Many commentators have expressed concern that the hiccup is a sign that the rally is losing momentum and that the blue chip index is set for a further fall.
The following three funds are suitable for investors who take this view.
CF Miton Strategic
Charles Stanley’s Rob Morgan (pictured) tips FE Alpha Manager Martin Gray’s CF Miton Strategic portfolio for investors who want to scale back their risk exposure.
"He’s got a large proportion in currency, so cash basically," Morgan said. "It’s a fund with relatively low volatility and I expect it to hold up very well if things start going down or the market suffers a correction." Morgan says Gray’s cautious stance stems from his view that the financial crisis has not been properly dealt with and the current market rally is a direct result of overly loose fiscal policy, which will at some point in the near future come to a head.
Morgan adds that Gray’s portfolio benefits from a defensive exposure to gold and a high weighting to the US economy, which is in better shape than the UK and Europe.
While the fund has lagged the IMA Flexible Investment sector over one, three and 10 years, it is second quartile over five – the period that includes the market crash of 2008.
It was one of the best-performing funds in the falling markets of 2008 and 2011, making 14.66 per cent in the former. The sector lost an eye-watering 26.11 per cent that year.
Year-on-year performance of fund vs sector 2008 to 2012
| Name | 2012 (%) | 2011 (%) | 2010 (%) | 2009 (%) | 2008 (%) |
|---|---|---|---|---|---|
| CF Miton Strategic Portfolio | 0.76 | -0.59 | 9.46 | -0.01 | 14.66 |
| IMA Flexible Investment | 10.13 | -8.73 | 14.57 | 24.03 | -26.11 |
Source: FE Analytics
As Morgan mentioned, the highest weighting in the fund is to cash and cash-related assets, at 32.8 per cent.
The fund’s largest holding is the £502.4m CF Morant Wright Japan portfolio.
| Name | CF Miton Strategic |
|---|---|
| Fund Size | £255.6m |
| Min. Investment | £1,000 |
| OCF | 2.08% |
| Yield | N/A |
| Manager | FE Alpha Manager Martin Gray and James Sullivan |
| FE Crown Rating | 2 Crowns |
Source: FE Analytics
Standard Life GARS
Morgan says the Absolute Return sector is a good place to be for investors who want to protect their capital, but adds that Standard Life Global Absolute Return Strategies (GARS) is the only one of its funds he is happy to hold.
| Name | Standard Life GARS |
|---|---|
| Fund Size | £16bn |
| Min. Investment | £500 |
| OCF | 1.59% |
| Yield | 0.91% |
| Manager | SLI's multi-asset team |
| FE Crown Rating | 4 Crowns |
Source: FE Analytics
"I quite like it as an absolute return fund," he said. "Most absolute return portfolios are relying on just one strategy like long/short, but with this fund they have all sorts of things going on at the same time, which does make it more complicated, but also more diverse."
"It’s a fund capable of delivering positive returns year on year and can be a bit more consistent with those returns."
Morgan adds that the fund's annualised volatility of 5.31 per cent over four years is low both on a relative basis and compared with its peers.
The five crown-rated behemoth is one of only two funds in the IMA Absolute Return sector with a track record dating back to 2008 that has not lost money in a single calendar year.
Performance of fund vs sector and benchmark since launch
Source: FE Analytics
It has an extremely high weighting to cash and cash-related assets, at 42.23 per cent. Another 21.32 per cent of the fund is in global fixed interest.
Invesco Perpetual UK Strategic Income
Morgan tips the five crown-rated Invesco Perpetual UK Strategic Income fund for cautious investors who want to receive a steady stream of income.
"It’s a lot like Neil Woodford’s portfolios but much smaller. It’s a good mix of defensive, blue chip international earners, but it’s also a bit more nimble," he said.
"I really like that fund and it should hold up a lot better than your average UK fund."
| Name | Invesco Perpetual UK Strategic Income |
|---|---|
| Fund Size | £232.7m |
| Min. Investment | £500 |
| OCF | 1.20% |
| Yield | 3.18% |
| Manager | FE Alpha Manager Mark Barnett |
| FE Crown Rating | 5 Crowns |
Source: FE Analytics
The £232.7m Invesco fund, headed up by FE Alpha Manager Mark Barnett, is top quartile over one, three, five and 10 years, and has also significantly beaten the FTSE All Share over each period.
The fund has made 217.68 per cent over the last decade while the sector and index are up 146.36 per cent and 154.84 per cent respectively.
Performance of fund vs sector and index over 10yrs
Source: FE Analytics
Miton’s James Sullivan previously told FE Trustnet he was backing Barnett ahead of his star Invesco peer – Neil Woodford.
The highest weighting in the £232.7m fund is to healthcare stocks, which have recently experienced a revival. Consumer products, financials and industrial stocks also make up a significant portion of the fund.
While many of the manager’s top-10 holdings are steady, blue chip names such as British American Tobacco, AstraZeneca and GlaxoSmithKline, the manager also holds UK-based travel agency Thomas Cook.
The stock is certainly more of a recovery play than the other major bets in the fund, but it has paid off for Barnett.
After hitting rock-bottom in January 2012, it has gained 617.29 per cent.