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Five ‘all-weather’ funds to own if you’re unsure on markets

16 September 2021

Analysts from Square Mile Research and Consulting look at five areas of the market and pick their favoured long-term, all-in-one portfolios.

By Jonathan Jones,

Editor, Trustnet

The coronavirus pandemic has made investing difficult for many. While many of the stocks savers have come to rely on over the past decade did well during the market downturn last year, towards the end of 2020 and at the start of this year these gave way to the value, unloved part of the market.

Now, with further talks about winter plans to stem the tide of Covid cases, investors may be wondering what is next. Indeed, over the past few months, the growth firms have already started to overtake their value counterparts again.

These violent swings in style have been almost impossible for investors to predict, but it is not always necessary to do so.

Many experts suggest diversified portfolios, limiting the risk that one area of the market wins while others lose but another option is to buy funds that are perceived as “all-weather”, which will hold up for many years.

Below, analysts from Square Mile Research and Consulting give their top picks across a range of sectors, from UK to absolute return funds.

 

A UK fund pick

For investors that want to have some exposure to the domestic market, John Monaghan, head of research, said the £116m Ninety One UK Sustainable Equity fund was a good option for investors.

Since its launch, the portfolio has been run by FE fundinfo Alpha Manager Matt Evans, formerly of Threadneedle. It has returned 57.1% during that time, a top-quartile effort among its IA UK All Companies peers.

Total return of fund vs sector and benchmark since launch

 

Source: FE Analytics

“This fund directly addresses two key investor concerns: the achievement of long-term sustainable investment returns and the positive lasting impact on society and the environment,” said Monaghan.

“In our view, manager Matt Evans, has proved his ability to meet this objective, drawing on a credible and durable investment philosophy and process.”

 

A global fund pick

For overseas equities, Daniel Pereira, investment research analyst, suggested investors could do a lot worse than the Artemis Global Select, which has been a top-quartile performer over the past decade, returning 300% to investors, more than 50 percentage points more than the MSCI ACWI benchmark index.

Managers Alex IllingworthSimon Edelsten and Alpha Manager Rosanna Burcheri run the £328m portfolio by looking for quality companies in sectors exhibiting strong growth.

“The approach typically results in a portfolio of companies that are less exposed to the vagaries of the prevailing economic climate,” he said.

The team also ensures diversification by not allowing one theme to dominate and monitors how they interact with each other, i.e. moving in the same or different directions. All this helps to keep the fund competitive with global equities while moderating downside risks.”

 

A multi-asset fund pick

Alex Farlow, head of risk based solutions research, said a one-stop-shop portfolio for investors that want a mixture of both equities and bonds is the Threadneedle Managed Equity & Bond fund.

The £1.5bn portfolio has beaten its average IA Mixed Investment 20-60% Equities sector peer over three, five and 10 years, and sits in the top 25% of the sector over each timeframe.

Total return of fund vs sector over 10yrs

 

Source: FE Analytics

Headed by Alpha Manager Alex Lyle, the fund is currently 53.7% weighted to stocks, with 44% in bonds and the remainder in cash. Although Lyle only took sole charge in April this year, he has been involved in the strategy for over 10 years.

“This fund forms part of the Threadneedle Managed fund range which has successfully followed the same investment process since the late 1990s,” Farlow said.

“It leverages the best resources of the entire business and this has proved successful at providing long-term capital growth and consistently delivering superior returns relative to the fund's benchmark.”

 

A bond fund pick

Investors with a lower tolerance for risk, or in need of diversifying their portfolios away from equities, might wish to add the M&G UK Inflation Linked Corporate Bond fund, according to Eduardo Sanchez, senior investment research analyst.

The fund has been in the doldrums for many years, indeed it is the third-worst performing IA Sterling Strategic Bond fund over the past decade, returning 28.9%. However, with inflation on the rise, it could be about to come into its own.

Sanchez said: “This is an interesting strategy, which should provide investors with protection against inflation over the longer term while offering something slightly different to a traditional government inflation-linked bond fund.”

Manager Ben Lord uses three different levers to generate returns: inflation, interest rates and credit spreads, giving it a broad range of options and is run with a deliberately defensive approach, explaining some of its lacklustre returns over the past 10 years.

“This fund has been able to deliver positive returns under different market scenarios, with a low volatility profile and very limited drawdowns,” Sanchez added. 

An absolute return fund pick

Last up, Tom Archer, investment research analyst suggested that the BlackRock European Absolute Alpha fund was a good option for investors willing to take the risk on a long-short portfolio.

“This strategy aims to provide a positive return over any twelve month period in all market conditions and it has an excellent record of alpha generation on both long and short investments,” he said.

Over the past decade, the portfolio run by experienced investors Alpha Manager Stefan Gries and Stephanie Bothwell, has returned 59% to investors, but has crucially only suffered one negative year in 2016 – during the height of the Brexit referendum.

“We believe that it should continue to deliver attractive and consistent returns on any extended rolling basis, coupled with a high degree of capital preservation in market downturns,” said Archer.

Trust Sector Fund size  Manager name(s) Yield OCF
Artemis Global Select IA Global £328m Simon Edelsten, Alex Illingworth, Rosanna Burcheri 0.28% 0.9%
BlackRock European Absolute Alpha  IA Targeted Absolute Return £531m Stefan Gries, Stephanie Bothwell 0 0.91%
M&G UK Inflation Linked Corporate Bond IA Sterling Strategic Bond £1,083m Ben Lord, Matthew Russell 0 0.43%
Ninety One UK Sustainable Equity IA UK All Companies £116m Matt Evans 0.54% 0.76%
Threadneedle Managed Equity & Bond IA Mixed Investment 20-60% Shares £1,533m Alex Lyle 1.12% 0.74%

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.