An ethical fund and an index-tracking strategy are some of the cautious multi-asset products that have consistently achieved top-decile results on a number of important metrics, Trustnet research shows.
In this annual series, we review the various Investment Association sectors to see which funds are topping their peer groups across 10 risk and return measures. The metrics used can be seen to the side.
Here, we look at the IA Mixed Investment 20-60% Shares sector – which was formerly known as the ‘cautious’ sector – to find out which of its members have the highest average decile rankings for these metrics.
It is important to point out that this series covers performance up to the end of 2019 – so does not include the heavy losses that have been seen in 2020 so far.
However, while this has caused big changes to funds’ absolute performance, it has not yet resulted in many changes to their relative rankings. In a future article, Trustnet will look more closely at multi-asset funds to see how they have performed in the coronavirus crisis.
Trustnet found that the cautious multi-asset fund with the best average decile rank for the five years to the end of 2019 was Liontrust Sustainable Future Defensive Managed, which scored 2 in this research.
The £311.9m fund, which is headed up by Peter Michaelis and Simon Clements, has made a first-decile total return of 44.83 per cent over the five years looked at in this study. It’s also in the sector’s top decile over one and three years as well as for its Sharpe ratio.
Liontrust’s sustainable and responsible investment (SRI) process is a central element of the approach taken by the fund. This looks for sustainable and responsible businesses with a product or service offering that benefits from strong environmental or social trends.
Performance of fund vs sector over 5yrs to end of 2019
Source: FE Analytics
“In a fast changing world, we believe the companies that will survive and thrive are those which improve people’s quality of life, be it through medical, technological or educational advances; driving improvements in the efficiency with which we use increasingly scarce resources; and helping to build a more stable, resilient and prosperous economy,” the managers explained.
Top equity holdings in Liontrust Sustainable Future Defensive Managed include GlaxoSmithKline, London Stock Exchange, Kingspan, Prudential and Compass Group.
In second place is Kames Diversified Monthly Income. This £920m fund is managed by Vincent McEntegart and Jacob Vijverberg.
It achieved a score of 2.2 in this research thanks to its top-decile five-year total return of 43.21 per cent, as well as top-decile numbers for its one- and three-year returns, Sharpe ratio and charges.
Kames Diversified Monthly Income has the aim of income with an annual target yield of approximately 5 per cent, with the potential for some medium-term capital growth. McEntegart and Vijverberg believe that asset allocation is the driver of returns and seek to reduce risk in the portfolio by diversifying across a range of lowly-correlated investments.
Not all of the funds to achieve some of the most consistent upper-decile numbers in IA Mixed Investment 20-60% Shares sector take an active approach, however, with Vanguard LifeStrategy 40% Equity coming in fourth place with an average decile rank of 2.4.
Source: FE Analytics
The £5.3bn fund is part of the popular Vanguard LifeStrategy range, which are a suite of multi-asset funds built from underlying Vanguard trackers. The portfolios have a fixed asset allocation and are automatically rebalanced to keep them in line with their targets; this particular strategy has 40 per cent in global equities and 60 per cent in global bonds.
Analysts at Square Mile Investment Consulting & Research said: “We have a high regard for Vanguard's passive management capabilities and we also rate a large number of the individual passive funds this strategy invests in. We think that Vanguard are one of the only asset managers who have the breadth and quality of funds to be able to implement this type of strategy.
“The static nature of the fund's asset allocation and its implementation exclusively in passive funds means that investors are exposed to a number of risks. These include the risk of both global equities and bonds correlating highly and given this is not actively managed in any way, there is no change to the asset allocation or underlying passive selection to reflect extreme valuations so the fund may suffer when market valuations adjust.
“These risks have the potential to impact the fund in the short term, however over the long term the fund should provide similar returns and market exposure to a fund which takes more active decisions.”
Other large portfolios to make it onto the above list include David Hambidge, Ian Rees, Simon Evan-Cook and David Thornton’s £1.5bn Premier Multi-Asset Distribution fund, Alex Lyle’s £1.4bn Threadneedle Managed Equity & Bond fund and the £713.6m Fidelity Multi Asset Open Strategic fund.
Source: FE Analytics
The fund with the highest average decile rank – so towards the bottom of the peer group on multiple metrics – is VT Garraway Multi Asset Balanced.
This fund is in the IA Mixed Investment 20-60% Shares sector’s bottom decile for five- and three-year returns, alpha generation, volatility, Sharpe, upside capture and maximum drawdown.
While VT Garraway Multi Asset Balanced only has assets of £16.4m, some much bigger strategies have consistently been in the sector’s lowest deciles – including the £3bn LF Ruffer Total Return, £1.2bn 7IM AAP Balanced and £1bn Carmignac Portfolio Patrimoine funds.
LF Ruffer Total Return’s more recent performance is worthy of mentioning, however, as its defensive positioning means it has held up very well in the coronavirus sell-off. Indeed, while it was one of the lowest returning members of the sector for the five years to the end of 2019, it has become one of the best over the five years to March 2020.