Investing in 2020 has required a new playbook as an initial health crisis turned into an economic crisis and a unique type of recession.
As such, one way that Close Brothers Asset Management’s Matthew Stanesby (pictured) has been limiting the impact of the coronavirus on his multi-asset strategy has been by diversifying into alternatives. 
Stanesby, manager of the £61.3m Close Managed Growth fund, has trimmed his exposure to passive funds and reduced equity holdings in the months since the March sell-off in favour of non-traditional asset classes.
Infrastructure, gilts, gold and absolute return funds are just a few of the strategies that the manager has added to the portfolio amidst the economic uncertainty.
“In February we started to get a bit nervous,” said Stanesby. “Especially around valuations as there wasn’t a lot of value left in the income space and equity markets.”
As the pandemic began to spread from China to the rest of the world, the management team began to trim back its risk-on positions in regions such as Asia and emerging markets, adding instead to more defensive assets.
“We reduced our equity in the higher risk areas of the virus trajectory,” he added. “As the market was going up, we added more gold holdings in the form of protection. This reflects something of a larger theme that we’ve seen during this crisis of the diversification into alternative areas.”
The manager explained that owning active funds, passive funds and trusts allows it a certain level of flexibility that is well suited to the market environment.
“We trimmed some of our trackers because in our view, when the markets get choppy active managers tend to do a better job,” he explained. “Reducing equity in the short term meant trimming an S&P 500 tracker and a European tracker to take that level of equity down.”
In early March, the fund added some absolute return funds to bolster the gold and other alternative assets and diversifiers, such as infrastructure and gilts.
Indeed, the fund owned two absolute return strategies through the March crisis, and both were up during the period. The Sandbar Global Equity Market Neutral fund has returned 12.56 per cent year-to-date whilst the Neuberger Berman Uncorrelated Strategies fund has made 4.5 per cent.
However, Stanesby admitted that it can be a fairly difficult to pick out a fund in a sector home to a variety of different strategies and varying levels of success in applying them.
As such there are three questions to ask when screening for an absolute return strategy, the manager said.
He asked: “Have you got a decent track record over different market cycles? Are you doing something that should not be correlated with equities and bonds? And have you got something we can buy in a format we want to buy it and at a price we don’t mind paying?
“You’ll probably get two out of three of them.”
Stanesby said that the decision was also made to add investment grade bonds.
“It’s the relatively safe way of adding risk without adding equity,” he explained. “You were getting investment grade bonds yielding 2-3 per cent, whereas some were yielding upward of 8-9 per cent.
“While we were still underweight equities, as the market bounced, we managed to keep up with that as the bonds were giving equity like returns.”
Such action helped the Close Managed Growth fund avoid some of the losses that its peers in the IA Flexible sector endured with the fund up by 2.91 per cent year-to-date, while the average peer was down by 2.24 per cent.
Performance of fund vs sector YTD
Source: FE Analytics
“We did well on the way down and were slightly outperforming the sector,” he added.
And now comes the question of what needs to be added to prepare the fund for post-Covid life.
“We are still nervous as some of the delayed economic impact is yet to be felt,” he said. “However, we’re prepared and upgraded the portfolio, sold out of the things which are more beta-sensitive and we’ve replaced that with safer investment grade type bonds and growthier equities.”
Stanesby said alternatives could come to feature more prominently in multi-asset portfolios given the lack of exciting returns elsewhere.
“The problem now is your bog-standard fixed income fund doesn’t really deliver,” he said. “Government bonds will give you half a per cent whereas an investment grade fund gives me 3 per cent, which really isn’t great.
“We’ve gone from at least 7-8 per cent in alternatives to 11 per cent at the moment which is likely to grow.”
Performance of fund vs sector over 3yrs
Source: FE Analytics
The Close Managed Growth fund has returned 16.02 per cent over three years, while its IA Flexible sector peer has returned 8.84 per cent. It has an ongoing charges figure (OCF) of 1.84 per cent.