JPM Global Macro Opportunities, Aberdeen Property Share and Lazard Global Listed Infrastructure Equity are the best performing alternative equity funds chosen by FE Adviser Fund Index (AFI) panellists.
Investors have been paying more attention to alternative investments over the last couple of years with equity market at expensive levels and bond yields at historical lows.
Both asset classes have also been rising in tandem, with the MSCI World up 131.43 per cent over the last decade while the Bloomberg Barclays Global Aggregates index has climbed 113.08 per cent.
Performance of indices over 10yrs
Source: FE Analytics
With the correlation of both asset classes increasing and yields continuing to fall, many investors have been looking further afield for income and diversification.
The AFI portfolios have had a strong 2017 so far, with the AFI Aggressive index (11.93 per cent) beating the FTSE All Share (9.04 per cent) by 2.89 percentage points.
The AFI Balanced portfolio has slightly underperformed the index (26 basis points behind) while the more conservative AFI Cautious has returned 5.87 per cent so far this year.
However, all three have made their returns while experiencing much lower volatility than the FTSE All Share in part thanks to their ability to diversify across asset classes.
As such, below FE Trustnet looks at the top three performing alternative funds year-to-date that the Adviser Fund Index panel have used for returns and diversification.
JPM Global Macro Opportunities
The top performing alternative fund backed by the panellists is the £870m JPM Global Macro Opportunities run by James Elliot, Shrenick Shah and Talib Sheikh.
The fund aims to provide positive returns over a rolling three-year period in all market conditions by investing in global securities and using financial derivative instruments where appropriate, with a priority placed on capital preservation.
The team believe global macro trends are the main drivers of returns for asset classes with current themes including the maturing US cycle, emerging market convergence and China in transition.
The fund is 85.6 per cent weighted to equities with 4.7 per cent in bonds and 9.7 per cent in cash and has 15.3 per cent in equity futures or derivatives.
In August, the team noted that they have been adding volatility with favourable economic conditions and a rise in corporate earnings globally have prompting them to increase equities exposure.
The fund sits in all three adviser portfolios – Aggressive, Balanced and Cautious – and has returned 12.8 per cent so far in 2017.
Performance of fund vs sector and benchmark YTD
Source: FE Analytics
This is significantly ahead of the IA Targeted Absolute Return sector average of 3.09 per cent and the Libor benchmark’s 0.19 per cent return. It has done so with higher volatility however of 6.45 per cent.
The fund has a maximum drawdown over the period of 2.35 per cent but a relatively high Sharpe ratio, which measures risk adjusted returns, of 2.52.
However, analysts at FE Invest noted that there is a strong focus on risk management as JP Morgan is one of the leading experts in this field, and believe investors benefit from advanced risk management strategies.
JPM Global Macro Opportunities has a yield of 1.11 per cent and a clean ongoing charges figure (OCF) of 0.78 per cent.
The second alternative fund to deliver double digit returns in 2017 is the five FE Crown-rated Aberdeen Property Share fund.
The £353m fund invests in a diversified portfolio of property company securities rather than traditional bricks and mortar assets.
The portfolio is made up of 30 holdings and is 79.8 per cent weighted to the UK, with 7 per cent in Germany, 6 per cent in France and 5 per cent in Swedish securities.
It has been a top quartile performer over one, three and five years and has made above the IA Property sector average returns over the last decade.
So far this year, that trend has continued after a difficult 2016 which saw the fund lose 3.1 per cent overall. In 2017, it has returned 11.19 per cent, the third best of 52 funds in the sector.
Performance of fund vs sector and benchmark YTD
Source: FE Analytics
The fund is 10 basis points ahead of the FTSE 350 Real Estate Investment & Services benchmark though it has done this with three basis points more volatility.
The fund is one of the riskier alternative strategies chosen by the panellists and as such, is only in the AFI Aggressive portfolio.
The management team focuses on fundamental analysis with an emphasis on balance sheet strength, high return on equity (ROE), and cash flow as well as low debt-to-equity ratios being preferred.
Aberdeen Property Share has a yield of 2 per cent and an OCF of 0.86 per cent.
Lazard Global Listed Infrastructure Equity
The third alternative fund that has made a double-digit return for the AFI panellists is the offshore £1.7bn Lazard Global Listed Infrastructure Equity run by Bertrand Cliquet since April 2016.
The fund, which sits in the AFI Balanced portfolio, invests in companies with exposure to monopolistic projects, inflation-linked revenues and low demand volatility.
Companies in the portfolio typically have a minimum market capitalisation of $250m and uses a ‘preferred infrastructure’ philosophy focusing on companies that own physical infrastructure assets that meet certain preferred criteria, such as revenue certainty, profitability and longevity.
It aims to deliver a total return of consumer price inflation (CPI) plus 5 per cent per annum on a rolling five-year basis.
The fund is 63 per cent weighted to continental Europe, has 15 per cent of the portfolio invested in US securities and 6.7 per cent in the UK.
Since March, the fund has returned 13.8 per cent, beating the FO Equity – Other Specialist sector average by 6.29 percentage points and the FTSE Developed Core Infrastructure 50/50 index by 10.84 percentage points.
Lazard Global Listed Infrastructure Equity currently yields 2.37 per cent, and has an OCF of 1.9 per cent.