This year may be one that the asset management industry will try to forget. The Investment Association (IA) has registered net negative fund flows every month this year bar April, with an eye-watering £7.6bn withdrawn in September alone.
It is understandable that sentiment among investors is rock bottom given the barrage of bad news this year. However, at times like this it is worth remembering that investing is a long-term game, and all funds will suffer periods of short-term underperformance.
While it can be tempting to cash in investments at times of market duress, a fund’s success should be measured by its ability to deliver on its objectives consistently and over its stated investment horizon.
We believe the following five strategies have the potential of doing just that and are therefore worthy of consideration as we enter 2023.
UK equities – John Monaghan on the Man GLG Undervalued Assets fund
The Man GLG Undervalued Assets fund aims to grow investor capital by unearthing out of favour opportunities. Its managers invest with a high level of conviction in a business’s recovery potential and have the discipline to hold their nerve to remain invested while others are fleeing.
This contrarian approach, coupled with the fund’s weighting to mid and small-cap companies, means it may look and behave very differently to peers and its FTSE All Share benchmark.
The fund has successfully met its objectives over the long term, with periods of strong outperformance, and while it may lag when growth stocks are leading markets, the current backdrop should be supportive of this strategy.
Global equities – Ajay Vaid on the Dodge & Cox Global Stock fund
This fund also aims to deliver capital growth by focussing on a long-term view and the portfolio typically has bias to undervalued companies, as its managers seek to assess the true worth of a business franchise.
However, it is not completely at the mercy of this style of investing and in momentum or growth driven markets, its performance may offer greater consistency relative to funds with a more overt value focus.
While its return profile can exhibit periods of heightened volatility versus the wider global equity market, we believe that over a full market cycle investors should be well rewarded on a risk-adjusted basis.
Fixed income – Eduardo Sanchez on the TwentyFour Strategic Income Fund
The team behind the TwentyFour Strategic Income fund aims to provide a good level of income by taking advantage of opportunities across the fixed income universe including government and corporate bonds, hybrid credit and asset backed securities.
The managers have strong credit selection capabilities and macroeconomic expertise, the latter helping them identify and protect against so called "left tail" events.
By their very nature, these may be unlikely, but they can have a severe negative impact on the prices of securities should they occur, but historically the team has a good track-record of spotting them.
Whilst there is no guarantee that the team will always be able to do so or be able to put effective protection in place when they do, it should be a comfort to investors that they are alert to such possibilities.
Alternatives – Charles Hovenden on the BlackRock European Absolute Alpha fund
This fund’s objective of providing a positive return over any twelve-month period in all market conditions through long and short investments in European equities will no doubt appeal to many investors given the current market backdrop.
Indeed, since launch in April 2009, this strategy has delivered consistent mid-single digit returns with only one calendar year where it has posted a negative return (2016).
Its managers are experienced long/short investors who have an excellent record of alpha generation on both sides of the investment book and who maintain a portfolio with low net market exposure, in which the emphasis and driver of returns is stock selection.
Responsible investment – Alex Farlow on M&G Sustainable Multi Asset Balanced portfolio
The managers of this portfolio have a capital accumulation objective which they seek to achieve by adopting a risk managed approach to asset allocation.
The range within which the portfolio sits is differentiated from a number of its peers who tend to favour more innovative growth areas of the market, preferring more of a valuation sensitive investment approach both from an asset allocation and underlying investment perspective.
The investment process is clearly articulated, evidenced, and combines different sustainable approaches with a specific allocation to impact investment, which is up to 50% of the portfolio’s assets.