Recently launched risk-off multi-asset funds have been a mixed bag for investors looking to take a cautious approach, according to FE Analytics.
Multi-asset funds have proven popular with investors in the past year, seeing more investment come their way than any other asset class.
In the second article of the series, FE Trustnet looks at the funds that were launched in the first half of 2015 and are about to (or have just passed) their three-year anniversary mark.
Last week we looked at the risk-on mixed asset sectors, so below we turn to the risk-off mixed asset sectors: IA Mixed Investment 20-60% Shares and IA Mixed Investment 0-35% Shares.
This article looks at the six cautious and cautious/balanced multi-asset funds that are reaching the three-year mark to see how they have performed, starting with the IA Mixed Investment 0-35% Shares sector.
Earlier this week we found that funds in the IA Flexible Investment and Mixed Investment 40-85% Shares and 20-60% Shares sectors followed a similar pattern: those at the riskier end of the spectrum have produced higher performance in return for higher volatility.
Meanwhile, the more cautious mixed asset funds have produced lower performance in return for lower volatility.
The recently launched, more risk-off mixed asset funds don’t seem to buck this trend of poor performance with a smoother ride.
The two funds that launched in the first half of 2015 in the lowest-equity sector have not been able to match the performance of the average IA Mixed Investment 0-35% Shares peer since their inception and have produced bottom quartile total returns.
Coram Global Defensive has returned 6.53 per cent since its launch in January 2015, while its average peer has returned 11.92 per cent.
Performance of fund since launch vs sector
Source: FE Analytics
However, the weak performance of the fund is buffered by extremely low volatility. Indeed it has the lowest volatility in its sector at 2.59 per cent.
This fits with Coram Global Defensive’s stated objective, which is to achieve significantly lower levels of volatility than broader equity markets (the average fund in the IA UK All Companies sector had volatility of 10.88 per cent and 11.78 per cent in the IA Global sector).
The portfolio also has the lowest maximum drawdown – the biggest amount of capital you could lose in any given month over the last three years - in its sector.
The fund has been managed by James Sullivan since launch with Peter Geikie-Cobb added as co-manager in March this year.
With 37 holdings and nearly half of the portfolio allocated to the top 10 holdings, the fund is reasonably concentrated.
Its largest exposure is in fixed income with a 34 per cent weighting. This is followed by 27 per cent in equities, 15 per cent in cash, 10 per cent in property, 9 per cent in alternatives and 5 per cent in resources.
Coram Global Defensive has assets under management (AUM) of £8.3m and an ongoing charges figure (OCF) of 1.31 per cent.
The only other fund in the IA Mixed Investment 0-35% Shares sector to launch in the first half of 2015 was the 7IM Cautious fund.
Performance of fund since launch vs sector
Source: FE Analytics
It has produced a bottom-quartile total return of 4.09 since its launch in April 2015, half that of its average peer during the same period.
As with the previous fund, the weak performance of 7IM Cautious is countered by top quartile volatility of 3.71 per cent.
It is worth noting that despite low volatility over the entire period, the fund’s maximum drawdown is 7.43 per cent – one of the highest in its sector.
The fund is managed by 7IM’s investment team and uses passive vehicles to achieve its objective of income generation with some capital appreciation. It currently yields 1.30 per cent.
The investment process has two main components: ‘robust strategic asset allocation’ and ‘sensible tactical asset allocation’. The strategic aspect aims to optimise returns over a given level of risk and is reviewed annually, while the tactical aspect changes quarterly to react to market conditions.
The fund tends to have a higher weighting towards fixed income and invests 40 per cent in the asset class. Equities constitute 23 per cent of the holdings, alternatives count for 20 per cent, cash counts for 6 per cent and the remainder is split across various asset classes.
7IM Cautious has £44m in AUM and an OCF of 0.85 per cent.
Performance and volatility of funds since launch
Source: FE Analytics
The riskier of the two sectors, IA Mixed Investment 20-60% Shares, has seen more mixed results across the four funds that launched in the first six months of 2015.
Virgin Bond Gilt UK Share was the worst performer, returning a bottom-quartile figure of 9.10 per cent since its launch in February 2015 compared to its average peer, which gained 15.61 per cent.
Volatility is relatively low at 6.29 per cent, putting it in the second quartile of its sector.
The fund normally allocates 50 per cent of its portfolio to passive schemes that invest in fixed income and the other 50 per cent to passive schemes that invest in equities.
Virgin Bond Gilt UK Share has an OCF of 1 per cent.
Next up are two funds from Zurich’s Horizon range, which launched in March 2015. The funds-of-funds are externally managed by Columbia Threadneedle and invest in Threadneedle funds with an aim to achieve capital growth.
Zurich Horizon Multi-Asset I has seen second-quartile returns of 14.24 per cent since launch, 0.72 percentage points more than its average peer.
It invests 46 per cent of the fund in UK gilts and 40 per cent in equities, with 13 per cent going to UK corporate bonds and the rest in cash and alternatives.
Since launch, Zurich Horizon Multi-Asset I has produced lower-than-average volatility of 5.86 per cent compared to its peer group and has an OCF of 0.84 per cent.
The slightly less risk-averse Zurich Horizon Multi-Asset II has a higher volatility figure of 6.68 per cent, placing it in the third quartile of its sector.
However, it sits in the top quartile of the sector for performance, returning 21.06 per cent since launch.
It invests 45 per cent in equities, 26 per cent in UK corporate bonds, 6 per cent in UK gilts, 9 per cent in property, 3 per cent in cash and the rest in alternatives.
Zurich Horizon Multi-Asset II has an OCF of 0.82 per cent.
However, the top performing new fund in the sector is the AXA Lifetime Distribution fund.
Since its inception in March 2015, the fund has returned 23.90 per cent against its average peer’s performance of 14.63.
The strong performance has come at a price, with the second highest volatility in its sector of 9.20 per cent.
This is not surprising, however, given its 55 per cent weighting to equities is larger than any other on the list. The rest is invested in index-linked assets with 3 per cent in cash.
Performance of fund since launch vs sector
Source: FE Analytics
AXA lifetime Distribution predominantly aims to achieve income with some capital growth and currently yields 2.05 per cent.
It is the largest of the new funds with over £1bn in AUM and has an OCF of 0.31 per cent.