Investors wanting to take a cautious stance have options open to them such as Personal Assets Trust, Janus Henderson UK Absolute Return and a trust investing in social housing, according to investment experts.
Over recent days, FE Trustnet has been finding out where a panel of fund pickers think investors with aggressive and balanced mindsets should be looking over the coming 12 months.
In the final article of the series – and given many are expecting 2019 to be just as volatile as 2018 – we ask what funds could look attractive to investors with more cautious portfolios.
Charles Stanley Direct & Tilney – Personal Assets Trust
Both Charles Stanley Direct pensions & investments analyst Rob Morgan and Tilney Investment Management Services’ Jason Hollands suggested the £923.3m Personal Assets Trust as a potential option for cautious portfolios in 2019.
“Personal Assets Trust has long been a favourite for those seeking wealth preservation in an uncertain world. Manager Sebastian Lyon has a reputation for navigating volatility, carefully blending a variety of assets to produce consistent returns,” Morgan explained.
Performance of fund vs sector over 20yrs
Source: FE Analytics
Hollands added: “Personal Assets Trust is a defensive investment trust, with capital preservation a key component of the strategy. The focus is on absolute returns rather than relative performance and so this is a portfolio that will lag strong market rises but help investors sleep more peacefully in tougher times.”
The portfolio is built around ‘four pillars’ of blue-chip equities, index-linked bonds, cash and gold. Morgan noted that this has proven to be a “resilient combination” as these four assets tend to move independently of each other.
The analyst continued: “The manager’s cautious stance inevitably leads to some unspectacular periods of performance. Indeed, over the past couple of years it has been somewhat left behind by other investments, especially those fully invested in the stock market.”
However, he noted that the trust has tended to come into its own during more difficult times. This is reflected in the global financial crisis of 2008, when the trust was down just 3.24 per cent – compared with a 29.93 per cent fall in the FTSE All Share.
Personal Assets has ongoing charges of 0.89 per cent, is trading on a 1.6 per cent premium to net asset value (NAV) and yields 1.4 per cent, according to the Association of Investment Companies.
AJ Bell – Janus Henderson UK Absolute Return
Ryan Hughes, head of active portfolios at AJ Bell, said investors might find it challenging to identify cautious areas to invest in over the next 12 months, particularly with corporate bonds remaining unappealing.
At the same time, UK equities face a difficult immediate outlook given the UK’s plans to leave the EU in early 2019 despite some uncertainty over exactly how this will look.
Performance of fund vs sector since launch
Source: FE Analytics
“As a result, the flexible approach of the Janus Henderson UK Absolute Return fund could be useful. With the ability to move both long and short, if equity markets continue their recent volatility into next year, protecting capital may be a greater consideration than outright growth,” he said.
“If that is the case, managers Luke Newman and Ben Wallace have proven before that they have the skillset to profit when markets become difficult. While it’s not a cheap fund, if the managers are able to deliver positive returns when the market is down, they will have earned their fees.”
The £2.3bn fund holds five FE Crowns for its superior performance in terms of stockpicking, consistency and risk control in recent years. Newman and Wallace, who both hold FE Alpha Manager status, have been running the strategy behind the portfolio since 2005, first in a hedge fund format before the OEIC launch in 2009, and have established a strong track record.
Janus Henderson UK Absolute Return has a 1.5 per cent ongoing charges figure (OCF).
Hawksmoor Investment Management - Civitas Social Housing REIT
Ben Conway, co-head of fund management at Hawksmoor Investment Management, suggested that a truly cautious investment should have strong valuation support. However, very few assets are cheap at the moment, making this aim “incredibly difficult”, although recent developments have left this Civitas Social Housing REIT looking very cheap.
“This REIT owns houses let to vulnerable adults. The price has been battered recently due to concerns over a regulatory judgement over one of the Housing Associations with whom it contracts. Even before this unfair knock to the price, the REIT offered a healthy yield with an uncapped inflation-linked income stream,” Conway explained.
Performance of trust vs sector & index since launch
Source: FE Analytics
“The sector is very poorly understood and researched, in our view. Civitas management come from the social housing sector and have excellent relationships with housing associations. They dealt with one troubled housing association quickly and efficiently without any loss of income. This country is in dire need of more social housing given rising demand. The government is committed to providing it via local authorities and there is cross-party support for the Care Act, which enshrines this in law.
“There are very few investments that offer full inflation-linked returns – most property investments’ lease agreements actually have caps and collars and index-linked gilts guarantee a negative real yield at current valuations – with, in our view, such low risk. At current levels, this REIT should deliver 5 per cent real yields for 20+ years.”
The trust offers exposure to 522 social housing properties spread across England and Wales and has 3,440 tenancies. The managers said the investments made by the vehicle are “intended to enhance the lives” of those that use its services; it also works in partnership with national homelessness charity Crisis as well the Choir with No Name to help tackle homelessness.
Civitas Social Housing has ongoing charges of 1.78 per cent, is trading on a 6.3 per cent discount to NAV and is yielding 5.1 per cent.
Premier – Jupiter Absolute Return
Simon Evan-Cook, senior investment manager for multi asset funds at Premier Asset Management, said the defensive parts of the multi-manager portfolios he works on use a selection of funds rather than rely on just one, as even the best managers can be side-swiped by bad luck.
However, when pushed for one fund cautious fund pick, he said: “One manager we rate here is James Clunie, who runs the Jupiter Absolute Return fund. We’d describe his returns over the last couple of years as pedestrian at best, but we think that was to be expected given the heavily momentum-driven markets over that time, which really work against his style.
Performance of fund vs sector & index under Clunie
Source: FE Analytics
“However, that momentum trade has begun to wobble in recent months and with it James’ performance has begun to improve. So we think this fund will be a useful component of a cautious strategy in 2019.”
Clunie’s approach aims to exploit inefficiencies in global equity markets and the manager focuses on stock selection, seeking to buy cheap businesses and short overvalued stocks to benefit from price falls.
The £1.5bn fund performed strongly from 2015 to mid-2016 when it was able to capitalise on increased volatility but struggled in 2017 when a period of calm descended on markets. It has outperformed in recent months as global equities went through a sell-off.
Jupiter Absolute Return has an OCF of 0.84 per cent.