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What you need to know about the new AFI Aggressive portfolio

06 February 2019

FE Trustnet takes a closer look at the new aggressive funds joining the FE Adviser Fund Index and reveals which ones have left.

By Rob Langston,

News editor, FE Trustnet

More emerging market and UK equity strategies have been added to the FE Adviser Fund Index (AFI) Aggressive portfolio following the latest rebalancing, with advisers adding to the number of funds focusing on two of 2018’s most beat-up sectors.

The FE AFI Aggressive, Balanced and Cautious portfolios are put together by a panel of leading UK financial advisers who each submit a maximum of 10 funds for a specific age group with the assumption that a client is saving for a pension at age 65.

Having already looked at the new funds that advisers say any investor can hold – those funds with a position in each portfolio – in this article we focus on the FE AFI Aggressive portfolio.

The FE AFI Aggressive is made up of 150 funds suitable for a person in their late 20s and, as such, includes a number of funds usually found higher up the risk scale.

A more pro-risk portfolio should be better suited to younger investors with a longer-term time horizon and able to ride out short periods of volatility.

Over 10 years the AFI Index has made a total return of 156.78 per cent against a 123.37 per cent for the average IA Flexible Investment fund.

However, last year several geopolitical headwinds for markets combined with a more challenging macroeconomic backdrop made for a difficult environment for risk assets and for active managers to outperform in.

Performance of indices vs sector in 2018

 
Source: FE Analytics

As the above chart shows, the FE AFI Aggressive portfolio recorded a loss of 8.08 per cent. In comparison, the benchmark FTSE UK Private Investor Global Growth fell by just 3.86 per cent and the average IA Flexible Investment fund made a 6.72 per cent loss.

However, there have been a number of changes following the rebalancing of the portfolios this year, as four new panellists joined.

In total 13 funds have left the AFI Aggressive portfolio following the rebalance, with some well-known names among them.



 

Given much of the negative sentiment around UK equities more recently, it was little surprise to see five UK equity strategies fall out of the aggressive portfolio, the most of any region.

There were three IA UK All Companies funds among those exiting the FE AFI Aggressive portfolio during the latest rebalance – GVQ UK Focus, Neptune UK Mid CapSlater Growth – as well as two small-cap strategies: Schroder Institutional UK Smaller Companies and TB Amati UK Smaller Companies.

The total allocation to IA UK All Companies funds fell from 18.92 per cent to 17.04 per cent while IA Smaller Companies went from 5.87 per cent to 3.72 per cent.

In total, three global equity strategies left the portfolio: Invesco Global Smaller Companies (UK)MI Thornbridge Global Opportunities and the Merian Global Equity Absolute Return fund (which resides in the IA Targeted Absolute Return sector).

That said, the overall weighting to the IA Global sector was lifted from 10.96 per cent to 12.14 per cent.

Two Asian equity funds also exited the portfolio in the form guise of Merian Asia Pacific and Schroder ISF Asian Total Return.

The £9.7bn Merian Global Equity Absolute Return and £3bn Schroder ISF Asian Total Return funds were among several large funds that failed to retain their spot in the portfolio.

Troy Asset Management’s £4.1bn Trojan fund was another large casualty at the rebalancing as FE Alpha Manager’s Sebastian Lyon strategy fell out of the FE AFI Aggressive.

Both Merian and Schroders had two funds leaving the portfolio, with each of the Merian funds managed by the same team – Ian Heslop, Amadeo Alentorn and Mike Servent.

 

Source: FE Analytics

None of the outgoing funds made a positive return in 2018, with the best performer being the £192.9m JPM US Small Cap Growth fund with its 2.22 per cent loss. The worst performer of the departing funds was the Neptune UK Mid Cap fund, which fell by 18.67 per cent last year.

Given the addition of four new members to the FE AFI panel there have been a number of new funds added across the portfolios.

As such, there were 58 new funds brought in to the aggressive portfolio, including two exchange-traded funds (ETFs), one offshore fund, six investment trusts and 49 from the Investment Association universe.

Among the new cohort were a number of emerging market strategies, including five IA Asia Pacific Excluding Japan funds, four IA Global Emerging Markets constituents, two emerging markets-focused IA Specialist funds, and investment trusts focused on frontier markets, India and a broad Asian strategy.



Despite the negative sentiment and sensing perhaps some valuation opportunities as Brexit negotiations continue, there were 12 UK equity strategies added at the rebalancing. These included seven IA UK All Companies funds, a UK equity absolute return strategy, three IA UK Equity Income funds and a smaller companies fund.

Five property funds joined the portfolio in the form of Premier Pan European Property Share, Commercial Freehold, L&G UK Property Feeder, Threadneedle UK Property Authorised Investment and Schroder Real Estate Investment Trust.

The biggest names to be added to the list were Lindsell Train Global Equity, Artemis Income and Jupiter European, each weighing in at over £5bn.

Lindsell Train Global Equity – run by FE Alpha Managers Nick Train and Michael Lindsell – was also one of several funds in the line-up that are well-respected by FE’s analysts, holding five FE Crown rating and overseen by an FE Alpha Manager.

Other top-rated funds and managers include Stewart Investors Worldwide Sustainability (FE Alpha Manager: David Gait), Sarasin Food & Agriculture Opportunities (Henry Boucher), GAM Star Credit Opportunities (Anthony Smouha), TB Evenlode Income (Hugh Yarrow), and Fidelity Asia Pacific Opportunities (Anthony Srom).

 

Source: FE Analytics

New panellist Jeffrey Deans, director at advisory firm Save & Invest, said that its investment committee had chosen the £177.4m, five FE Crown-rated Investec American Franchise fund as a good long-term holding for younger investors.

“I suppose America divides opinion just now, probably more than most areas,” he said. “Obviously we are slightly concerned in the short term for our UK investors and how any American fund will do if we get some kind of Brexit deal and the pound goes to 1.50 against the dollar as many people predict.

“It is in there for the longer term, but in the shorter term we are warning clients that a recovery in the pound could very well mean a negative return for that particular fund. It’s the same for any overseas equity fund.”

Following the rebalance, approximately 29.4 per cent of assets in the new FE AFI Aggressive portfolio are UK securities with 20.03 per cent held in US assets and 13.44 per cent in Europe ex UK.

As such the UK equities allocation is the largest at 24.13 per cent of the portfolio, followed by US stocks which represent 18.3 per cent of the portfolio.

Indeed, the largest sector by representation is the IA UK All Companies sector, which accounts for 17 per cent of the names in the portfolio, followed by the IA Global (12.1 per cent) IA North America and IA Europe Excluding UK (8.4 per cent each).

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