JPM Global Macro Opportunities, Artemis US Absolute Return, SVS Church House Tenax Absolute Return Strategies and Natixis H2O Multireturns are all funds that would pair well with the behemoth LF Ruffer Total Return fund, according to several experts.
The £3.1bn fund is the largest fund in the IA Mixed Investment 20-60% Shares sector available to retail investors; only UK high street bank Halifax’ customer-only Halifax Cautious Managed fund is larger.
Run by FE Alpha Managers Steve Russell and David Ballance, the fund has been a top long-term performer, returning 106.65 per cent versus the 59 per cent made by the average peer in the sector, but has struggled over the short and medium term.
Performance of fund vs sector and benchmark over 10yrs
Source: FE Analytics
Ben Willis, head of research at Whitechuch Securities, said that the fund’s continued popularity could be due to its long-term success, despite short-term issues.
“Even though risk-adjusted returns have been relatively robust over the medium-to-longer term, the fund has done virtually nothing over the last year so investors must be focusing on the long-term returns, which generally is more prudent,” he said.
Architas investment director Adrian Lowcock agreed, noting that heading into 2017 it was a consistent first quartile performer for one, three, five and 10 years, with its medium-term performance impacted by an extremely challenging last 12 months.
“This sort of reliability and consistency is what a lot of investors want from an absolute return fund,” he said. “Unfortunately, 2017 was not such a great year either for the team as their cautious nature meant they lagged the bullish markets.”
Andy Merricks, head of investments at Skerritts Wealth Management, said that this poor performance was due to overweight positions in Japanese equities (18 per cent) and inflation-linked bonds (34 per cent).
“When these sectors do well, so does the fund, and vice versa,” he noted.
Below the managers outline funds that could be used to diversify the popular Ruffer Total Return if they are concerned by the disappointing year last year and the large sector bets above.
Skerritt’s Merricks said two funds that would work well alongside the fund is SVS Church House Tenax Absolute Return Strategies and Artemis US Absolute Return.
“They are each funds that you’d probably look at over the past 18 months or so and think, ‘What are these adding?’” he said.
“It is because we know that they held up extremely well during the rocky start that we experienced at the beginning of 2016 that we continue to hold them. People have very short memories and forget just how alarming a sharp correction can be.”
The five FE Crown-rated SVS Church House Tenax Absolute Return Strategies fund is run by James Mahon and FE Alpha Manager Jeremy Wharton.
The £180m fund is currently highly weighted to non index-linked fixed interest (27.5 per cent) with 28.5 per cent in floating rate notes with just 7.9 per cent in equities.
Over 10 years it has returned 53.25 per cent with monthly volatility of 3.63 per cent and 33 negative monthly periods versus 85 positive ones. It has an ongoing charges figure (OCF) of 0.91 per cent.
Fellow five crown-rated fund Artemis US Absolute Return, run by FE Alpha Manager Stephen Moore, is a long/short strategy that invests primarily in US stocks.
Performance of fund vs sector and benchmark since launch
Source: FE Analytics
Since its launch in October 2014, the £521m fund has returned 12.49 per cent while experiencing 2.76 per cent volatility and has seen 15 negative periods opposed to 23 positive months. It has an OCF of 0.88 per cent.
Another fund Merricks uses is the Natixis H2O Multireturns fund, which had a very good past 18 months, though admitted that he was close to selling the fund after the first half of 2016.
“It is not [an] absolute return-style fund and can be very volatile. However, it is multi-strategic and offers something different to the more common equity/bond type of fund,” he said.
The £298m fund is run by Jeremy Touboul and Vincent Chailley and aims to generate returns higher than 4 per cent per year over any three-year period, with annualised volatility between 5 and 10 per cent.
The fund does not have exposure to equities and uses a long/short strategy across fixed income and currencies. It has an ongoing charge of 1 per cent.
Architas’ Adrian Lowcock suggested investors could look to pair the Ruffer Total Return fund with the four crown-rated JPM Global Macro Opportunities.
“The team believe that global macro trends are the main drivers of returns for asset classes and they look to identify and exploit these with the aim of delivering positive returns in all conditions and a priority on capital preservation,” he said.
“Current themes include Japanese economic recovery, ‘Global Political Divergence’ and ‘China in Transition’.”
The £955m fund run by James Elliot, Shrenick Shah and Talib Sheikh will invest in cash, equities and bonds and like the Natixis fund will use derivatives extensively to short a sector.
Performance of fund vs sector and benchmark since launch
Source: FE Analytics
Since its launch in 2013 the fund has returned 55.1 per cent to investors though it has experienced higher volatility than the others mentioned of 7.56 per cent.
Currently, the portfolio is 57.8 per cent net equities, 26.6 per cent advanced derivatives and 15.6 per cent currencies. It has an OCF of 0.78 per cent.
These funds complement each other in terms of defensive attributes as well as alpha generation,” Merricks said. “The worst possible thing that you can get from an absolute return fund is a sharp drawdown when markets turn, as generally the fail to catch the upswing when the correction is over. Blending the funds allows scope to achieve both.”
However, Whitechurch’s Willis disagreed, noting that investors who own Ruffer Total Return should not add another defensive anchor to their portfolio.
“You would not want to hold another fund like it. Even if you were looking for a mixed asset, multi-strategy vehicle you would want something more aggressive. My personal preference would be to run an equity fund alongside it,” he said.