He believes these funds are best to put at the core of a new portfolio for cautious and inexperienced investors.“If you don’t want to go for greater returns and greater risk, these funds are for you,” he said. “You can look away from them for a bit longer than normal. They have more flexibility to make asset-allocation calls, which is good for first-timers.”
“For the relativity new or cautious investor, Cazenove Diversity Income can potentially outperform cash in in the long-term as it has a 'cash-plus' mandate and a risk budget.”
“The income gives you a bit more of a yield and it’s a fund of funds approach with good managers in Marcus Brookes and Robin McDonald.”
“To complement, or in place of Cazenove Diversity Income, Standard Life GARS is good.”
“Clients may not understand exactly how it works, but it’s got a volatility budget, so you know that the process works to give you that consistent return within a separate risk parameter.”
Performance of fund vs sector and benchmark over 3yrs
Source: FE Analytics
According to FE Analytics, Cazenove Diversity Income has outperformed both its sector and benchmark over three years. It has returned 28.13 per cent compared with a sector average of 17.03 per cent.
The fund will be renamed Schroder MM Diversity Income from 24 March.
“This fund can be appealing for new investors, given the investment diversification and active management,” Wise continued.
“The investment process is designed to achieve RPI plus 4 per cent over the medium-term, yet with an asset allocation of a third equity, a third fixed interest and a third in alternatives.”
“It is achieved through a fund of funds approach, with the managers having control of both asset allocation and stock selection to these prescribed limits.”
“This ensures there is some degree of risk management, in addition to achieving the fund’s mandate, and provides diversification for a portfolio.”
“In addition, as the process restricts exposure to the different asset classes, it ensures that volatility should also be controlled, which for new investors may be an important consideration.”
The fund requires a minimum investment of £1,000 and has ongoing charges of 1.9 per cent.
Performance of fund vs sector and benchmark over 3yrs
Source: FE Analytics
According to FE Analytics, Standard Life Global Absolute Return Strategies has returned 17.75 per cent over three years compared with a sector average of 8.06 per cent. It has also beaten the rate of inflation.
“Again, this process is trying to achieve an absolute return, yet managing the risk within the fund.”
“This is achieved through a wide variety of investment strategies designed to achieve positive returns in all market conditions over the medium-term.”
“Over recent times, with market cycles becoming shorter and equity market shocks more frequent, GARS can be appealing for new investors, given how the risk of the fund is controlled.”
“The mandate of the fund is to achieve near equity-like returns with lower risk, and so for new investors, this could be a good base from which to create a wider investment portfolio over time.”
Standard Life Global Absolute Return Strategies requires a minimum investment of £500 and has ongoing charges of 1.59 per cent.
Investors happy to take on more risk should consider a global fund, in particular M&G Global Dividend or Invesco Global Equity, Wise says.
“With more of a global feel, you get exposure to both domestic and emerging markets.”
“You want to look at the views of the managers in terms of how flexible the remit is, so it can invest in any company across the world to achieve income and capital growth and those funds both have pretty consistent track records.”
Performance of funds vs sector and benchmark over 3yrs
Source: FE Analytics
According to FE Analytics, both funds have outperformed their sector and benchmark over three years.
Invesco Perpetual Global Equity has returned 37.88 per cent while M&G Global Dividend has returned 33.96 per cent, compared with a sector average of 24.36 per cent and benchmark return of 21.7 per cent.
Invesco Perpetual Global Equity and M&G Global Dividend each require a minimum investment of £500 and have ongoing charges of 1.68 per cent and 1.66 per cent, respectively.
“If you want to be even more specific and try and time market falls, for instance the fall in emerging markets compared with developed markets and you’ve got a longer term investment horizon, something like Schroder Asian Income is a fund that’s a good way to get exposure to the Far East,” Wise added.
Performance of fund vs sector and benchmark over 3yrs
Source: FE Analytics
According to FE Analytics, the fund has returned 21.92 per cent over three years, compared with a sector average of 4.51 per cent and a benchmark return of 6.31 per cent.
The fund requires a minimum investment of £1,000 and has ongoing charges of 1.69 per cent. However, before investors decide which funds they like, Wise recommends they first consider their investment objectives and their budget.
“After that you can start to think about asset allocation and which funds to buy, as opposed to following what’s topical and what seems good to buy now,” he said.
“You’ve also got to consider if it is going to do well in one, two, three or five years.”
“This will depend a lot on would-be investors’ age, the assets they already own and their current wealth.”
“Make sure your investment strategy is right for what you want to achieve. This means not just thinking 'that’s done really well' and going for that one.”
