Newton Osprey, Fidelity Moneybuilder Balanced and Jupiter Distribution & Growth are among some of the FTSE-benchmarked multi-asset funds to have generated better risk-adjusted returns than the average UK equity growth fund over five years, according to data from FE Analytics.
The IA Flexible sector and the three IA Mixed Investment sectors are home to a wide variety of mandates with different benchmarks, investment aims and positioning.
Out of 485 funds in these sectors, however, 15 of them are benchmarked against the FTSE All Share index and aim to outperform the equity market through holdings that span across asset classes.
We decided to look at which of these funds have, over the last five years, utilised their flexibility to generate higher risk-adjusted returns and greater downside protection than both their benchmark and the average fund within the equity-only IA UK All Companies sector.
The metrics we focused on were downside risk (which measures susceptibility to lose money during falling markets), maximum drawdown (which measures the most money lost if bought and sold at the worst possible times) Sharpe ratio (which measures risk-adjusted returns) and annualised volatility.
From this list, we focused our attention on the funds that also have an alpha generation (which measures the extra value that the manager’s activities have contributed relative to the benchmark) of more than 1 over the same time frame. If a fund has an alpha generation greater than 1, it means they have outperformed their benchmark by more than 1 per cent through genuinely active positioning. This left us with the below list of funds:
Source: FE Analytics
The fund that has generated the most alpha at 5.98 while also retaining better risk metrics than the FTSE All Share and the IA UK All Companies sector average is Newton Osprey, which has five FE crowns and has been managed by Robert Shelton since 2004.
The fund, which resides in the IA Flexible sector, aims to provide long-term growth through holding a combination of UK and international equities as well as fixed interest securities, collective investment schemes and cash. Investors should note that the fund benchmarks itself against the MSCI AC World index as well as the FTSE All Share.
Over five years, the £31.4m fund has outperformed the FTSE All Share and the average UK growth fund by 46.53 and 38.55 percentage points respectively. It has outperformed its second benchmark by 13.23 percentage points over the same timeframe.
While the £31.4m fund isn’t available to retail investors, it opened its doors to wealth managers at the end of 2015 following the launch of its W-share class, which is available for purchase on some institutional platforms.
The second fund on the list, which is more widely available, is Michael Clark and FE Alpha Manager Ian Spreadbury’s Fidelity Moneybuilder Balanced fund.
Residing in the IA Mixed Investment 40%-85% Shares sector, the £639m fund aims to provide attractive levels of income alongside capital growth over the long term. It does so through a portfolio consisting predominantly of UK assets including stocks, gilts, UK corporate bonds and convertibles.
However, it also has the freedom to invest elsewhere and currently has small regional weightings to the US, Switzerland, France and Germany. It holds 67 per cent in equities, 31 per cent in bonds and the remainder is held in cash.
In terms of its total return, the fund has underperformed the IA UK All Companies sector average and its FTSE All Share benchmark over five years, as shown below. However, it has won a place on the list for its superior risk-adjusted return with a Sharpe ratio of 0.85 compared to the FTSE All Share and sector average’s respective Sharpe ratios of 0.54 and 0.63. It also has the second-highest alpha generation on the list over this time frame at 2.85.
Performance of fund vs sector and benchmark over 5yrs
Source: FE Analytics
Investors should also note that it aims to provide income as well as growth. Had an investor placed £10,000 into the fund five years ago, they would have received a further £2,146.31 in income alone.
The fund with the third-highest alpha generation that has superior risk-adjusted returns is Consistent's Practical Investment.
Though perhaps not a household name, the £135m* fund is headed up by FE Alpha Manager Sean Ashfield and is available on most investment platforms.
The fund, which also resides in the IA Mixed Investment 40%-85% Share sector, aims to provide above-average capital growth and a growing stream of income through a combination of UK and dollar-denominated investment trusts as well as ordinary shares and other selected investments.
When selecting investment trusts, Ashfield looks for vehicles that are attractively priced and are able to grow their income.
Over five years, the fund has returned 71.6 per cent compared to the IA UK All Companies sector average and its FTSE All Share benchmark’s respective returns of 64.85 and 56.87 per cent. It also has the second-highest Sharpe ratio on the list at 0.96.
If an investor had placed £10,000 into the fund five years ago, they would have received £2,080.10 in income alone.
Next up is HL Multi Manager Equity & Bond. Managed by Hargreaves Lansdown’s chief investment officer Lee Gardhouse and senior fund manager David Smith, it has an alpha generation of 1.38 and a Sharpe ratio of 0.85. Out of the seven funds on the list, it has the lowest annualised volatility at 6.18 per cent over five years, compared to the FTSE All Share’s annualised volatility of 10.01 per cent over this timeframe.
As its name suggests, the fund holds a combination of equity and bond funds, although it also has an 18.2 per cent weighting to total return funds. Its largest individual holdings currently include Woodford Equity Income at 14.5 per cent, followed by Invesco perpetual Tactical Bond at 6.5 per cent and Artemis Income at 6.4 per cent.
Over five years, the fund – which resides in the IA Mixed Investment 20%-60% Shares sector – has slightly underperformed the FTSE All Share and the average fund in the IA UK All Companies sector with a total return of 53.87 per cent. As with Fidelity Moneybuilder Balanced, though, it has won a spot on the list for its superior risk-adjusted return (as measured by its Sharpe ratio) of 0.76 as well as its annualised volatility, downside risk ratio and maximum drawdown.
*This figure was amended on 24th April to correct an erroneous fund size in the original article.
The next fund on the list is Jupiter Distribution and Growth, which is managed by Rhys Petheram (who focuses on the fixed income allocation) and FE Alpha Manager Alastair Gunn (who manages the equity portion of the portfolio).
The £505m fund aims to provide a high and rising income alongside some capital growth. Had an investor placed £10,000 into the fund five years ago, they would have received £2,027.30 in income alone.
In terms of its risk-adjusted returns, it has a Sharpe ratio of 0.76. When it comes to its total return, it has managed to outperform the FTSE All Share by 3.81 percentage points with gains of 10.68 per cent over five years. It has, however, underperformed the average fund in the IA UK All Companies sector by 4.17 percentage points despite achieving stronger risk-adjusted returns and offering greater downside protection.
Performance of fund vs sector and benchmark over 5yrs
Source: FE Analytics
The fund, which resides in the IA Mixed Investment 40%-85% Shares sector, has a value bias in terms of its equity allocation and includes BP, Royal Dutch Shell and HSBC as some of its largest individual holdings.
Other funds that made it onto the list which are also worthy of note are Invesco Perpetual Global Balanced Index and EdenTree Higher Income. While both have an alpha generation of 1.18, the former has a Sharpe ratio of 0.86 and the latter has a Sharpe ratio of 0.75.