CFP SDL UK Buffettology, Pictet Security, SVS Church House Tenax Absolute Return Strategies and Artemis US Absolute Return are four strategies that won’t give investors too many sleepless nights, according to Skerrits Wealth Management’s Andrew Merricks.
Equity and bond markets have been increasingly volatile in recent months as investors have reacted to rising US interest rates, concerns about the escalating trade war between the US and China, and the ongoing Brexit rumblings.
With that in mind, FE Trustnet has asked several industry experts which funds provide a good amount of diversification and downside protection so investors can hold on to their investments and sleep soundly at night.
In the below article, Skerrits Wealth Management head of investments Andrew Merricks (pictured) provides his four fund picks.
CFP SDL UK Buffettology
The first fund highlighted by Merricks is CFP SDL UK Buffettology, overseen by veteran investor Keith Ashworth-Lord.
FE Alpha Manager Ashworth-Lord runs a concentrated portfolio of 25 to 35 holdings with a bias to small- and medium-sized companies and is well-known for his patient approach to investing. The manager makes use of the ‘business perspective’ investment style favoured by Ben Graham and Warren Buffett; he looks for companies that can maintain their profitability through competitive advantages and the strength of their brand.
“The Buffettology fund concentrates on longer term stock-picking. Keith Ashworth-Lord tries to block out background noise [e.g. Brexit] and focusses on the companies that he owns, and with whom he meets regularly. It’s done tremendously well since launch in a difficult environment,” said Merricks.
Indeed, the fund is top quartile over one, three and five years and has delivered an outstanding performance since launch in 2011, up by 207.31 per cent compared to the IA UK All Companies sector gains of 68.50 per cent.
Performance of fund vs sector since launch
Source: FE Analytics
CFP SDL UK Buffettology has an ongoing charges figure (OCF) of 1.23 per cent.
Pictet Security
The four FE Crown-rated Pictet Security fund is next on Merricks’ list.
Overseen by Yves Kramer alongside Alexandre Mouthon and Rachele Beata, the $4.6bn fund seeks capital growth by investing at least two-thirds of its total assets in a diversified portfolio of the shares of companies that contribute to safeguarding the integrity, health and freedom of individuals, companies and governments.
“Pictet Security is a fund I like because it invests in things that we all need and which are needed around the world. The need for security actually rises the less certain the global geopolitical picture becomes, so it tends to be quite resilient in downturns,” Merricks explained.
According to the Skerrits Wealth Management head of investments, both CFP SDL UK Buffettology and Pictet Security tend to be volatile but they also lose less than the market when there is a downturn, a reason they would suit the long-term investor.
“If you are investing for longer term growth and can stomach a bit of volatility then these are two buy-and-hold funds that I've used confidently within portfolios and funds that I run,” he said.
Since launch in 2009, Pictet Security has delivered a 271.11 per cent total return compared with a 127.91 per cent gain for the average IA Global fund and a rise of 173.78 per cent in the MSCI World index.
Performance of fund vs sector and index since launch
Source: FE Analytics
It has an ongoing charges figure (OCF) of 1.20 per cent.
SVS Church House Tenax Absolute Return Strategies and Artemis US Absolute Return
Two absolute return strategies are next on Merricks’ fund picks for investors to hold and sleep soundly at night.
The five FE Crown-rated SVS Church House Tenax Absolute Return fund has been run by FE Alpha Manager Jeremy Wharton alongside James Mahon since launch in 2007.
The £262m multi-asset, absolute return fund aims to produce a positive return over rolling 12-month periods with low volatility.
It does so through limited investment in equities and higher exposure to less volatile asset classes such as cash, fixed income, absolute return/hedge funds, infrastructure and property.
The £754.9m Artemis US Absolute Return fund is headed up by FE Alpha Manager Stephen Moore.
Moore and the US team at Artemis run the portfolio with a long/short approach, looking to invest in stocks for both positive and negative reasons.
“The Church House Tenax and the Artemis US Absolute Return funds are those that let you sleep at night in a downturn,” Merricks explained.
“I've tested them both through bad market corrections in 2016 as well as the one we are currently experiencing. This is the true test because so many absolute return funds fail when the pressure is applied.”
However, due to both funds’ preference for less volatile asset classes, Merricks noted these strategies may lag during stronger periods for risky assets, such as a strong equity market rally.
“The downside of both of these funds though is that they may let you sleep at night, but they don't tend to capture much upside when markets are moving up strongly,” he said. “It depends upon what you as an investor value more.”
He added: “I've used them as part of an overall defensive or careful portfolio and blended them with funds such CFP SDL UK Buffettology or Pictet Security to generate longer term growth returns.”
While the average fund in the IA Targeted Absolute Return sector has delivered a 6.23 per cent gain over three years, SVS Church House Tenax Absolute Return and Artemis US Absolute Return are up by 8.75 per cent and 5.58 per cent respectively.
Performance of funds vs sector over 3yrs
Source: FE Analytics
SVS Church House Tenax Absolute Return’s ongoing charges figure is 1.32 per cent and Artemis US Absolute Return has an OCF of 0.86 per cent.