Personal Assets Trust, BNY Mellon Real Return and Allianz Gilt Yield are among a range of funds that Trustnet’s panel of fund pickers and advisers believe would be good options for investors with a more cautious mindset in 2020.
After a challenging investment environment in 2018, this year has been more conducive for markets as the Federal Reserve reversed course on its tightening programme.
Towards the end of the year a US-China trade deal also seemed more likely, while in the UK a conclusive victory for the Conservative party in the general election helped give some clarity on Brexit.
Nevertheless, while the outlook seems more positive at the end of the year there are still many unresolved issues and – as US president Donald Trump’s impeachment showed – still some surprises for markets.
As such, investors might wish to add some more defensive strategies to their portfolios and Trustnet asked it panel of fund pickers to pick out those they thought worthy of consideration in 2020.
Personal Assets Trust
We start off with Personal Assets Trust was chosen by Bestinvest managing director Jason Hollands, who described it as a ‘one-stop shop’ for cautious investors.
Managed by FE fundinfo Alpha Manager Sebastian Lyon, the closed-ended fund is built around ‘four pillars’ of quality blue-chip stocks, index linked bonds, gold and cash.
The £1.1bn trust is ideal not just for investors with a more cautious outlook Hollands explained, but for when market valuations are too expensive or where risks are growing, “because the managers are prepared to shift a significant amount of the portfolio into cash to protect value”.
“This fund will lag markets in the boom times,” Hollands added, “but it will help preserve capital in tough conditions.”
This is reflected in its low volatility. Personal Assets' annualised volatility over the past three years stands at 4.73 per cent, compared with 10 per cent for the FTSE All Share benchmark.
In addition, the trust had a significantly maximum drawdown figure – the most an investor could lose if bought and sold at the worst-possible time – of 3.89 per cent compared with benchmark’s 12.11 per cent.
Performance of trust vs sector & benchmark over 3yrs
Source: FE Analytics
The fund has made a total return of 14.74 per cent over the past three years (to 16 December) compared with a gain of 23.80 per cent for the FTSE All Share and a return of 19.24 per cent for the average IT Flexible Investment peer.
According to data from the Association of Investment Companies (AIC), it is not geared, trades at a discount to net asset value (NAV) of 1.2 per cent, has a yield of 1.3 per cent and ongoing charges of 0.91 per cent.
Allianz Gilt Yield
The Share Centre’s head of investments Andy Parsons has opted for the Allianz Gilt Yield fund overseen by Mike Riddell, which he described as a “well-managed active strategy”.
“Investing in gilts is perceived to be more of a defensive portfolio investment and traditionally has offered attractive income yields with moderate potential for some capital growth,” said Parsons.
“However unusual economic conditions since the financial crisis have led to record low interest rates and low yields on government bonds. Despite this, investors are still attracted to gilts due to the perceived safety in comparison to other assets.”
Parsons said the £2.3bn fund aims to outperform the FTSE Actuaries UK Conventional Gilts All Stocks benchmark “in a relatively consistent and incremental manner without taking significant relative risk”.
He added: “Riddell aims to maximise total returns through a prudent and stringent management process, underpinned by his longer-term analysis of the prospects for the UK economy and the gilt market.”
Performance of the fund vs sector & benchmark over 3yrs
Source: FE Analytics
The four FE fundinfo Crown-rated fund has made a return of 14.10 per cent over the past three years (to 16 December), outperforming the IA UK Gilts (13.33 per cent) and the FTSE Actuaries UK Conventional Gilts All Stocks (12.16 per cent). It has a yield of 1 per cent and an ongoing charges figure (OCF) of 0.55 per cent.
BNY Mellon Real Return
Next up is the £6.3bn BNY Mellon Real Return fund picked out by Adrian Lowcock, head of personal investing at Willis Owen, who said the managers’ first priority is capital protection and then aim to deliver 4 per cent above cash per annum over the longer term.
The multi-asset strategy is overseen by Aron Pataki, Suzanne Hutchins and Andy Warwick, who were put in place following the announcement that well-respected launch manager Iain Stewart would be retiring at the end of this year.
Lowcock said the managers run an unconstrained and flexible approach using Newton’s thematic research to find opportunities and is split into two parts.
“The fund invests in two parts,” he explained. “A core element which invests in shares and bonds with a long-term perspective and low turnover.
“Around the core, Hutchins invests in cash, government bonds and derivatives in order to reduce risk. The underlying portfolio is composed of traditional shares, albeit with significant flexibility in asset allocation.”
Over the past three years (to 13 December), the absolute return fund has returned 14.77 per cent compared with a 14.29 per cent gain for the LIBOR GBP 1m +4% benchmark.
Performance of fund vs sector & benchmark over 3yrs
Source: FE Analytics
BNY Mellon Real Return has a yield of 2.19 per cent and an OCF of 0.80 per cent.
BNY Mellon Sustainable Global Equity Income
GDIM Discretionary Fund Managers’ Tom Sparke has also chosen a BNY Mellon fund – BNY Mellon Sustainable Global Equity Income – albeit a strategy that is a bit different than the other picks.
A relatively new fund, which only launched in July this year, investment manager Sparke said he expects to see exciting things from it in the future.
“Based on the same approach and with the same management as the hugely successful BNY Mellon Global Income fund, this sustainable version has outperformed its much larger stablemate since its launch,” said Sparke.
“A defensively positioned global portfolio is not only a good fit for a defensive portfolio but it could also allow investors to participate in upward movements in markets at a lower level of volatility.”
The fund is managed by Nick Clay, the firm’s leader of equity income, and head of responsible & charity investment Rob Stewart.
Performance of fund vs sector & benchmark since launch
Source: FE Analytics
The £12.6m sustainable fund has made a small gain of 1.14 per cent since launch (to 18 December), 99 per cent, slightly underperforming the IA Global Equity Income peer group (1.49 per cent) and FTSE World benchmark (2.54 per cent). Its sister fund – BNY Mellon Global Income – has made a 0.06 per cent loss over the same period. BNY Mellon Sustainable Global Equity Income has an OCF of 0.88 per cent.
Royal London Short Duration Global High Yield Bond
The final fund pick for cautious investors comes from AJ Bell’s Ryan Hughes.
“Cautious investors have benefited from strong returns this year as bonds have performed strongly,” said Hughes. “Looking ahead the government is indicating higher spending which could well steepen the yield curve. As a result, traditional corporate and government bonds may struggle.
“One alternative would be to look at short duration high yield bonds which are less correlated to interest rates and bond yields.”
His choice, Royal London Short Duration Global High Yield Bond, aims to provide income by beating the three-month LIBOR index by 2 per cent per annum over rolling three-year periods.
The £1.8bn fund is managed by Azhar Hussain and Stephen Tapley, with Hughes highlighting the team’s bond-picking ability.
Performance of fund vs sector & benchmark over 3yrs
Source: FE Analytics
Over the past three years (to 16 December), the fund has made a total return of 7.92 per cent compared with a gain of 14.05 per cent for the IA Sterling Strategic Bond peer. However, it did so with around half the annualised volatility of the peer group (1.12 per cent vs 2.54 per cent).
Royal London Short Duration Global High Yield Bond has a yield of 4.50 per cent and has an OCF of 0.58 per cent.