Traditionally a more balanced mix of assets or styles can allow investors to take part in any strong performance but with some protection, which might serve some investors well during a 2020 with a lot of unknowns still facing markets.
Below, Trustnet’s panel of advisers and fund pickers highlight their preferred balanced strategies for 2020.
TB Evenlode Income
The first fund recommended by our panel might not fit the description of a conventional balanced fund, but Bestinvest managing director Jason Hollands said that it is because he has less conviction in bonds.
His choice is the £3.6bn TB Evenlode Income, an equity income strategy overseen by Alpha Manager Hugh Yarrow and co-manager Ben Peters.
“I find it hard to get excited traditional balanced funds that invest in equities and bonds at the moment,” Hollands said. “Much of the bond market looks expensive.”
The fund has 86 per cent of its portfolio invested in UK equities and offers investors “a bit of yield but with strong capital growth prospects”.
“This is a primarily UK focused equity fund, which targets asset-lite companies with strong cash flow generation and predictable earnings streams,” Hollands added. “It avoids businesses in very cyclical areas or with complex models, as well as those that tie investors capital up maintaining physical assets such as machinery, oil rigs and aircraft.”
Performance of fund vs sector & benchmark over 3yrs
Source: FE Analytics
One key element for investors to consider in a balanced strategy is the Sharpe ratio, comparing the return of an investment compared to its risk; essentially was taking that extra risk worth it. Looking at the TB Evenlode Income fund and it had an annualised Sharpe ratio over the past three years of 1.17 per cent, suggesting that the risk paid off.
Over three years, the fund has made 45.45 per cent, outperforming both the IA UK All Companies sector average (23.97 per cent) and the FTSE All Share benchmark (23.80 per cent). The five FE fundinfo Crown-rated fund has a 3 per cent yield and an ongoing charges figure (OCF) of 0.90 per cent.
Liontrust Sustainable Future Managed
Next up is what investors might consider a more traditional balanced strategy, chosen by The Share Centre’s head of investments Andy Parsons.
The £1.3bn Liontrust Sustainable Future Managed fund is managed by Peter Michaelis and Simon Clements and typically holds between 45-85 per cent in equities with up to 55 per cent able to be held in cash or bonds.
Michaelis and Clements look for opportunities within three themes: better resource efficiency, improved health and greater safety and more resilience, tapping into the growing sustainability theme that has come through in markets this year.
“With the trend of sustainable investing looking set to continue gathering pace going into next year, a balanced fund such as this, which can get the best out of its investments, is certainly worth considering,” Parsons said. “The fund is a prime example of how utilising a diligent investment process and having a strong experienced team within the SRI space can deliver excellent results.”
The fund had a top-quartile Sharpe ratio figure of 1.15 per cent compared with 0.44 per cent for the IA Mixed Investment 40-85% Shares sector average.
Fund performance vs sector past 3yrs
Source: FE Analytics
The five FE fundinfo Crown-rated Liontrust Sustainable Future Managed fund made returns of 42.90 per cent over the past three years, outperforming its peer group which was up by 18.88 per cent. The fund has an OCF of 0.91 per cent.
Fidelity Global Special Situations
Another fund that might not necessarily spring to mind as a balanced strategy is the Jeremy Podger’s Fidelity Global Special Situations funds, which invests in undervalued companies.
Recommended by Adrian Lowcock, head of personal investing at Willis Owen, he said that the Alpha Manager Podger “continues to steer this fund on a steady path through a variety of market conditions”.
He explained: “Podger applies a style-neutral investment approach with which he aims to construct a portfolio of companies that fall under one of three kinds of special situations: exceptional value, unique business, or corporate change.
“While Podger is trying to create a balanced portfolio that will perform well through a range of market conditions, investments are still driven by conviction.
“The combination of Podger’s tried-and-tested methods and Fidelity's large analytical resources remains a powerful one.”
Performance of fund vs sector over 3yrs
Source: FE Analytics
Making returns of 33.06 per cent over the past three years, the four Crown-rated fund outperformed the IA Global sector average 30.93 per cent gain.
But this outperformance came with higher volatility compared with the peer group 11.65 per cent vs 10.02 per cent. It has an OCF of 0.92 per cent.
Artemis US Extended Alpha
GDIM Discretionary Fund Managers’ Tom Sparke also opted for something slightly different in William Warren’s £432m Artemis US Extended Alpha fund.
The strategy is able to take long and short positions to generate alpha and is a process that was previously managed by Warren at Columbia Threadneedle before he launched this strategy at Artemis five years ago.
Sparke said the fund had on “excellent track record” and has made a return of 40.63 per cent over the past three years, outperforming the S&P 500 (37.40 per cent) and the average IA North America fund (32.45 per cent).
Performance of fund vs sector over 3yrs
Source: FE Analytics
What is significant about the fund, according to Sparke, is its flexible net position giving some added defensiveness necessary for a balanced portfolio.
“The fund’s ability to move its net position above, and more relevantly, below the 100 per cent mark gives it the ability to protect capital in tougher markets by shorting stocks that they believe will underperform,” he explained.
“It’s risk-adjusted returns have been exceptional and in an uncertain year this fund could save investors much pain whilst capitalising on better times in US stock markets.”
As such, the fund has a top-quartile volatility (11.27 per cent) and Sharpe ratio (0.94). It has an OCF of 0.85 per cent.
Jupiter UK Special Situations
Balanced investors have been rewarded this year with their equities allocations, according to AJ Bell’s Ryan Hughes, unless you’ve invested in UK strategies, which have lagged their international peers as Brexit concerns have dominated.
However, Hughes’ balanced fund pick – the £2.1bn Jupiter UK Special Situations, overseen by Ben Whitmore – could be well-placed to take advantage of any further improvement in sentiment.
“Whitmore looks for fundamentally sound companies that are unloved by other investors and priced below true value,” said the fund picker. “As a natural contrarian, the portfolio can look very different from the index which is a positive, with the portfolio currently tilted towards domestically focused companies that may come back in the spotlight should a resolution to Brexit and the election be found.”
Over the past three years, the fund has underperformed against the sector, making 17.73 per cent against a 24.15 per cent gain for the average IA UK Companies peer.
Performance of fund vs sector over 3yrs
Source: FE Analytics
Whilst the fund has lagged its peers, its performance has actually been more cautious and stable than its peers with top quartile showings for maximum drawdown (-10.64 per cent vs the sector’s -14.06 per cent) and volatility (9.59 per cent). The fund has an OCF of 0.76 per cent and a yield of 3.70 per cent.