There has been huge growth in the number of outcome-focused funds in recent years but many of the products launched were housed in the IA Unclassified sector alongside a vast range of other mandates, making comparisons between them difficult.

Last week, the Investment Association moved to address this by launching the IA Volatility Managed sector for funds that have the objective of managing returns within specified volatility parameters. Some 83 funds are now in this sector, with combined assets under management of £19.3bn.

Galina Dimitrova, director for capital markets at the Investment Association, said: “The launch of the Volatility Managed sector is the latest step by the industry to ensure that the IA sectors continue to evolve alongside market changes and appropriately reflect the advent of more outcome-focused products available to investors.”

Performance of sector over 5yrs

Source: FE Analytics

The problem with charts like the above, however, is that the new sector still includes funds with very different risk parameters, so comparisons on a sector level remain inappropriate.

While the Investment Association is considering further breaking down the sector into sub-categories, FE Trustnet has analysed IA Volatility Managed funds with reference to their FE Risk-Targeted Multi-Asset band.

FE RTMA Risk Bands categorise multi-asset funds by their current FE Risk Score (which considers their volatility relative to the FTSE 100 over recent years) and offers us a way to analyse funds in different in risk brackets.

In the following article, we find out which IA Volatility Managed funds are topping the five FE RTMA Risk Bands when it comes to total returns and annualised volatility over the five years to the end of March 2017.

Risk Band 1

This is the lowest risk sub-sector (home to the funds that have an FE Risk Score of less than 30) and 11 of its members can be found in the IA Volatility Managed sector – although only eight of these have a five-year track record.

Over the five years to the end of March 2017 the highest total return came from Hector Kilpatrick’s SVS Cornelian Defensive fund, which was up 30.63 per cent. Almost half of the portfolio is in fixed income through holdings such as Pimco Global Investment Grade Credit, PFS Twenty Four Dynamic Bond and Royal London Sterling Extra Yield Bond.

Close behind is FE Alpha Manager David Coombs’ Rathbone Total Return Portfolio, which has made 29.41 per cent and holds five FE Crowns for alpha generation, volatility and consistently strong performance over recent years, while  Toby Vaughan and Tom Caddick’s Santander Atlas Portfolio 3 is in third place with a 29.27 per cent total return.

Source: FE Analytics

When it comes to annualised volatility, Bambos Hambi dominates with his Standard Life Investments MyFolio Multi-Manager Income I posting the lowest over five years at 3.03 per cent, followed by his Standard Life Investments MyFolio Multi Manager I, Standard Life Investments MyFolio Managed I, Standard Life Investments MyFolio Managed Income I and Standard Life Investments MyFolio Market I funds.

Risk Band 2

Moving up the risk spectrum and there are 26 funds in the FE RTMA Risk Band 2 sub-sector (of which 20 have five-year track records). Funds within this sub-sector have FE Risk Scores of between 30 and 50.

Another fund managed by Cornelian’s Hector Kilpatrick is in the top spot for five-year total returns: SVS Cornelian Managed Growth, which is up by 53.08 per cent. The fund’s biggest holding is the Vanguard S&P 500 UCITS ETF at 7.01 per cent and it counts the likes of PFS Twenty Four Dynamic Bond, Royal London Sterling Extra Yield Bond and Schroder ISF Asian Total Return as top 10 holdings.

FE Alpha Manager Sheldon MacDonald co-manages the next two funds on the list: Architas MA Blended Intermediate, which made a 50.57 per cent total return over the period in question, and Architas MA Passive Moderate, which is up 46.28 per cent.

Source: FE Analytics

Looking at annualised volatility and Aviva Investors Multi Asset I, which is run by FE Alpha Manager Nicholas Samouilhan, Paul Parascandalo and Thomas Wells, has posted at the lowest over five years at 3.22 per cent.

However, Hambi has the next three lowest volatility offerings: Standard Life Investments MyFolio Multi Manager II, Standard Life Investments MyFolio Multi-Manager Income II and Standard Life Investments MyFolio Managed Income II.

Risk Band 3

Funds in FE RTMA Risk Band 3 have FE Risk Scores between 50 and 70. There are 30 of them in the IA Volatility Managed sector, but only 21 have been around for five years or more.

Topping the table is SVS Cornelian Progressive with a 71.26 per cent return. This is the third fund managed by Hector Kilpatrick to top its respective sub-sector so far, so we thought it might be insightful to look at little more at the process behind Cornelian’s five-strong multi-asset range.

Kilpatrick – the chief investment officer at Cornelian – leads a multi-asset investment team of five that has a hand in the decision-making of the funds’ positioning. Each of the portfolios have a sub-portfolio of strategically held direct UK equities (which leverages Kilpatrick’s experience in this part of the market); however, the range invests across asset class and mainly uses a fund of funds approach for asset classes other than UK equities and government bonds.

This fund is more equity-heavy that the other Cornelian offerings mentioned so far, with 27.57 per cent in UK equities like Lloyds Banking Group, HSBC and Babcock International, 17.31 per in the US and 12.65 per cent in European equities. Just 3.45 per cent is in fixed income.

Source: FE Analytics

Aviva Investors Multi Asset II is the fund that comes out best when looking at annualised volatility, which stands at 5.42 per cent over the past five years. Next up is Rathbone Strategic Growth Portfolio, Invesco Perpetual Balanced Risk 8 and another four Standard Life Investments MyFolio funds run by Bambos Hambi.

Risk Band 4

Funds with an FE Risk Score that is between 70 and 85 are put into FE RTMA Risk Band 4 and nine are in the IA Volatility Managed sector, six of which have a five-year track record.

Bambos Hambi’s Standard Life Investments MyFolio Market V has posted the largest total return, rising 70.97 per cent over the five years to the end of March 2017. Hambi’s process revolves are ‘the five Ps’ – potential holdings are analysed in terms of their philosophy, process, people, performance and price, in that order.

Top holdings in the fund, which invests primarily in passive products, include Vanguard US Equity Index, Vanguard FTSE UK All Share Index, BlackRock Continental European Equity Tracker, BlackRock Japan Equity Tracker and BlackRock UK Equity Tracker.

Source: FE Analytics

It’s Aviva Investors Multi Asset IV, managed by Nicholas Samouilhan, Paul Parascandalo and Thomas Wells, that has the lowest volatility, at 9.02 per cent. Architas MA Blended Growth and Rathbone Enhanced Growth Portfolio have the next lowest annualised volatility in this sub-sector.

Risk Band 5

The final and riskiest sub-sector is FE RTMA Risk Band 5, which is where funds with FE Risk Scores above 85 can be found. There are four of these funds in the IA Volatility Managed sector and, as only two have five-year track records, we have looked at performance over three years.

Samouilhan, Parascandalo and Wells’ Aviva Investors Multi Asset V fund has made the largest three-year return at 44.32 per cent.

Architas MA Passive Dynamic is in second place with a 41.41 per cent gain, while Allianz RiskMaster Growth Multi Asset made 38.97 per cent and BlackRock Volatility Strategy IV was up 35.23 per cent.

In terms of annualised volatility over three years, BlackRock Volatility Strategy IV is on top with 8.77 per cent, followed by Allianz RiskMaster Growth Multi Asset, Aviva Investors Multi Asset V and Architas MA Passive Dynamic.