Designed to offer an easily recognisable option for investors who are concerned about risk, the managed sectors have been criticised by consumer bodies and IFAs who say that the titles of the sectors are misleading. Funds in the Cautious sector, for example, have in some cases held riskier portfolios than funds in the Balanced sector which is supposedly the next step up on the risk scale, and as a result the Investment Management Association has suggested some name changes but is holding off on any decision to conduct consumer tests before any official rebrand.
Key funds
The Trojan fund is a top-performing fund that is turning heads in the fund management industry. Over the short and medium-term it has returned more than any other fund in the sector with returns of 13.6 and 46.9 per cent over one and three years respectively. Over five years it is second only to CF Ruffer European, with returns of 77.4 per cent.
Performance of fund vs sector over 5-yrs
Source: FE Analytics
FE Alpha Manager Sebastian Lyon has said that the fund was set up to offer an alternative for investors disillusioned with the industry’s focus on relative rather than absolute returns.
Like his colleague Francis Brooke, whose Trojan Income fund is the second-best performing and least volatile fund in the IMA UK Equity Income sector over a five-year period, Lyon aims to construct a conservative portfolio that will fare better than his peers if markets take a sudden turn for the worse.
Investors interested in Trojan might also want to take a closer look at the CF Miton Special Situation Portfolio run by FE Alpha Manager Martin Gray. The fund is defensively positioned and Gray’s record speaks for itself: he was the one of the best-performing managers in the last crisis.
Risks and considerations
Investors must be careful not to be misled by the term "Balanced" when looking at this sector. The IMA’s criteria for entry into this group are far-reaching and include a broad cross-section of very differently managed funds. It is therefore important that investors take a close look under the bonnet and make sure the fund they have chosen fits in with their investment strategy and risk appetite.
Our view
This is a strong sector with good range of funds that have the potential to be the staples of any investor’s portfolio. There is a wealth of FE Alpha Managers operating in the Balanced Managed space and some brilliant all-round performers.
Investors must be careful when they pick a fund though and aim to determine exactly what it holds as there are some complex investment strategies on show as well as some real dogs.