However, as is the case with other sectors, only a handful of funds have managed to consistently top the tables in terms of volatility, max drawdown and downside risk, while maintaining a competitive total return in the process.
Two of the funds that stand out in this department over the longer term have recently moved from the IMA Mixed Investment 40-85% Shares sector into the IMA Flexible Investment sector: CF Miton Special Situations Portfolio and Trojan.
While this looks like an aggressive move on the face of it, because now they are able to hold 100 per cent in equities rather than a limit of 85 per cent, managers Martin Gray and Sebastian Lyon have explained that their underweight position in the asset class has been the biggest reason for their move, since the Flexible Investment sector allows managers to hold as little as they want in risk assets.
Both have said there could be a time when they drastically add to their equity exposure, but for now capital protection is clearly the priority.
According to FE data, both the Trojan and Miton portfolios are top-decile performers in their sector in terms of volatility, max drawdown and downside risk over the last decade, and are also top of the pile in terms of Sharpe ratio.
Downside protection of funds, sector and index over 10-yrs
| Name | Downside Risk | Max Drawdown | Sharpe | Volatility |
|---|---|---|---|---|
| CF - Miton Strategic Portfolio | 6.45 | -8.36 | 0.55 | 6.5 |
| Troy - Trojan | 4.92 | -9.81 | 0.87 | 7.4 |
| IMA Flexible Investment | 13.45 | -36.52 | 0.27 | 11.27 |
| FTSE All Share | 19.98 | -45.28 | 0.24 | 18.35 |
Source: FE Analytics
Both funds would also be top-decile performers in all these areas if they were in either the Mixed Investment 20-60% Shares or Mixed Investment 40-85% Shares sector.
Indeed, in spite of their dominance during down markets, which tends to result in underperformance during rebounds, Trojan and CF Miton Special Sits are both top-10 performers in terms of returns over the decade, delivering 158.84 and 97.71 per cent respectively.
Performance of funds vs sector and index over 10-yrs
Source: FE Analytics
Gray’s Miton portfolio was more dominant in the early and mid-2000s as it was more aggressively positioned than Lyon's, but both correctly called a severe correction in 2008, upping their exposure to traditional safe havens such as gold and Swiss francs.
In the last three years or so Gray’s £845m fund has struggled to keep up with the market, up just 8.95 per cent compared with 17.22 per cent from its sector. However, Gray’s ability to generate positive returns in 2008 when his peer group was down 26.11 per cent has more than compensated for this over five and 10 years.
CF Miton Special Sits is extremely defensive at present, which reflects the manager’s negative outlook. Gray has 32 per cent in cash, and just 31 per cent in equities. The rest is split between fixed interest, property and alternative assets such as absolute return funds.
It is a fund of funds, although it can hold individual equities and bonds. It has a total expense ratio (TER) of 1.73 per cent and a minimum investment of £1,000. Gray manages the fund with James Sullivan. Both are FE Alpha Managers.
Lyon’s portfolio has been able to keep up with the market in the last three years or so, although he remains relatively defensive compared with many of his peers.
He currently has 30 per cent in equities, and a bulky weighting to gold and gold equities. Gold Bullion Securities is by far the fund’s biggest single stock position, accounting for 8.4 per cent of assets.
Trojan has 16 per cent in cash. It has a TER of 1.05 per cent and while it is soft-closed to new investors, it is available to retail investors through numerous fund platforms.
Among the other standout performers in the multi-asset space is CF Ruffer Equity & General, which also sits in the IMA Flexible Investment sector.
The fund, which is run by FE Alpha Manager Alex Grispos, is a top-decile performer in terms of volatility, downside risk, max drawdown and Sharpe ratio over five and 10 years, but unlike Trojan and CF Miton Special Sits, it invests predominantly in equities.
Its current exposure to this asset class is close to 80 per cent, with the rest in cash.
Performance of fund vs sector over 10-yrs
Source: FE Analytics
The Ruffer fund is up 171.05 per cent over 10 years, compared with 88.82 per cent from its sector. It has an annualised volatility of 9.83 per cent over the period, while the average Flexible Investment portfolio scores 12.53 per cent.
Among Grispos’ biggest holdings is Anthony Bolton’s Fidelity China Special Situations trust, which has a 3.8 per cent weighting. The £191m fund requires a minimum investment of £1,000 and has a TER of 1.58 per cent.
The £2.2bn CF Ruffer Total Return fund has also consistently excelled in terms of downside protection in its IMA Mixed Investment 20-60% Shares sector, achieving top-decile performance in everything apart from volatility over 10 years.
It has a greater focus on fixed interest than Grispos’ portfolio, which currently has a 31 per cent weighting.
In the Mixed Investment 40-85% Shares sector, Ruffer European is the standout performer, but the four crown-rated McInroy & Wood Income fund, headed up by FE Alpha Manager Victor Wood, has also managed to deliver consistently strong returns with below-average volatility.