Jupiter Strategic Bond, Threadneedle UK Property and CF Woodford Equity Income are among some of the most popular funds to be chosen by FE’s panel of leading financial advisers over the last two AFI Cautious portfolio rebalances.
The funds within the AFI indices are chosen through portfolios that the panellists submit, which must have a maximum of 10 holdings – the weightings of these portfolios must also be specified by the panellist.
Each index therefore has between 50 and 100 constituents, with the cautious portfolio designed for investors in their late-50s, the balanced portfolio for someone in their mid-40s and the aggressive portfolio for someone in their late-20s.
In the first part of this series, we take a look at the five funds that have been selected by the AFI panel as prime picks for a cautious portfolio.
First up is the £2.7bn Jupiter Strategic Bond fund, which has been headed up by FE Alpha Manager Ariel Bezalel (pictured) since 2008. 
The fund has an FE Risk Score of just 17, which indicates that the fund has only had 17 per cent of the risk of the FTSE 100 index over recent years.
In terms of risk metrics, the three crown-rated fund has a better-than-average annualised volatility, Sharpe ratio (which measures risk-adjusted returns) and maximum drawdown (which shows the money lost if bought and sold at the worst times) over one, three and five years.
It has also delivered consistently strong returns, having outperformed its sector average over the same time frames.
Performance of fund vs sector and benchmark over 5yrs
Source: FE Analytics
Bezalel is able to invest across a wide range of fixed income assets including government bonds, corporates, unrated assets and derivatives, given that the fund isn’t constrained to a benchmark.
These holdings are chosen by combining both top-down analysis and an individual bottom-up focus to identify areas of the market that are undervalued – this has resulted in a portfolio of 212 assets.
The FE Research team said: “Bezalel has taken full advantage of his unconstrained mandate. By varying the portfolio’s allocation to government bonds or high or low-rated corporate bonds according to his assessment of the economy, he has generated outstanding performance since the fund’s inception.”
Jupiter Strategic Bond has a clean ongoing charges figure (OCF) of 0.73 per cent and yields 4.4 per cent.
The second most popular cautious fund over the last two portfolio turnovers is Threadneedle UK Property, which has been run by Don Jordison since its launch in 2007 and co-run by Gerry Frewin since 2015.
The £1.4bn fund, which has an FE Risk score of 11, aims to provide both income and growth and does this through investing at least two-thirds of its holdings in commercial real estate – this can be through either direct or indirect exposure.
Since the fund’s launch, it has made a total return of 26.23 per cent, outperforming its sector average by 11.85 percentage points with less than a quarter of the annualised volatility and less than a third of the maximum drawdown.
It has also performed well during down markets, having significantly outperformed its sector average during the bear markets of 2008 and 2011.
Jordison and Frewin argue that a majority of the returns from a developed property market such as the UK will derive from income and as such the team aims to buy higher-yielding properties across various sectors.
“The management style of the fund can be seen as a little bit more aggressive than other commercial property funds,” the FE Research team said. “Its focus on smaller lots sizes allows it to find opportunities overlooked by other investors.”
Threadneedle UK Property has a clean OCF of 0.81 per cent and yield 4.1 per cent.
Managed by star manager Neil Woodford, this fund is unlikely to need an introduction to many investors – following the manager’s departure from Invesco Perpetual in 2014, Woodford’s own open-ended offering saw record-breaking inflows of more than £5bn within the first year of its launch alone.
The fund is currently £8.8bn in size and is able to invest across the cap spectrum, although it tends to have a bias towards larger, quality stocks such as Imperial Brands, AstraZeneca, GlaxoSmithKline and British American Tobacco.
While it mostly invests in UK companies, the fund is also allowed to hold up to 20 per cent in overseas stocks and currently has a 12.78 per cent weighting in North America and 5.86 per cent in Europe.
The fund has been awarded the highest Square Mile rating of ‘AAA’ for the manager’s contrarian and long-term investing style, which has successfully navigated his previous portfolios through the tech bubble burst in 2000 and the financial crisis of 2008.
“Mr Woodford’s investment track record is extremely impressive and though his contrarian nature can lead to periods where investors may require a dash of patience, he has proved time and time again that this patience is ultimately a well-rewarded virtue,” the Square Mile team said.
“Fundamentally, Mr Woodford is focused on producing a positive, not relative, long-term return for investors while providing a level of capital preservation and so this fund should perhaps be judged versus this objective, and not against how the market has done.”
That said, since the fund’s launch it has made a total return of 18.9 per cent, compared to its sector average’s return of 3.54 per cent and its FTSE All Share benchmark’s loss of 1.33 per cent.
Performance of fund vs sector and benchmark since launch
Source: FE Analytics
It also has a top-quartile maximum drawdown and Sharpe ratio over the same time frame although it does have an above-average annualised volatility.
Woodford Equity Income has a clean OCF of 0.75 per cent and yields 3.64 per cent.
Next up is Artemis Global Income, which has four FE crowns and has been managed by Jacob de Tusch-Lec since its launch in 2010.
The £2.9bn fund is one of the few offerings in the IA Global Equity Income space to outperform its benchmark, having achieved a top-quartile return over three years and a top-decile return of 68.17 per cent over five years, compared to the MSCI AC World’s return of 44.53 per cent and its sector average’s return of 41.3 per cent.
The fund is able to invest across the cap spectrum and the team uses a blend of both top-down and bottom-up processes when it comes to stock selection.
The fund also doesn’t require every stock to meet its yield requirement and buys holdings that offer a wide range of yields so as not to pile entirely into high-yielding mega-cap names.
From an initial universe of 8,000 stocks, de Tusch-Lec and his team uses a variety of quant screens which take into account metrics such as liquidity, free cash flow and balance sheet risk – the fund currently has a total of 108 holdings.
“The fund is ideally suited for investors who want to receive a sustainable source of income but are not willing to sacrifice capital gains,” the FE Research team said.
“Jacob de Tusch-Lec uses a proven approach to select stocks based on their dividend potential. We have been impressed not only by the manager’s capacity to read the macro environment, but also in understanding the dynamics of global equity markets.”
Artemis Global Income has a clean OCF of 0.81 per cent and yields 3.73 per cent.
The second property fund on the list, Henderson UK Property is the fifth most-popular ‘cautious’ fund among the AFI panel over the last two portfolio turnovers.
It is run by Marcus Langlands Pearse and Ainslie McLennan and consists of a portfolio of 359 holdings, most of which are direct property. As with many direct property funds, it holds a substantial cash weighting of 14.7 per cent, which used to ensure the liquidity of the investment vehicle.
The £4bn fund is supported by a large number of property professionals with specialist skills in areas such as risk analysis, development and finance and research and analytics, with the aim of providing both growth and income over the longer term. Most of these opportunities are sought by the managers in the south-east of England, although the fund is able to invest anywhere across the UK.
Over the management duo’s six-year tenure, the fund has provided a total return of 66 per cent, underperforming its sector average by 29.19 percentage points but boasting a top-quartile annualised volatility, Sharpe ratio and maximum drawdown over the same time frame.
Performance of fund vs sector and benchmark under Langlands Pearse and Ainslie McLennan
Source: FE Analytics
Henderson UK Property has a clean OCF of 0.84 per cent and yields 3.1 per cent.
