The turbulent ride that came with 2015 may have made some investors glad that their assets were placed in risk-targeted funds but, as FE Trustnet has pointed out on a number of occasions, comparisons between these portfolios are difficult given a lack of appropriate sectors.
In reviewing their performance over the past year we have made use of FE’s custom Risk-Targeted Multi-Asset (RTMA) sectors, which categorises funds on their historic FE Risk Score. This is a measure of volatility relative to the FTSE 100 index: the index has a risk score of 100 and funds that have been less risky have a correspondingly lower score.
In the following article, we trawl through the five RTMA risk bands to see which funds have handed their investors the highest returns over the past year.
UK RTMA Risk Band 1
Funds in this sector are deemed to be the lowest risk as they have FE Risk Scores of less than 30. From this selection of funds, the front runner was Architas MA Active Reserve, which is managed by Caspar Rock and Nathan Sweeney.
The four FE Crown-rated fund posted a 2.64 per cent total return over the course of 2015, compared with a sector average of 0.85 per cent.
However, this gain has not come about by the managers taking excess risk – FE Analytics shows its annualised volatility was 2.77 per cent – the third lowest in the peer group and surpassed only by FP 8AM Multi-Strategy Portfolio I and FP Apollo Multi Asset Defensive.
Performance of fund vs sector in 2015
Source: FE Analytics
Given its cautious approach, 24.42 per cent of the £90.8m portfolio is in global fixed income, with 21.88 per cent in property, 18.37 per cent in UK bonds and 18.04 per cent in cash; the remaining 18.04 per cent in held in ‘other’ assets.
Top holdings outside of cash funds include UBAM Global High Yield Solution, BlackRock UK Gilts All Stocks Tracker, MedicX, RWC Global Convertibles and Starwood European Real Estate Finance.
Other top-quartile members of the sector include the likes of F&C MM Lifestyle Foundation, Rathbone Total Return Portfolio, Standard Life Investments MyFolio Managed II and SVS Cornelian Defensive.
UK RTMA Risk Band 2
Leading this sector, which is home to funds with FE Risk Scores of between 30 and 50, is Zurich Horizon Multi-Asset III with a 6.78 per cent total return and Zurich Horizon Multi-Asset II, which made 5.15 per cent.
These products are fettered funds-of-funds that invest in portfolios managed by Columbia Threadneedle and its group of companies, with top holdings in both including the likes of Threadneedle UK, Threadneedle UK Property and Threadneedle UK Corporate Bond. However, the products are only available on Zurich’s intermediary platform so might not be familiar to most investors.
One fund that is accessible to all investors is Peter Michaelis and Simon Clements’ Alliance Trust Sustainable Future Cautious Managed fund, which came in third place with a 4.87 per cent gain.
Performance of funds vs sector in 2015
Source: FE Analytics
As its name suggests, the fund is based on sustainable, responsible and impact investing and seeks out companies with a product or service that offers or benefits from environmental or social trends.
Because of this, the portfolio is structural underweight sectors such as oil & gas and mining, which were hit hard last year by the falling oil price and slowing growth in China. Its top holding is Vodafone, followed by Legal & General and Visa.
Other top-quartile performers in the sector include Standard Life Investments MyFolio Managed IV, IFSL Brooks Macdonald Cautious Growth and FP Apollo Multi Asset Balanced.
UK RTMA Risk Band 3
Another one of Zurich’s funds – Zurich Horizon Multi-Asset IV – leads the performance table of this sector, which is home to funds with FE Risk Scores between 50 and 70. Again, this is only available on the group’s intermediary platform.
In second place, however, is Jonathan Webster-Smith and Mark Shield's IFSL Brooks Macdonald Strategic Growth fund with its 6.21 per cent total return in 2015. It’s a fund of funds product, with top holdings being Fidelity US Index Tracker, Findlay Park American, JO Hambro Continental Europe, Standard Life UK Equity Unconstrained and Old Mutual UK Dynamic.
Performance of funds vs sector in 2015
Source: FE Analytics
The fund tends to invest in global equities (the UK is the largest allocation at 33.33 per cent of assets, followed by 16.37 per cent in the US) but has 4.85 per cent in hedges/alternatives and 6.99 in cash. This bias to equities means that it has been slightly more volatile than its average peer over the past 12 months.
Other notable mentions from this sector include Bambos Hambi’s Standard Life Investments MyFolio Managed V fund, which achieved a fourth consecutive year of top-quartile performance in 2015 after making a 5.25 per cent gain. This five FE Crown-rated fund invests in other Standard Life Investments vehicles – its top holding is the hugely popular Global Absolute Return Strategies (GARS) fund.
Close Managed Growth, SVS Cornelian Progressive, Alliance Trust Sustainable Future Managed, FP 8AM Multi-Strategy Portfolio III and SVS Brown Shipley Growth also feature in the peer group’s first quartile.
UK RTMA Risk Band 4
This sector houses funds with FE Risk Scores ranging 70 to 85 and the leading portfolio last year was David Fishwick and Eric Lonergan’s M&G Episode Macro fund with its 8.19 per cent total return.
Performance of funds vs sector in 2015
Source: FE Analytics
The fund aims to generate a higher return than global equities with lower volatility over rolling three to five year periods. It beat the MSCI AC World index by a comfortable margin last year but is slightly lagging over three years and is behind by 20 percentage points over five year.
It has an unconstrained approach to investing and is able to take long or short positions in any investable asset, making it the most flexible of M&G’s multi-asset funds.
The team behind the multi-asset range look for examples of where investor behaviour has moved assets away from what it views as appropriate valuation levels, then seeks to take advantage of “these emotionally driven short-term misalignments”.
There’s another Zurich fund in second place in this sector – Zurich Horizon Multi-Asset V. This is only on the intermediary platform.
Next up is James Bateman's Fidelity Wealthbuilder fund, which made 6.16 per cent through a portfolio of other funds managed by Fidelity.
Also appearing in the peer group’s top quartile is Margetts Greystone Global Growth, M&G Episode Growth, Alliance Trust Sustainable Future Absolute Growth and Architas MA Active Growth.
UK RTMA Risk Band 5
The highest risk sector in our risk-targeted universe holds the funds with FE Risk Scores of more than 85. There’s only three funds here and Alliance Trust Sustainable Future Global Growth leads with a 5.58 per cent total return.
Also managed by Clements and Michaelis, it’s another sustainable portfolio that has benefitted from being away from 2015’s flashpoint areas like basic materials and oil & gas.
This means it has significantly outperformed its two peers: Aviva Investors Multi Asset V made 0.77 per cent while FP Multi-Asset DRP VIII lost 5.02 per cent.
