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Top-performing multi-asset funds to hold if you can stomach short-term volatility

FE Trustnet looks at the multi-asset funds that are in the top quartile of their respective sector but have some of the highest volatility and maximum drawdown figures.

Jonathan Jones

By Jonathan Jones, Reporter, FE Trustnet
Friday June 16, 2017

Uncertainty looks set to continue in the coming months with Brexit negotiations, president Trump attempting to push through reforms and potential elections in Europe all likely to see market shifts.

Meanwhile, interest rates globally remain at near-historic lows, pushing bond yields lower as prices are forced higher and higher.

And valuations in most equity markets are generally considered to be high, with FE Alpha Ben Leyland noting in an article yesterday that it is not just an issue in the US.

“It has become fashionable to argue that US equities are significantly more expensive than elsewhere, but we see little evidence of this when looking at comparable stocks listed in different parts of the world,” he said.

“Unfortunately, the rally in European and emerging markets equities year to date leaves them looking just as expensive as their US counterparts.”

Indeed, the MSCI AC World index has risen 108.51 per cent over the last five years while the Barclays Global Aggregate index is up 28.07 per cent – with the returns of the last two years being flattered the weak pound.

Performance of indices over 5yrs


Source: FE Analytics

This background has allowed multi-asset funds to perform well, with both fixed income and equities rising, but there have still be pockets of volatility.

Some investors like volatility as it allows them to wait and enter a good long-term fund at potentially lower valuations.

Having previously looked at the UK and global funds for investors that can stomach short-term volatility, below we look at multi-asset funds. In an upcoming article we will focus on the multi-asset funds for risk-adverse investors.

For this study we looked at those funds that are in the top quartile of their respective sectors for total return while sitting in the bottom quartile for volatility and maximum drawdown – the most an investor could lose if buying and selling at the worst times – over the last five years.

It should be noted that the IA Mixed Investment 0-35% Shares sector had no qualifying funds, so we have chosen to focus on the other three sectors.

In the IA Flexible Investment sector, three funds have made top quartile returns while experiencing high volatility and maximum drawdowns.

Unlike the others, this sector gives fund managers the flexibility to invest in a range of different assets with no minimum or maximum requirement for allocations.

The top performing fund in the sector is CF Ruffer Japanese, which has returned 132.42 per cent over the last five years.

However, it has also been the most volatile (14.05 per cent) with the third highest maximum drawdown figure (18.91 per cent) in the sector.

Performance of fund vs sector and benchmark over 5yrs


Source: FE Analytics

The £544m fund is run by Kentaro Nishida, who has managed the fund since its launch in 2009. It has beaten the FTSE Japan index and the sector by 19.3 and 69.78 percentage points respectively.

The fund invests primarily in Japanese equities though Japanese fixed income securities and fixed income securities and equities from other regions can be added. It has a clean ongoing charges figure of 1.25 per cent.

Also on the list is the £513m Invesco Perpetual Managed Growth fund, run by Nick Mustoe. The fund has returned 109.25 per cent over the last five years, placing it in the top decile of performers in the sector.

The fund has a much lower volatility (9.47 per cent) and maximum drawdown (12.57 per cent) than the two others on this list and also has the highest Sharpe ratio – a measure of risk-adjusted returns – of 1.28.

It is a predominantly fettered multi-asset product, meaning it invests in funds from its own investment house, with Invesco Perpetual European Equity, and Invesco Perpetual US Equity its top two holdings.

Indeed, the only holdings in the portfolio not from Invesco are ‘other’, which it classifies as direct US securities. The fund has a yield of 1.17 per cent and an OCF of 1.07 per cent.

The final entrant on the sector is the £81m Neptune Global Alpha fund, run by Robin Geffen, which has returned 89.62 per cent over the last five years.

The fund has been the second most volatile however (13.4 per cent) and has the fourth highest maximum drawdown (18.66 per cent).

The equities-focused fund, which has the option to buy bonds and to up its cash exposure above 20 per cent, is currently heavily weighted to the technology sector as well as industrials and financials. It has an OCF of 0.85 per cent.

In the highest equity-band IA Mixed Investment 40-85% Shares sector, four funds have managed top-quartile returns while experiencing high volatility and maximum drawdowns.

Table of funds with top quartile funds with high volatility and maximum drawdowns over 5yrs


Source: FE Analytics

The first on the list is the £7m HC Sequel Global Target Income Strategy fund, which aims to provide an income of 4 per cent to investors per year over a full market cycle.

Over the longer term, it is expected to have a higher weighting in equities over any other asset class and therefore the fund may have a relatively high degree of volatility.

The fund has returned 78.99 per cent over the last five years with volatility of 8.68 per cent and a maximum drawdown of 10.79 per cent.

It currently has a 71.6 per cent weighting to equities, 10.2 per cent in alternatives, 15.8 per cent in fixed income and 2.4 per cent in cash. The fund has an OCF of 1.58 per cent.

The next best performing fund is the Premier Liberation VI, run by David Hambidge, David Thornton, Ian Rees and Simon Evan-Cook.

The £76m fund is part of Premier Asset Management’s range of volatility-mapped funds and has its largest position in UK equities (33 per cent).

It has returned 79.76 per cent over the last five years, with volatility of 8.2 per cent and a maximum drawdown figure of 9.93 per cent – the lowest of the four funds above.

The fund, which in turn invests in other funds rather than direct securities, has a yield of 1.84 per cent and an OCF of 1.44 per cent.

Marks & Spencer Worldwide Managed is the next best performer, having returned 75.25 per cent with volatility of 8.35 per cent and a maximum drawdown of 10.7 per cent.

It is run by HSBC Global Asset Management (UK) Limited which directly manages a proportion of the fund and sub-delegate the remaining fund management to specialist advisers.

In May last year Wellington Management International Limited was removed from the fund and replaced by Sanders Capital and Axiom International Investors. Insight Investment manages the bond part of the fund.

The £636m, four crown-rated fund has an OCF of 1.56 per cent.

The final fund is Standard Life Investments Global Advantage, which has returned 74.84 per cent while experiencing volatility of 8.18 per cent and a maximum drawdown figure of 10.29 per cent.

The £591m fund is currently 26.8 per cent weighted to UK equities, with 8.5 per cent in cash and 16.2 per cent in fixed interest.

It has 378 positions in the portfolio, with Shell, HSBC and BP its top three holdings. The fund has a yield of 1.54 per cent and an OCF of 0.66 per cent.

The final sector is IA Mixed Investment 20-60% Shares, which as you might expect has seen lower returns but also lower volatility and maximum drawdowns than the other sectors mentioned.

Table of funds with top quartile funds with high volatility and maximum drawdowns over 5yrs


Source: FE Analytics

Another Premier fund – Premier Liberation V – cracks the list with returns of 69.82 per cent, placing it in the top decile of the sector.

However it has experienced 6.83 per cent volatility and a maximum drawdown of 7.98 per cent – both bottom quartile figures.

The four crown-rated fund, also managed by the multi-asset team named above, is 24.6 per cent weighted to bonds with 5.4 per cent in alternative assets.

The £109m fund of funds is most invested in the UK, with a 26 per cent allocation and owns GLG Undervalued Assets and BlackRock UK Focus as its two largest funds in the space.

Premier Liberation V has a yield of 1.85 per cent and an OCF of 1.37 per cent.

The next fund is the fellow four crown-rated M&G Episode Income run by FE Alpha Manager Steven Andrew.

The fund has turned 55.2 per cent over the last five years with volatility of 6.66 per cent and a maximum drawdown of 10.5 per cent.

The £722m fund is 44.9 per cent weighted to equities, 35.8 per cent in government bonds and 6.6 per cent in corporate bonds.

The largest holding in the fund are US government 30-year treasuries, which has an 11.6 per cent weighting to the fund. It has a yield of 2.53 per cent and an OCF of 0.8 per cent.

The final fund is the five crown-rated AXA Global Distribution fund run by Jim Stride.

The manager announced his retirement this week, with Matthew Huddart – co-manager on the fund since February – taking ownership alongside Jamie Forbes-Wilson when Stride leaves at the end of July.

The £168m fund has returned 63.21 per cent over the last five year, with volatility of 7.28 per cent and a maximum drawdown of 8.48 per cent.

The fund is 51.01 per cent invested in equities with 27.4 per cent in global fixed interest and 14.24 per cent in UK index-linked bonds. It has an OCF of 0.8 per cent and a yield of 1.25 per cent.

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Data provided by FE. Care has been taken to ensure that the information is correct, but FE 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.

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