Just three funds from the 466 in the four multi-asset sectors have delivered consistently positive 12-month returns in recent years, according to data from FE Analytics.
Having previously looked at the IA Targeted Absolute Return sector, we turned our attention to the mixed asset sectors to find out which funds have managed to achieve positive rolling 12-month returns over the past three years.
Much like the absolute return sector, the Investment Association’s (IA) mixed asset sectors are home to a wide range of strategies, making benchmarking with peers sometimes problematic.
As such, FE Trustnet looked at the four mixed asset sectors – IA Flexible Investment, IA Mixed Investment 0-35% Shares, IA Mixed Investment 20-60% Shares, IA Mixed Investment 40-85% Shares – to find out which funds had delivered positive rolling 12-month returns over the past three years.
Data from FE Analytics revealed that LF Odey Continental European, Liontrust Sustainable Future Absolute Growth and Investec Diversified Income are the only three mixed asset funds with a long-enough track record to have made an above-zero return in each of the past 24 rolling 12-month periods to last month-end.
Rolling 12-month returns of sectors over 3yrs
Source: FE Analytics
Below, we take a look at the three strategies in closer detail.
LF Odey Continental European
First up on our list is the IA Flexible Investment sector’s LF Odey Continental European fund. The fund is five FE Crown-rated – putting it among the top 10 per cent of the industry – and is also overseen by an FE Alpha Manager, Oliver Kelton.
The £134.6m benchmark-unconstrained fund invests in a high-conviction portfolio of 20-40 Europe ex-UK mid- and large-cap stocks. It can also hold a high cash weighting, with around one-third of the portfolio currently held in cash instruments.
Typically, the manager seeks out companies where their competitive position, industry dynamics and cash generation will drive share price performance.
Over the past three years to last month-end, LF Odey Continental European has delivered a total return of 38.36 per cent compared with a 39.1 per cent for the MSCI Europe ex UK benchmark.
“European equity markets rallied strongly in the first quarter, recouping much of the losses of the final quarter 2018,” the manager noted in the most recent factsheet for LF Odey Continental European.
However, despite having held up well during the weak market backdrop of 2018’s second half, Kelton said, the fund failed to participate materially in the first quarter rebound. He attributed this to the fund’s high cash weighting, a weaker euro and stock selection.
Top holdings in the fund are currently dominated by the telecommunications stocks, such as top holding Orange (9.9 per cent), Koninklijke KPN (8.8 per cent), Telefonaktiebolaget LM Ericsson (6.5 per cent) and Deutsche Telekom (5.5 per cent).
The fund has an ongoing charges figure (OCF) of 1.25 per cent.
Rolling 12-month returns of funds over 3yrs
Source: FE Analytics
Liontrust Sustainable Future Absolute Growth
Another fund making our list from the IA Flexible Investment sector is Liontrust Sustainable Future Absolute Growth. The £224.8m, five FE Crown-rated fund is overseen by Peter Michaelis and Simon Clements.
Michealis and Clements invests in global companies based on their long-term return prospects and only those that meet its strict criteria for environmental and social responsibility.
The fund will typically invest at least 70 per cent of portfolio in global stocks with the remainder held in bonds and cash.
Currently the fund has 52 holdings, with the largest position held in water, hygiene & energy technologies firm Ecolab, representing 3.3 per cent of the portfolio.
The pair noted that 2019 had begun with two key risks in play: interest rates and the potential for policy error; and the threat of politics, including the US-China trade dispute and Brexit. However, both had subsided since the start of the year, they said, with markets rallying as a result.
As such, the managers reduced cash positions in Liontrust Sustainable Future Absolute Growth from 15 per cent at the start of the year down to 4 per cent by the end of the first quarter.
The fund has made a total return of 61.3 per cent during the past three years to last month-end and has an OCF of 0.93 per cent.
Investec Diversified Income
The final fund on our list is Investec Diversified Income, managed by industry veteran and co-head of multi-asset at Investec Asset Management John Stopford alongside Jason Borbora.
The £874.5m fund is sits in the IA Mixed Investment 0-35% Shares sector and targets long-term growth through investment predominantly in a range of bonds and other related derivatives. The diversified nature of the fund and the process centred on security selection reflects the manager’s approach to risk reduction.
Performance of funds over 3yrs
Source: FE Analytics
The pair build a diversified portfolio of 250-300 securities – from an initial universe of 25,000 – falling into growth, defensive and uncorrelated buckets.
“We believe a process that starts with, and is focused on, resilient income-generating security selection is the best way to generate defensive total returns,” noted the pair recently.
“This is important not just for the current climate, where yield is harder to find and aggressive capital appreciation tactics aren’t likely to work, but during any time when investors are looking for a more reliable source of capital.
“Which is why we see income like a dependable engine, able to drive returns through the ups and downs of the investment cycle.”
Investec Diversified Income’s third-quartile 12.13 per cent total return over three years perhaps highlights its focus on risk reduction. Given the approach to risk in the portfolio the managers consider absolute return or strategic bond strategies as their peers, rather than other funds in the IA Mixed Investment 0-35% Shares sector.
As such, its equity allocation currently sits at 26.8 per cent, according to the most recent fund factsheet available.
The fund targets an annual yield of 4-6 per cent with ‘bond-like’ volatility and the opportunity for long-term growth. It has an OCF of 0.76 per cent.