Personal Assets Trust, Evenlode Income and Invesco Perpetual Distribution are three funds investors should look to add this ISA season if they are currently have a more cautious mindset, according to market commentators.
ISA season is in full swing and investors have until the 3 April to make use of the tax-free gains on offer but for those concerned about markets it is a particular difficult time to know what to buy.
Both equities and bonds have been rising for the last decade but with valuations at or near record levels in most stock markets, many are concerned that equity markets may be due a sustained correction.
Performance of indices over 10yrs
Source: FE Analytics
Meanwhile, with interest rates forecast to rise over the next 12 months and the Fed starting to shrink its balance sheet, bonds have started to sell off over the past year.
As the above chart shows, the MSCI AC World index is up 163.82 per cent over the last 10 years while the Bloomberg Barclays Global Aggregates index has returned 87.92 per cent – though it is down 10.47 per cent since its peak in October 2016.
Below, FE Trustnet asks commentators to suggest three funds that may be worth considering for those investors nervous about the potential returns on offer from the two asset classes.
We start with an investment trust and Hargreaves Lansdown senior analyst Laith Khalaf suggested the £872m Personal Assets Trust run by FE Alpha Manager Sebastian Lyon.
“The aim of this trust is to preserve and increase (in that order) capital over the long term,” he said.
“There are currently four main elements to the trust: the shares of larger companies, often with dominant market positions, selling products that millions buy regularly (including Unilever, Coca-Cola and Nestle); US and UK inflation-linked government bonds for inflation protection; gold bullion as a long-term store of wealth; and cash.
“This balanced approach is likely to look dull when stock markets are rising rapidly, but it comes into its own when they fall.”
The trust has struggled over the last five years, sitting in the bottom quartile over one-, three- and five-year periods as the market has been driven by momentum stocks that have continued to grind higher.
However, during periods of market stress Personal Assets has outperformed, most notably in 2008 when the portfolio lost just 3.24 per cent versus the sector average’s 24.88 per cent loss and the FTSE All Share’s drop of 29.93 per cent – although it should be noted Lyon took over the fund in 2009.
Performance of fund vs sector and benchmark over 10yrs
Source: FE Analytics
It has also been a top quartile performer in both 2011 during the European debt crisis and the taper tantrum of 2014. In both years it was the second-best performing fund in the sector.
Currently, it is 43.3 per cent weighted to equities, with 41.9 per cent in bonds, 8.7 per cent in gold and 6.1 per cent in cash.
Personal Assets has a dividend yield of 1.4 per cent and ongoing charges of 0.95 per cent, according to the Association of Investment Companies (AIC). Its shares are on a premium to net asset value (NAV) of 1.4 per cent.
Invesco Perpetual Distribution
Turning to open-ended options, Downing fund of funds manager Neil Shillito suggested Invesco Perpetual Distribution.
The portfolio is 64.61 per cent weighted to bonds and 33.46 per cent weighted to equities – of which a large proportion are income-focused stocks.
“It is a fabulous fund. I would recommend to anyone with a cautious mindset,” Shillito said.
“It never deviates from what it says on the tin. It provides a high, sustainable income with an element of capital growth over the longer term and you really can invest in that fund and not lose any sleep.”
The bond segment of the portfolio is managed by Paul Causer and Paul Read with the equities portion run by Ciaran Mallon, who took over from FE Alpha Manager Neil Woodford following his departure from Invesco in 2014.
Shillito said: “They have got it so right. It just churns out 5-6 per cent per annum forever.”
Since its launch in 2004 Invesco Perpetual Distribution has returned 158.1 per cent versus the IA Mixed Investment 20-60% Shares average peer’s 100.49 per cent.
While many are concerned about the potential end of the great bond bull market however, Shillito said that the managers are well placed to deal with it.
“The fund has been running of so long now that they have been through three market cycles at least. I know you can trace the current bond bull run back 30-35 years but that is only with hindsight. When you actually look at it, it has been up and down like a yo-yo,” he said.
Invesco Perpetual Distribution has a yield of 4.31 per cent and a clean ongoing charges figure (OCF) of 0.82 per cent.
Last up, and more risky than the other two portfolios above, is the equity-only TB Evenlode Income fund headed up by lead manager Hugh Yarrow.
The FE Alpha Manager recently announced the five FE Crown-rated fund is to soft-close in May, giving investors a limited time to buy the fund should they wish to make use of their ISA allowance.
Ben Stoves, investment analyst at Rowan Dartington, said: “It is a defensive UK equity income fund that invests in companies that can compound earnings and steadily grow their dividend through difficult market conditions.
“The fund will hold little-to-no mining stocks or banks and will inevitably lag a cyclical bull market but should protect on the downside.
“It will harbour plenty of overseas revenue and looks to utilise the flexibility within its mandate to hold up to 20 per cent in overseas stocks, moderating its exposure to the UK economy and Sterling, relative to its peers.”
Currently Evenlode Income has 81.7 per cent invested in the UK with 13.3 per cent in the US, 2.3 per cent in Europe and 2.7 per cent in cash. The firm also recently launched Evenlode Global Income, headed up by Ben Peters who is deputy manager on the UK fund.
The £1.9bn fund has been a top quartile performer in the IA UK All Companies sector since its launch in 2009 – although it originally started out in the IA UK Equity Income sector.
Performance of fund vs sector and benchmark since launch
Source: FE Analytics
It was ejected from the sector in 2016 after narrowly falling short of the rule to achieve a yield of more than 110 per cent of the index over three years.
Despite these rules being relaxed to 100 per cent of the index’s yield the fund remains in the IA UK All Companies sector. Were it still in the sector it would be the third-best since launch, according to FE Analytics.
Evenlode Income has a yield of 3.4 per cent and an OCF of 0.9 per cent.