In the last decade, FE Alpha Manager Sebastian Lyon’s £1.9bn portfolio has one of the best risk-return ratios of any fund in the open-ended universe.
His focus on outperforming the FTSE in down markets and providing competitive returns during rallies has paid off handsomely, sending the fund to the top of its IMA Flexible Investment sector over 10 years with returns of 150 per cent. This compares with 65.19 per cent from the All Share, which has been far more volatile.
In 2008 the fund managed to return 1.11 per cent while equity markets were in free-fall – something that confirmed Lyon’s status as an effective preserver of capital.
When the portfolio soft-closed almost a year ago – which effectively means that it is no longer open to new money – private investors and their advisers were understandably disappointed and many are yet to find a fund to match the low-risk, consistent returns of Lyon’s.
However, the £1.3bn Baillie Gifford Diversified Growth fund may be the answer.
A number of parralels can be drawn between the two portfolios. According to FE data, the Baillie Gifford fund has returned 42.24 per cent since it was launched almost three years ago, compared with 44.25 per cent from the Trojan fund. It is even harder to split the funds in terms of volatility. Baillie Gifford Diversified Growth has an annual score of 5.26 per cent while Lyon’s product has a score of 5.3 per cent.
Performance of funds since 29 May 2009
Source: FE Analytics
Like Trojan, Baillie Gifford Diversified Growth protects against the downside far more effectively during market downturns than the majority of its peers. During a turbulent 2011, the fund managed to break even; by contrast, the average portfolio in the Flexible Investment and Mixed Investment 40-85% Shares sectors were down 8.37 and 5.4 per cent respectively.
The £1.3bn fund has attracted a lot of institutional money but is yet to be picked up by investors on the retail side.
"Our strategy with that fund is to build a track record before pushing it in the retail market," said James Budden, head of retail marketing at the group. "It’s available on some of the platforms so investors are free to buy it if they want. We’re going to push it to the retail side eventually but at the moment the managers are preoccupied with the business of delivering strong returns and building that record."
The portfolio reaches the important three-year milestone next month, which could result in a greater uptake from retail investors.
However, the fact that it sits in IMA Specialist rather than a multi-asset sector is another reason why it may not be on all advisers’ radars.
"It’s not an Absolute Return fund and it’s not a balanced or managed type of fund," explained Budden. "The managers don’t want to be limited in the assets they invest in. They want to remain as flexible as possible and as a result, it’s ended up in the Specialist sector."
The fund invests in a range of instruments including direct equities and bonds, collective investment schemes, ETFs, private equity, infrastructure, commodities and currencies.
Mike Brooks and Patrick Edwardson co-manage the fund and while returns have been impressive so far, neither have a long track record – particularly compared with the likes of Lyon. This should be an important consideration for new investors.
The fund has a minimum investment of £1,000 and a TER of 1.61 per cent. It also has five crowns from FE.