charges figure of 1.46 per cent.

The next best performer over five years was the £37m IFSL Brooks Macdonald Defensive Income run by Jonathan Webster-Smith, Mark Shields and Jim Mackie.

The fund is actively managed and invests primarily in fixed interest, as well as defensive equities and alternative assets.

It is the least exposed to the UK - though is still 33.13 per cent weighted to the UK – and holds 9.02 per cent in cash, 11.01 per cent in hedge funds and alternatives and 6.75 per cent in property.

The top 10 holdings, which make up 56.97 per cent of the portfolio, include Fidelity MoneyBuilder Income (7.72 per cent), Artemis Strategic Bond (7 per cent) and Royal London Sterling Credit (6.66 per cent).

The fund, which yields 0.03 per cent and has an OCF of 1.35 per cent has returned 33.18 per cent to investors over the last five years.


Third is the £84.8m CF Prudential Dynamic 0-30 Portfolio currently run by Philip Butler, who has been in charge for two months.

However, it has had a couple of manager changes during the past five years. Al Denholm previously managed the fund between 2014 and 2016 and before him Matthew Williams.

Like Architas MA Active Moderate Income, the fund is also heavily weighted to the UK (42.73 per cent) though much of this is through UK corporate bond exposure (34.55 per cent).

Its largest holding is Invesco Perpetual Corporate Bond (10.99 per cent) and its top five holdings make up 50.24 per cent of the portfolio.

The fund, which yields 1.82 per cent and has an OCF of 1.50 per cent has returned 33.17 per cent to investors over the last five years.

Performance of funds vs index over 5yrs

 

Source: FE Analytics

Despite these solid returns, none have outperformed the best fettered fund – Threadneedle Navigator Cautious Managed.

The four crown-rated fund run by Alex Lyle has returned 34.45 per cent over the last five years, 2.28 percentage points ahead of the top performing unfettered fund Architas MA Active Moderate Income.

It has a significantly higher weighing to the UK than its unfettered counterparts (82.19 per cent), including its top holding - Threadneedle UK Corporate Bond, fund which makes up 19.96 per cent of the portfolio.

The fund, which has beaten the average unfettered fund in each of the past five calendar years, currently yields 1.54 per cent and has an OCF of 1.60 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.