The uptick in volatility seen during the first months of 2018 after the unusually low levels experienced by markets in 2017 will have made some investors in risk-targeted funds glad.
However, as FE Trustnet has previously noted, comparison between these portfolios can sometimes be difficult.
With this in mind, FE created their Risk-Targeted Multi-Asset (RTMA) sectors, which place funds into risk categories on their historic risk score – a measure of volatility relative to the FTSE 100 index.
The blue-chip index has an FE Risk Score of 100, while funds that have been less risky have a correspondingly lower score.
In the following article, we look at the seven RTMA risk bands to see how funds have performed year-to-date.
For the purposes of this study we have benchmarked the funds against the FTSE All Share index, a commonly-used index benchmark that many UK investors choose to measure their portfolios against.
However, it should be noted that not all the funds will necessarily have a high exposure to UK equities or have the FTSE All Share as their index of reference.
UK RTMA Risk Band 7 – Aggressive
Starting with the highest risk sector, the UK RTMA Risk Band 7 – Aggressive sector contains nine funds that expose investors to an FE Risk Score of 86 or higher.
So far this year, six of the nine constituents of the sector have delivered greater returns than the FTSE All Share’s gain of 0.85 per cent, although taking more risk hasn’t work for all of them.
Indeed, VT Multi-Asset DRP VIII, VT Multi-Asset DRP VII and Margetts Venture Strategy are down by 2.59 per cent, 1.06 per cent and 1.87 per cent respectively.
Performance of fund vs sector and FTSE All Share
Source: FE Analytics
The top performing of the sector is Alex Lyle’s Zurich Horizon Multi-Asset V, which has delivered a gain of 6.17 per cent during the first nine months of 2018. However, it has done so with higher volatility than the index – the only fund across all sectors – 12.25 per cent compared with an 11.59 per cent for the FTSE All Share.
The fund has also been more volatile than the sector, where the average fund has seen a volatility of 10.01 per cent.
UK RTMA Risk Band 6 – Adventurous
Qualifying products within the UK RTMA Risk Band 6 – Adventurous sector are those which have a FE Risk Score of between 70 and 85.
This means that the fund’s short-term volatility should be between 70 per cent and 85 per cent of the UK leading 100 shares.
Of the 33 funds that this sector is home to, the best performer with a 5.38 per cent total return to 30 September is the £351.1m Close Growth Portfolio, overseen by Riitta Hujanen.
At the bottom of the table is the £76m Invesco Balanced Risk 10 fund – overseen by the asset manager’s global asset allocation team – with a loss of 3.18 per cent.
UK RTMA Risk Band 5 – Growth
Topping this sector, which is home to 43 funds with a FE Risk Score of between 60 and 70 is the £68.2m Margetts Sentinel Growth Portfolio, which is run by Alex Illingworth, Rosanna Burcheri and Simon Edelsten.
While the average fund in the UK RTMA Risk Band 5 – Growth sector is up by 1.85 per cent with volatility of 7.09 per cent, the Margetts Sentinel Growth Portfolio strategy has delivered a 5.35 per cent to 30 September and has seen a volatility of 9.28 per cent.
Of the 43 funds, 13 have delivered lower gains than the FTSE All Share and five have posted losses, including Allianz Risk Master Moderate Multi Asset, which is the worst performer and is down by 1.11 per cent.
UK RTMA Risk Band 4 – Balanced
There are 39 funds with a FE Risk Score between 50 and 60 in the UK RTMA Risk Band 4 – Balanced sector.
Of those, 21 have achieved lower gains than the FTSE All Share in the first nine months of 2018, with Invesco Balanced Risk 8 sitting at the foot of the table with a loss of 2.44 per cent.
The best performer is Zurich Horizon Multi-Asset II, which has delivered a gain of 3.73 per cent. The fund has done so with low volatility of 5.83 per cent versus the sector average of 6.29 per cent.
Performance of fund vs sector and FTSE All Share
Source: FE Analytics
Other good performers in the sector include Close Managed Balanced, Architas MA Passive Intermediate, Rathbone Strategic Growth Portfolio and True Potential Investments SVS TPI Balanced 6.
UK RTMA Risk 3 – Moderate
Funds which have a FE Risk Score between 40 and 50 form the next FE risk-targeted multi-asset sector, the UK RTMA Risk 3 – Moderate sector.
Data from FE Analytics shows the number that have outperformed the FTSE All Share is lower than in previous sectors, with the average fund up by 0.55 per cent with volatility of 4.68 per cent.
At the top we find the four FE Crown-rated Architas MA Blended Intermediate, overseen by Sheldon MacDonald and Mayank Markanday. The £543.2m fund has seen volatility of 5.97 per cent and a gain of 2.88 per cent to September-end.
The worst performer from the sector is £7.2m VT Tatton Oak Distribution, overseen by Sam Leary, which is down by 1.38 per cent.
UK RTMA Risk 2 - Cautious
Topping this sector, which is home to 54 funds with an FE Risk Score of between 25 and 40 is True Potential Investments SVS TPI Cautious 5.
The £39m strategy seeks to deliver a long-term total return in excess of inflation from exposure, directly or indirectly, to a diversified portfolio of investments while also providing an income distribution.
Although the average fund in the sector is down by 0.11 per cent, the fund is up by 2.18 per cent. Its performance has come with higher volatility, however, of 4.6 per cent compared with the sector average of 2.22 per cent.
Other funds topping the table include Architas MA Blended Reserve, True Potential Investments SVS TPI Defensive 6 and Standard Life Investments MyFolio Market II.
UK RTMA Risk 1 – Defensive
Funds in this sector are deemed to be the portfolios with the lowest risk, with an FE Risk Score of 30 or less.
None of the nine funds in the sector has beaten the FTSE All Share’s gain of 0.86 per cent with a sector average loss of 0.53 per cent.
Only two funds have delivered positive numbers, VT Grosvenor Cautious and True Potential Investments SVS TPI Defensive 2, which are up by 0.56 per cent and 0.35 per cent respectively.
Performance of funds vs sector and FTSE All Share
Source: FE Analytics
The worst performing fund in the sector was FP 8AM Multi-Strategy Portfolio I sits at the bottom, with a loss of 1.68 per cent.