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The multi-asset funds embracing volatility to drive higher returns

In the last of its series, FE Trustnet examines the outperforming multi-asset funds over the last decade with higher risk than their peers.

Jonathan Jones

By Jonathan Jones, Reporter, FE Trustnet
Friday July 14, 2017

Multi-asset managers have had plenty of opportunities to outperform recently as fixed income and equities rallied strongly, with investors’ search for yield in the low rate environment boosting asset prices.

As the below chart shows, over the last decade, the MSCI All Countries World index and the Barclays Global Aggregates index have made similar returns, up 121.98 and 124.2 per cent respectively.

Performance of indices over 10yrs

 

Source: FE Analytics

But according to the latest study from FE Trustnet, some multi-asset managers that have been willing to take on more risk have prospered and delivered higher returns than their peers.

Previously, we explored the UK funds run by FE Alpha Managers with an FE Risk Score of more than 100 that have managed to outperform the market and sector with a top quartile high Sharpe ratio score – a measure of risk-adjusted returns.

The FE Risk Score is a measure of volatility relative to the FTSE 100 index over three years – with a score of more than 100 showing a fund has taken on a higher level of risk than the market. The Sharpe ratio shows how much excess return an investor is receiving for the extra volatility taken by holding a riskier asset.

More recently, we have also considered the top-rated global funds. Below we look at the multi-asset funds that have top quartile Sharpe ratios and total returns over the last decade with a higher risk score than the average peer.

 

IA Mixed Investment 0-35% Shares

In the IA Mixed Investment 0-35% Shares sector four funds have managed to provide top quartile returns with a top quartile Sharpe ratio and a higher risk score than the sector average.

Table of funds over 10yrs

 

Source: FE Analytics

Of the 20 funds in the sector that have a 10-year track record, the top four performing funds have all scored highly in both FE’s risk score and for Sharpe ratio.

However, the top performing fund is not the fund with the highest Sharpe ratio. Indeed, the best fund for risk-adjusted returns in the sector is the £276m CF Prudential Dynamic Focused 0-30 Portfolio.

The fund is run by Philip Butler, who took over in November last year, with Al Denholm (2014-2016) and Matthew Williams (2007-2014) also managing the fund for stints over the last decade.

It has been the third best performer in the sector, returning 73.9 per cent against the average peer return of 41.56, but has the best Sharpe ratio score of 0.41 and an FE Risk Score of 34.

The fund has a yield of 1.91 per cent and a clean ongoing charges figure (OCF) of 0.83 per cent.

The best performing fund in the sector is the four crown-rated Threadneedle Navigator Cautious Managed run by Alex Lyle.

The £12.4m fund, which has a yield of 1.36 per cent and an OCF of 1.64 per cent, has returned 79.93 per cent and has a Sharpe ratio of 0.4 – the second best in the sector.

The other two funds - Fidelity Multi Asset Income and Threadneedle Managed Bond Focused – both have a Sharpe ratio of 0.34 though the former has returned 3.89 percentage points more.

However, the Threadneedle fund has a much higher FE Risk Score (44) than the Fidelity fund (34).


 

IA Mixed Investment 20-60% Shares

Moving up a risk band, the IA Mixed Investment 20-60% Shares sector has a higher average FE Risk Score than the previous sector (42).

Of the 51 funds in the sector with a 10 year track record, 10 funds have made top quartile returns with a high Sharpe ratio and higher than average FE Risk Score.

In this sector, the top performing fund – CF Ruffer Total Return – is also the fund with the highest Sharpe ratio (0.63 versus the sector average’s 0.07).

The £3.2bn fund run by FE Alpha Managers David Ballance and Steve Russell has an FE Risk Score of 49, the second lowest of the group listed below.

The fund, which has returned 9.93 percentage points more than the next best fund, currently yields 1.56 per cent and an OCF of 1.22 per cent.

Table of funds over 10yrs

 

Source: FE Analytics

Kames Ethical Cautious Managed is another fund run by an FE Alpha Manager – Iain Buckle – who joined Audrey Ryan on the fund as co-manager in 2010.

The fund has returned 80.11 per cent over the last decade – sixth best in the sector – with a Sharpe ratio of 0.29 – ninth best – and an FE Risk Score of 47, the lowest of the group above.

The £599m fund has a yield of 1.89 per cent and an OCF of 0.79 per cent.

The only five crown-rated fund listed above is the £166m AXA Global Distribution fund run by Matthew Huddart, who took over from Jim Stride following his retirement last month.

It has been the best performer outside of CF Ruffer Total Return over the last decade, returning 106.59 per cent, and has the third best Sharpe ratio at 0.41.

The fund is the second most risky of the funds listed above with an FE Risk Score of 66. It has a yield of 1.25 per cent and an OCF of 0.8 per cent.

The fund with the highest FE Risk Score is the £445m, four crown-rated M&G Episode Allocation (68).

Run by Juan Nevado and Tony Finding since 2011, George Tsinonis and David Jane have also managed the fund over the last decade.

During this time the fund has returned 84.32 per cent with a Sharpe ratio of 0.31.  It currently has a yield of 1.5 per cent and an OCF of 0.85 per cent.


  

IA Mixed Investment 40-85% Shares

In the highest equity bracketed IA Mixed Investment 40-85% Shares sector, the average FE Risk Score rises to 58 with an average return of 60.61 per cent.

In the sector, the best performing fund is the four crown-rated Baillie Gifford Managed run by Iain McCombie and Steven Hay who took over from Elaine Morrison in 2011.

The £225m fund, which has returned 126.39 per cent, has the highest FE Risk Score of the funds below (77) and the fourth highest Sharpe ratio in the sector.

The fund is 19 per cent invested in bonds and holds 6.7 per cent in cash with remainder in equities. It has a yield of 1.24 per cent and an OCF of 0.45 per cent.

Table of funds over 10yrs

 

Source: FE Analytics

The second best performing fund in the sector is the four crown-rated McInroy & Wood Balanced, which has paid out 120.31 per cent over the last 10 years.

The £642m fund, which has an FE Risk Score of 70, has the highest Sharpe ratio of the list above and the second-best in the sector* at 0.46.

It is 60 per cent invested in equities, much less than the Baillie Gifford fund, with 34 per cent in bonds and 5 per cent in gold.

The fund has a yield of 1.57 per cent and an OCF of 1.13 per cent.

Also of note is the £387m EdenTree Higher Income fund run by FE Alpha Manager Robin Hepworth alongside David Katimbo Mugwanya and Thomas Fitzgerald.

The fund has the third highest Sharpe ratio in the sector (0.46) and has been the fifth best performer (104.82 per cent).

It is 70.57 per cent weighted to the UK market for both bonds and equities with 30.24 in financial stocks and 13.81 per cent in corporate bonds. The fund has a yield of 4.2 per cent and has an OCF of 0.79.

Hepworth is joined by Ian Spreadbury (Fidelity Moneybuilder Balanced) and Algy Smith-Maxwell and John Chatfeild-Roberts (Jupiter Merlin Balanced Portfolio) as the only FE Alpha Managers on the list above.

*The fund with the highest Sharpe ratio in the sector – CF Ruffer European – does not have an FE Risk Score above the sector average and is therefore not eligible for the list above.


 

IA Flexible Investment

The final sector is the IA Flexible Investment sector, which has an average FE Risk Score of 62, return of 56.73 per cent and Sharpe ratio of 0.09.

The best performing fund of the 66 with a 10-year track record is the five crown-rated Newton Osprey fund run by Robert Shelton.

The £32.1m fund, which is 14.9 per cent invested in bonds and holds 2.4 per cent in cash with the remainder in equities, has its largest geographic weighting to Europe ex UK (28 per cent).

The fund has returned 158.16 per cent over the last decade with a Sharpe ratio of 0.49 and an FE Risk Score of 83. It has a yield of 0.87 per cent and an OCF of 1.14 per cent.

Table of funds over 10yrs

 

Source: FE Analytics

The fund with the highest Sharpe ratio of the above, and the second highest in the sector* is MFS Meridian Global Multi-Asset (0.5).

Run by Benjamin R. Nastou and Natalie I. Shapiro since 2011, the fund has returned 118.99 per cent – the third best return in the sector over the last decade – and has the joint second highest FE Risk Score of the funds above.

The fund, which uses a long-short strategy, is currently 34.26 per cent long equities and 38.79 per cent long fixed income with 14.5 per cent invested in commodities and 21.25 per cent held in cash.

The $69.5m fund has an OCF of 1.01 per cent.

The fund with the highest FE Risk Score is the £84.4m Margetts Venture Strategy run by Toby Ricketts, which has a score of 97.

It invests mainly in international equities, with 34.7 per cent of the fund weighted to Asia Pacific, 28.3 per cent in emerging markets and 6.4 per cent held in cash.

The fund, which has been one of the most volatile in the sector, has returned 111.07 per cent over the last 10 years. It has a yield of 1.07 per cent and an OCF of 1.26 per cent.

The only fund on the list run by an FE Alpha Manager is the four crown-rated, £1.9bn Jupiter Merlin Growth Portfolio.

FE Alpha Managers Algy Smith-Maxwell and John Chatfeild-Roberts co-manage the fund alongside Amanda Sillars and David Lewis.

It has returned 100.71 per cent over the last 10 years, has a Sharpe ratio of 0.32 and an FE Risk Score of 80. The fund yields 0.4 per cent and has an OCF of 1.73 per cent.

The fund of funds is 31.5 per cent weighted to US equities, 25.9 per cent to UK equities and 16.7 per cent to ‘global equities’.

*The fund with the highest Sharpe ratio in the sector – CF Ruffer Equity & General – does not have an FE Risk Score above the sector average and is therefore not eligible for the list above.


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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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