The years since the global financial crisis witnessed some varying market conditions, with heavy sell-offs combining strong bull runs, but flexible multi-asset funds are designed to ride these challenges out.
Funds in the IA Flexible Investment sector are expected to have a range of different investments, but have significant flexibility over what to invest in. There is no minimum or maximum requirements for their allocations to equities, bonds and cash, allowing the manager to chase opportunities wherever they see fit.
But have these funds been able to use this flexibility to maximise returns and minimise volatility since the start of 2009?
To see which of these multi-asset funds have generated better-than-average returns alongside relatively low volatility, we ranked the sector in terms of their average percentile rank for both metrics.
Below, we look at five funds that have some of the best track records of balancing risk with reward since the global financial crisis.
Trojan
In fifth place is Troy Asset Management’s £4.1bn Trojan fund, which is headed up by FE Alpha Manager Sebastian Lyon and Charlotte Yonge. It is in the 44th percentile for total returns (83.56 per cent) since the start of 2008 but has been the least volatile (6.94 per cent), giving an average percentile of 22.5.
Like all of the funds run by Troy Asset Management, Trojan places capital preservation at the heart of its approach. In order to protect investors’ money while growing its above inflation over the market cycle, Lyon builds the portfolio around ‘four pillars’ of strong international equities, inflation-linked government bonds, gold and cash.
Risk/return of fund vs sector since 2008
Source: FE Analytics
While the fund has successfully minimised volatility over the long run, Trojan’s cautious positioning does mean that it has missed out on some of the gains seen in the strong bull run that followed the financial crisis.
Square Mile Investment Consulting & Research, which gives the fund an ‘AAA’ rating, said: “The manager's longerterm approach means he is not distracted by shortterm relative performance which may force others into assets that represent poor absolute value. This allows him to be patient and preserve investors' capital during periods when risks are high and take on more risk when the risk/return potential is more favourable.”
Trojan has an ongoing charges figure (OCF) of 1.02 per cent.
TB Wise Multi-Asset Income
Next up is TB Wise Multi-Asset Income; its 115.13 per cent total return is in the ninth percentile while its 11.2 per cent volatility is 30th, giving an average of 19.5.
Managed by Tony Yarrow, Vincent Ropers and Philip Matthews, this £111.6m fund has the aim of generating a yield above that of the BATS UK All Companies index with the potential for income growth and capital growth over the medium to long term.
Risk/return of fund vs sector since 2008
Source: FE Analytics
Yarrow explained: “We invest in robust income streams and not in asset prices. The crucial ingredient in any investment we make is its ability to pay an attractive income stream, with the potential to grow over time.
“We invest in public markets and we cannot control the price fluctuations of the assets we own. We believe we are careful drivers, but sometimes the other road users are not and will persist in piling into markets at the top, and then piling out again at the bottom. These investors are adept at constructing narratives to justify their behaviour. We aim to use the volatility created by the herd mentality to our investors’ advantage.”
TB Wise Multi-Asset Income has a 0.87 per cent OCF and is yielding 5.40 per cent.
TB Wise Multi-Asset Growth
Coming in third place is another fund managed by Tony Yarrow and his team: TB Wise Multi-Asset Growth. It has combined 10th percentile returns (111.32 per cent) with 24th percentile volatility (10.71 per cent), resulting in an average ranking of 17.
As its name suggests, the focus of this portfolio is on capital growth, with aim of beating the BATS UK All Companies index over the medium to long term. The £111.6m portfolio focuses on high-quality funds and trusts that invest in out-of-favour areas.
Risk/return of fund vs sector since 2008
Source: FE Analytics
“We are looking for markets and sectors where we can see value and/or significant growth potential. Within these, we focus on managers with a disciplined, easy-to-understand investment process and with a similar level of dedication to ours,” Yarrow said.
“We tend to know our managers well, which allows us to allocate to the best asset classes managed by the best managers at times when their styles are often out-of-favour with other investors.”
Top holdings at present include the Caledonia Investments, British Empire and ICG Enterprise investment trusts as well as the open-ended JOHCM UK Equity Income, LF Ruffer Equity & General and Schroder Global Recovery funds.
TB Wise Multi-Asset Growth has an OCF of 1.20 per cent.
Unicorn Mastertrust
FE Alpha Manager Peter Walls’ £91.5m Unicorn Mastertrust came second in this research with an average percentile ranking of 16.5 since the 2008. This is because of its 11.37 per cent volatility (32nd percentile) and 142.3 per cent total return – the highest in the IA Flexible Investment sector.
The five FE Crown-rated fund is built around a portfolio of investment trusts. Walls has long experience in this part of the market, having been an investment trust analyst at Hoare Govett from 1983 to 1988 before becoming head of Credit Lyonnais Securities’ investment trust department; he took over Unicorn Mastertrust in 2001.
Risk/return of fund vs sector since 2008
Source: FE Analytics
Walls is a resolute believer in investment trusts. “A diversified portfolio of investment companies, offering exposure to a range of global markets, asset classes and investment processes, offers the prospect of above average long-term returns,” he said.
“Recent research from Cass Business School demonstrated that investment companies in the major equity sectors have not only outperformed open-ended funds since 2000, but have also outperformed their benchmarks even after taking account of fees.”
Alliance Trust, Aberforth Smaller Companies, Caledonia Investments, Edinburgh Investment Trust and Harbourvest Global Private Equity are the largest holdings.
Unicorn Mastertrust has a 0.82 per cent OCF.
LF Ruffer Equity & General
Holding top spot for its balance between returns and risk is the £122.5m LF Ruffer Equity & General fund, run by FE Alpha Manager Alex Grispos. It has an average percentile of just 7 for the two metrics; this is a result of 12th percentile total returns (111.12 per cent) and second percentile volatility (7.01 per cent).
The fund focuses on equities and currently has 20.8 per cent of the portfolio in North America, 20.7 per cent in the UK and 13.36 per cent in Europe. However, cash is a key part of its process and one-quarter of its assets are currently allocated here.
Risk/return of fund vs sector since 2008
Source: FE Analytics
Grispos tends to allow cash to build when markets are rising and getting more expensive, only to buy back into stocks on weakness. This approach has served the fund well over the long term.
In a recent update, the manager said: “We have been increasing our cash balance again. Nevertheless, we are always intensely focused on seeking value wherever we can find it.
“More recently, this has meant adding to our portfolio companies listed in the UK, an out-of-favour market. Our exposure to the large liquid US stocks has been declining, while we have been increasing our shareholdings in a few significantly undervalued securities, often smaller capitalisation stocks.”
LF Ruffer Equity & General has a 1.28 per cent OCF.