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Funds that investors can hold alongside GARS and its like

24 February 2020

Trustnet asks several fund pickers which strategies investors can hold alongside some of the best-known absolute return strategies.

By Eve Maddock-Jones,

Reporter, Trustnet

While funds such as ASI Global Absolute Return Strategies, Invesco Global Targeted Return and Aviva Investors Multi Strategy Target Returns were popular in the past their stars have waned more recently as returns have failed to match those on offer elsewhere and some of their peers. 

But that doesn’t mean such strategies don’t have a place in portfolios, according to Darius McDermott, managing director at FundCalibre.

“The good ones can add diversification and a specific return objective for a specific amount of risk. The sector generally has disappointed, but there are still some good funds to be found.” McDermott said.

“Don’t dismiss the targeted absolute return funds completely, just choose better options.”

Monthly rolling three-year returns of funds since July 2017


Source: FE Analytics

Those investors that continue to hold ASI Global Absolute Return Strategies, Invesco Global Targeted Return and Aviva Investors Multi Strategy Target Returns in their portfolios, may wish to hold some other strategies alongside them.

Two of those options highlighted by McDermott are Brooks Macdonald Defensive Capital and SVS Church House Tenax Absolute Return Strategies.

The £722.2m Brooks Macdonald Defensive Capital fund is “truly multi-asset”, with manager Niall O’Connor investing in a “complicated” range of assets, a mixture of convertible bonds, preference shares, structured notes, bond and loan assets, and discounted assets.

McDermott said: “The managers use the range of tools available to them to dial up or dial down the fund’s sensitivity to market movements, which results in an intelligent investment mix that should see investors through a range of market environments.”

“Basically, the managers seek to create a portfolio with ‘predictable’ performance by investing in assets that have fixed returns.

“They are careful not to overpay and will always try to buy assets when they are trading below their intrinsic value.”

The five FE fundinfo Crown rated fund has made a total return of 23.04 per cent over five years, has a yield of 2.27 per cent, and an ongoing charges figure (OCF) of 0.82 per cent. Unlike some of its peers, the fund does not charge a performance fee.

Performance of fund vs sector over 5yrs


Source: FE Analytics


McDermott’s second pick is SVS Church House Tenax Absolute Return Strategies, another multi-asset strategy, investing directly in assets rather than a fund-of-funds.

James Mahon and FE fundinfo Alpha Manager Jeremy Wharton place a heavy emphasis on capital preservation and is “one of the few with a track record which goes back beyond 2008 and the global financial crisis”.

He added: “The fund is one of the few in the sector that targets an absolute return from diversification and risk management alone.

“The managers first form a macroeconomic view based on data, corporate activity, political risk, and the interest rate and inflation outlook. They then seek to gain an appropriate exposure across a broad range of asset classes.”

Over five years to 21 February, the £442m fund has made a total return of 12.72 per cent compared with a 3.02 per cent gain for the LIBOR GBP 3 Months benchmark. It has an OCF of 1.25 per cent.

It’s also a favourite of Andy Merricks (pictured), fund strategy consultant at Skerritts Wealth Management.

“It has been tested through different difficult market environments and generally passed each one with flying colours,” he said.

“Don’t get me wrong, if you were holding a dinner party for funds, you wouldn’t enjoy a particularly lively evening if you were sat next to it – I’m talking about the fund here, not the people running it: they’re lovely –and it would be the one to suggest you’ve had enough after your first schooner of sherry.

“But in a balanced portfolio we all need the sensible one in there to save you from being carried away by the more boisterous mood. The fund offers reliability and consistency when many of the others in the sector don’t.”

The other fund Merricks highlighted is £511.1m Natixis H2O MultiReturns, which he said is like comparing “chalk and cheese” when sat alongside the Church House strategy.

Although it’s not an absolute return fund in the categoric sense, Merricks said – investing up to 30 per cent in equities – its returns are largely uncorrelated to broader equity markets creating that diversification.

By using currencies extensively within the fund managers Jeremy Touboul and Vincent Chailley are able to navigate the volatility created by geopolitical tensions.

“Its volatility is on a different scale to most absolute return funds, but as a part of a balanced portfolio – and as long as you understand that your ride will certainly not be without incident – it has definitely justified its position within the funds and portfolios with which I’ve been associated in recent years,” he added.

Over five years, Natixis H2O MultiReturns has made a return of 53.78 per cent outperforming the LBIOR GBP 1m + 4% benchmark. It has an OCF of 1.00 per cent.

Finally, for those looking for alternatives to ASI Global Absolute Return Strategies, Invesco Global Total Return and Aviva Investors Multi Strategy Target Returns, Adrian Lowcock, head of personal investing at Willis Owen has a few suggestions.

His first is the £4.5bn Troy Trojan fund run managed by FE fundinfo Alpha Manager Sebastian Lyon and colleague Charlotte Yonge. It targets capital growth ahead of the UK retail price index (RPI) rate of inflation over three-to-five years.

“Fund manager Sebastian Lyon’s philosophy is that preservation of wealth is more important than growth of assets,” Lowcock said, investing in shares, private equity, precious metals and cash.

As a more defensive holding Lowcock points that it can lag strongly rising markets, but “tends to do well during more testing market conditions and would be an option for a cautious investor looking for superior returns to cash, albeit with some risk”.

Indeed since 2005 - capturing the global financial crisis – the fund has had the lowest volatility in its sector and had a top-quartile maximum drawdown of -9.81 per cent, compared with a 33.21 per cent loss for the MSCI World.

Performance of fund vs sector & index over 5yrs


Source: FE Analytics

Over the last five years the fund has made 33.06 per cent slightly underperforming the average IA Flexible Investment’s 37.27 per cent – although it is home to funds able to take more risk – but outperforming the UK Retail Price index’s 13.21 per cent.

Lowcock’s second pick is the £6bn BNY Mellon Real Return fund, overseen by Aron PatakiSuzanne Hutchins and Andy Warwick. Running an unconstrained approach, the managers invest across a range of assets and aim to deliver a return of cash plus 4 per cent per annum over five years and a positive return on a rolling three-year basis.

“There is significant flexibility in asset allocation,” said the Willis Owen fund picker. “We think this is a good choice for cautious investors seeking steady returns.”

The FE fundinfo Four Crown rated fund has made 20.94 per cent returns over the past five years. It has an OCF of 0.85 per cent and a yield of 2.15 per cent.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.