The UK equity market has staggered to its highest levels since August’s hazardous Black Monday sell-off this past week with the FTSE 100 spending most of this time over 6,400 points.
Having fallen to 5,898 on Black Monday, its lowest level for three years, there was ample opportunity for bargain hunting for the contrarian investors out there.
While markets have broadly snapped back somewhat, they are still mostly down versus their pre-Black Monday levels and, in the case of the FTSE 100, even more so from its highest ever peak back in April.
In a recent article we looked at some of the equity-only funds run by FE Alpha Managers that were carrying significantly more cash than their peers and therefore able to look for ‘bargains’.
In this article we take a look at funds in the absolute return, strategic bond and multi-asset spaces with high weightings to cash and headed by an FE Alpha Manager, for anyone looking to make the most of the currently low markets.
First up is this £9.2bn portfolio, run by Iain Stewart since 2004. It has 23 per cent held in cash.
Stewart prioritises capital preservation while seeking a cash plus 4 per cent return in a full calendar year, on average, over the longer term.
He has an unconstrained and flexible approach but also makes use of Newton’s thematic style. This has led Stewart to expect greater volatility to come, although the manager has been adding direct exposure since Black Monday by reducing short positions.
His high weighting to cash, however, is matched with about 50 per cent in equities. The largest of these include positons in Microsoft, Roche and Novartis. The laregst overal positions are all US treasury bills followed by physical gold exposure, which typically does not do well when interest rates rise.
Over the past 10 years the fund has delivered a return of 87.96 per cent, just a few percentage points shy of the FTSE All Share’s gain over this period. However, it has done so with considerably less volatility.
Performance of fund, sector and index over 10yrs
Source: FE Analytics
The fund has a clean ongoing charges figure (OCF) of 1.11 per cent.
FE Alpha Manager John Pattullo has managed this £1.3bn fund for even longer than Stewart has his, having taken on the management in 1999. Fellow FE Alpha Manager Jenna Barnard joined in 2006 as co-manager.
They currently have 12.98 per cent in cash, almost three times the average amount in the IA Sterling Strategic Bond sector.
Pattullo recently told FE Trustnet he thinks the market is overly concerned by worries that fixed income, particularly sovereign debt, was going into a bursting bubble scenario – a view he doesn’t share.
With the expectation of lower yields to come Pattullo has been adding duration – interest rate sensitivity – and his largest holdings include both sovereign and corporate debt.
The fund has returned 26 per cent over the past five years versus 26.3 per cent from its average peer.
Performance of fund, sector and index over 5yrs
Source: FE Analytics
The fund has a clean OCF of 0.7 per cent.
The Aviva Investors Multi Asset range
Across the Aviva Investors Multi Asset fund range, which is labelled numerically from 1 to 5 based on different levels of risk, the higher the number the higher the level targeted, there is a decent weighting to cash.
FE Alpha Manager Nick Samouilhan has managed the range, which now totals around £1bn, since November 2010 with Peter Fitzgerald joining as co-manager in 2013.
The whole range has a high weighting to cash relative to peers with the Aviva Investors Multi Asset I having the highest at 25.3 per cent.
The Aviva Investors Multi Asset II fund has 19.6 per cent, Aviva Investors Multi Asset III 15.2 per cent, Aviva Investors Multi Asset IV 9.4 per cent and Aviva Investors Multi Asset V has 14.7 per cent.
Returns over the past three years have been broadly in line with the portfolios’ risk targeting, relative to each other.
Performance of funds over 3yrs
Source: FE Analytics
Samouilhan and Fitzgerald take a fund of funds approach, mainly utilising other Aviva Investors funds and trackers.
The current largest weightings in Aviva Investors Multi Asset I are the Aviva Investors Global Investment Grade Corporate Bond and Aviva Investors Multi-Strategy Target Return funds, which collectively make up almost 30 per cent of the portfolio.
Further up the risk spectrum, the duo make more use of equity trackers. For example in the Aviva Investors Multi Asset V fund, the five largest holdings are all equity trackers and make up about 75 per cent of the fund.
The largest is the BlackRock North American Equity tracker followed by BlackRock Continental European Equity tracker, BlackRock Japan Equity tracker and BlackRock Emerging Markets Equity tracker.
The funds have differing clean OCFs varying from 0.62 to 0.8 per cent.