Multi-asset funds fell less hard than global equities, on average, during the recent sell-off with some products managing to generate a small total return, according to data from FE Analytics.
Following an extended period of low volatility, turmoil returned to markets with force at the end of January 2018 when higher-than-expected inflation numbers caused investors to panic over the prospect of faster interest rate hikes.
Between 29 January and 8 February, global stock markets were hit with a broad-based sell-off and the MSCI AC World dropped by close to 8 per cent, in sterling terms. The VIX index – which is known as Wall Street’s ‘fear gauge’ and had dropped to historic lows in 2017 – rocketed from low single-digits to around 50 points in a short space of time.
Against this backdrop, the average multi-asset fund managed to protect investor capital better than the global equity index. The average IA Volatility Managed and IA Targeted Absolute Return funds also held up better than global stocks, as the chart below shows.
Performance of sectors vs global equities during sell-off
Source: FE Analytics
The IA Targeted Absolute Return sector performed best on average, with the typical fund losing just 1.08 per cent over the short correction. On an individual fund level, returns ranged from a gain of 3 per cent to a 6.04 per cent loss.
The £298.7m H2O MultiReturns fund, which is managed by Jeremy Touboul and Vincent Chailley, is at the top of the table. It is essentially a global macro hedge strategy, which “combines the search for relative value with the pursuit of diversification across asset classes, markets, strategies, and investment horizons”.
Since launch in October 2013 the fund has made a 54.53 per cent total return (compared with an 11.92 per cent gain from its average peer). However, the contrarian approach behind the fund means it is riskier than its average peer; H2O MultiReturns’ annualised volatility since launch has been higher than the MSCI AC World’s at 13.03 per cent, while its maximum drawdown of 18.56 per cent is also higher than global equities.
The only other absolute return fund to make more than 1 per cent in the sell-off – City Financial Absolute Equity – is also a product that tends to make higher returns but with greater volatility than its peers, this time owing to a long/short equity approach.
FE Analytics shows that another 14 IA Targeted Absolute Return funds made a positive return during the correction, including Tideway Real Return, T. Rowe Price Dynamic Global Bond and Premier Defensive Growth.
Given its lower weighting to equities, the average IA Mixed Investment 0-35% Shares fund made the second smallest loss after dropping 1.75 per cent in the sell-off. Every member of the sector was in negative territory, however, with losses ranging from 0.06 per cent to 3.07 per cent.
The smallest fall came from VT Tcam Income Portfolio. Targeting income with capital preservation, the £25.5m portfolio uses a fund-of-funds approach and counts offerings such as Hermes Multi Strategy Credit, Legg Mason Martin Currie Global Equity and CF Odey Opus among its top-10 holdings.
Other strong performers over the period include LF Prudential Dynamic Focused 0-30 Portfolio (down 1 per cent), OM Cirilium Conservative Portfolio (down 1.07 per cent) and MGTS Greystone Conservative Managed (down 1.15 per cent).
The biggest loss came from UBS (UK) Global Yield Allocation, which mainly invests in other UBS funds and is running an overweight to equities.
Performance of fund vs sector and global equities in sell-off
Source: FE Analytics
The popular IA Mixed Investment 20-60% Shares sector was the next best performer on average after falling 2.62 per cent. Again, all funds in the sector lost money in the correction, with Elite CAM Cautious Discretionary Portfolio’s 0.95 per cent loss being the peer group’s smallest.
With assets of £30m this is another fund that is likely to be off the radar for most investors, but some better-known names made some of the lowest losses of the sector including Fidelity Multi Asset Balanced Income (down 1.55 per cent), Premier Multi-Asset Conservative Growth (down 1.55 per cent) and LF Ruffer Total Return (down 1.70 per cent).
Pimco GIS Global Multi Asset, which has assets of $1.1bn, was the worst performer from the IA Mixed Investment 20-60% Shares sector after falling 5.13 per cent. The top-down fund has the US as its largest country exposure and this market was hit hard during the correction.
The IA Volatility Managed sector comes next after losing 3.16 per cent. Carmignac Portfolio Capital Plus leads the pack here with a fall of just 0.74 per cent; the €1.8bn fund, which is managed by Carlos Andres Galvis, is run with the aim of keeping volatility low and over three years its annualised volatility stands at just 1.65 per cent.
FE Analytics shows that another nine funds from the sector were able to keep losses below 1.5 per cent in the recent correction, with names achieving this including FP 8AM Multi-Strategy Portfolio I, Standard Life Investments MyFolio Multi Manager I (in fact, five of the nine funds are from Standard Life Investments’ MyFolio range) and Architas MA Blended Reserve.
The peer group’s biggest loss came from the £40m BlackRock Volatility Strategy IV fund, which was down by 6.40 per cent over the period in question. The fund is the highest risk offering in the BlackRock Volatility Strategy range.
Moving onto the IA Mixed Investment 40-85% Shares sector (where the average loss was 3.64 per cent) and HC Sequel Balanced Target Return Strategy was the best performer after losing 1.85 per cent. Managed by Sarasin’s Lucy Walker and Sam Jeffries, it aims to keep volatility to less than 75 per cent of the FTSE All Share’s and does this through a funds of funds approach.
Towards the top of the table are Fidelity Multi Asset Income & Growth (down 2.03 per cent), MI Hawksmoor Distribution (down 2.38 per cent) and IFSL Brooks Macdonald Balanced (down 2.54 per cent).
Barclays Wealth Global Markets 4 was hit hardest in the sell-off and fell 6.36 per cent. The portfolio is built around index-tracking products and is currently overweight developed and emerging market equities.
Performance of fund vs sector and global equities in sell-off
Source: FE Analytics
Finally, the IA Flexible Investment sector saw the biggest fall of the multi-asset peer groups but at 3.78 per cent this was still far less than the drop in the MSCI AC World. Andrew Harman’s First State Diversified Growth fund was the best performer here, falling just 0.54 per cent.
The fund currently has significant exposure to fixed income, which will have helped as stock markets sold off in the correction. Some 39.1 per cent of the portfolio is held in government bonds with 16.1 per cent in inflation-linked bonds; only 6.9 per cent is invested in UK equities and 5 per cent in global equities.
S&W Starhunter Managed, Carvetian Generation and Carvetian Capital are the other members of the sector that kept losses below 1 per cent.
The biggest fall came from Courtiers Total Return Growth, which lost 7.56 per cent.