While some investors have seen above-average returns this year, others are still feeling the effects from the sell-off in March and may want to dial down their risk profile heading into 2021.
As a guide, when selecting funds for the Cautious portfolio, FE fundinfo AFI (Adviser Fund Index) panellists are asked to consider strategies for people in their late 50s approaching retirement.
With that in mind, Trustnet asked five fund pickers for their picks to suit an investor with that risk profile.
Rathbone Total Return Portfolio
The first pick on the list is from Alex Farlow, head of risk-based solutions research at Square Mile Investment Consulting & Research, who opted for the £284.2m Rathbone Total Return Portfolio, managed by David Coombs and Will McIntosh-Whyte.
The managers of this fund aim to provide a return in excess of the Bank of England base rate plus 2 per cent per annum over a minimum three-year period.
In addition, they seek to control the relative level of volatility, targeting one-third of global equity volatility.
“We see the key strengths of the managers within asset allocation and risk management and they have good track record of meeting their objectives,” said Farlow. “The fund will invest in a broad range of assets, which includes fixed income securities, alternatives and equities.”
Performance of fund vs sector & benchmark over 3yrs
Source: FE Analytics
The five FE fundinfo Crown Rated fund has returned 13.24 per cent over the last three years, compared to a 12.62 per cent gain from the average peer in the IA Volatility Managed sector, and 7.82 per cent from the Bank of England Base Rate +2% index.
It has an ongoing charges figure (OCF) of 0.65 per cent.
BNY Mellon Sustainable Real Return
“My suggestion for a ‘plodder’ rather than a ‘leaper’ is the BNY Sustainable Mellon Real Return fund,” said Rob Morgan, pensions and investment analyst at Charles Stanley Direct.
The fund invests in a range of assets, aiming to beat the return on cash by 4 per cent a year (before charges) while limiting the scope for losses.
“The managers use a thematic approach to investment decision making, which focuses on identifying long-term structural changes impacting the global economy,” he said. “This includes demographic shifts, growing demand for healthcare and environmental change.
“The fund benefits from a strong team who make full use of the wider resources across BNY Mellon, and it may appeal to investors looking for modest long-term growth while aiming to control volatility.”
The fund also restricts investments to companies that positively manage the material impacts of their operations and products on the environment and society.
Performance of fund vs sector & benchmark over 3yrs
Source: FE Analytics
The £391m fund has returned 23.89 per cent over the last three years, compared to a 3.78 per cent gain from the average peer in the IA Targeted Absolute Return sector, and 12.49 per cent from the LIBOR GBP 1m +4% index. It has an OCF of 0.85 per cent.
Premier Miton Corporate Bond Monthly Income
The third pick from Fairview Investing co-founder Ben Yearsley is the £129.5m Premier Miton Corporate Bond Monthly Income fund, managed by Lloyd Harris and Simon Prior.
“I’m going for an investment grade corporate bond fund, as rates won’t be going up in 2021 and the return of inflation is unlikely,” said Yearsley.
The fund will be invested in a diversified portfolio of at least 80 per cent sterling denominated (or hedged back to sterling) investment grade rated bonds issued by companies.
“Government bonds don’t look attractive at today’s levels, but at least quality company bonds look better value,” he added.
Performance of fund vs sector over 3yrs
Source: FE Analytics
The Premier Miton Corporate Bond Monthly Income fund has made a total return of 9.36 per cent over three years compared with a 14.62 per cent gain from the average peer in the IA Sterling Corporate Bond sector. It has an OCF of 0.35 per cent and a yield of 1.91 per cent.
SVS Church House Tenax Absolute Return Strategies
“[It’s] a difficult category as low-risk most definitely does not equal no risk, and many cautious investors find it hard to accept any short term losses,” said Andy Merricks, manager of the manager of the EF 8am Focused fund.
Nevertheless, his choice is the £517m CVS Church House Tenax Absolute Return Strategies fund, managed by James Mahon and FE fundinfo Alpha Manager, Jeremy Wharton.
“The other difficulty with a cautious fund is that, if it’s truly cautious, it won’t keep up with strong rising markets, a factor that is sometimes overlooked by investors who don’t want to take on much risk,” he said.
“It’s delivered just over 4 per cent after charges in the past 12 months which is unexciting, but it’s not meant to be,” Merricks added. “When markets fell out of bed spectacularly in March this year, it barely wobbled in comparison to funds in other sectors.
“This is the test for cautious funds, too many of which fail to protect on the downside as well as failing to give positive returns on the upside.”
Performance of fund vs sector over 3yrs
Source: FE Analytics
The fund has returned 5.32 per cent over the last three years, compared with a 3.93 per cent gain from the average peer in the IA Targeted Absolute Return sector. It has an OCF of 1.47 per cent.
Blackrock Gold & General
The final pick is from Adrian Lowcock, head of personal investing at Willis Owen, who has chosen the £1.3bn Blackrock Gold & General fund.
The fund is the UK’s largest and longest established unit trust specialising in gold and gets its exposure to gold and other precious metals through companies.
Managed by Evy Hambro and FE fundinfo Alpha Manager Tom Holl, the pair preside over an investment team which is one of the most highly rated groups of investment professionals conducting in-depth research into companies operating in this specialised field.
“At the company level, valuation analysis is rigorous and aims to find companies with the best exposure to commodity prices within an acceptable level of risk,” said Lowcock. “This leads to an emphasis on larger producers with quality assets and the ability to grow their production in a cost effective manner.”
Performance of fund vs sector & benchmark over 3yrs
Source: FE Analytics
The fund has returned 59.89 per cent over the last three years, compared with a 69.11 per cent gain for the FTSE Gold Mines benchmark. It has an OCF of 1.17 per cent.