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Ryan Hughes: Three funds to buy, hold and forget about

09 September 2019

AJ Bell’s head of active portfolios recommends three funds for building a long-term, low-maintenance portfolio.

By Eve Maddock-Jones,

Reporter, FE Trustnet

Investors who want to build a portfolio that they can hold for the long term without having to think about rebalancing every year should focus on funds with a proven track record of capital protection, according to Ryan Hughes, head of active portfolios at AJ Bell.

He said it is also important to find funds that invest in complementary areas to bring diversification.

“While this may ultimately limit your upside potential, for many, the knowledge that they have an element of downside protection will be sufficient to offset that,” he explained.

Below are the three funds Hughes would use to build a low-maintenance portfolio.

Trojan

The first name Hughes recommends is Troy Trojan, saying this would account for 40 per cent of his three-fund portfolio. He described it as “a well-diversified fund focused on limiting downside risk”.

FE Alpha Manager Sebastian Lyon and deputy Charlotte Yonge invest in gold, government bonds and high-quality equities with the aim of providing a similar return to equities but with a much lower level of volatility.

Lyon, who has run the fund since launch in 2001, leans towards highly liquid assets, particularly those whose return profile is more predictable. As a result, he rarely invests in corporate bonds.

The manager also avoids alternative investment, infrastructure and REITs, as he doesn’t believe that they provide true diversification. Square Mile Investment Consulting & Research said this makes the process “simple and transparent”.

However, Hughes said that despite the fund’s “defensive mindset” it is not immune to volatility.

Performance of fund vs sector and benchmark over 5yrs

 

Source: FE Analytics

The £4.3bn Trojan fund has made returns of 33.19 per cent over the past five years, more than the 31.8 per cent made by the FTSE All Share index, but less than the 36.40 per cent made by its IA Flexible Investment sector.

It has an OCF (ongoing charges figure) of 1.02 per cent and is yielding 0.78 per cent.


Jupiter UK Special Situations

One of the other funds Hughes would combine with Trojan is Jupiter UK Special Situations, at 30 per cent of his low-maintenance portfolio.

“This fund focuses on out-of-favour UK equities and has a very disciplined investment process that looks for high quality businesses that are financially strong and priced attractively,” he said.

“The fund can look very different to the benchmark but combines well with [Trojan] Troy as it also gives some growth potential given its equity focus.”

Manager Ben Whitmore is a long-term, contrarian manager who has maintained a focus on value investing since his time at Schroders.

This aspect of Whitmore’s style is one of the most “compelling features of this strategy,” according to Square Mile. “In essence, this is a fund that is run in a very focused manner and by a manager that is, in our view, one of the most disciplined in managing a portfolio using this type of investment approach,” it said.

“The manager's ability to remain dispassionate about companies and investments means that the portfolio is consistently a true representation of the philosophy and process.”

Jupiter UK Special Situations has made 32.47 per cent over the past five years compared with 31.8 per cent from the FTSE All Share index and 29.58 per cent from its IA UK All Companies sector.

Performance of fund vs sector and benchmark over 5yrs

 

Source: FE Analytics

The £2.1bn fund has an OCF of 0.76 per cent and is yielding 3 per cent.


BNY Mellon Global Income

The last name, taking up the final 30 per cent of Hughes’ portfolio allocation, is Nick Clay’s £5.7bn BNY Mellon Global Income fund, one of the first global equity income strategies to come to the UK retail market when it was launched in 2005.

Hughes believes BNY Mellon Global Income would complement Jupiter UK Special Situations as it provides international equity diversification.

“The fund is focused on high-quality companies that pay a yield higher than the market. This process is very disciplined with only companies yielding more than 125 per cent of the market coming into the portfolio, and if the yield falls below the market’s, the position is sold. The fund is high-quality and large-cap focused with its approach lending itself well to steady long-term growth with an element of downside protection.”

Square Mile said that Clay’s preference for companies which are more steady and reliable means the fund will often lag behind the FTSE World GTR index when the market is rallying.

“The fund's ability to take significant positions away from the FTSE World benchmark can therefore, at times, mean it looks markedly different to the index and as a consequence performance over shorter time frames could be variable,” it said.

“Nevertheless, due to the nature of the strategy, plus the team's own abilities and strength of supporting resources, we would expect this fund to deliver attractive risk-adjusted returns over the longer term.”

Out of the three funds recommended by Hughes, BNY Mellon Global Income made the highest returns over five years at 88.88 per cent.

Performance of fund vs sector and benchmark over 5yrs

 

Source: FE Analytics

The fund has an OCF of 0.80 per cent and is yielding 2.93 per cent.

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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.