Multi-asset funds run by Invesco Perpetual, Troy Asset Management and Columbia Threadneedle have a stronger track record of consistently positive years than the average absolute return fund, according to FE Trustnet research.
The IA Targeted Absolute Return sector has been a persistent favourite with investors in recent years owing to their generally cautious mindset amid almost-constantly rising stock markets.
Indeed, monthly sales figures from the Investment Association show the peer group is often one of the industry’s top five best sellers month in, month out.
While investors have flocked to the sector for its defensive qualities, our research shows that there are several funds in the Investment Association’s multi-asset sectors that have a stronger track record of generating consistent 12-month positive returns than the average absolute return funds.
Performance of sectors over 10yrs
Source: FE Analytics
We reviewed the performance of the IA Targeted Absolute Return sector over the 46 12-month periods that, when calculated quarterly, span June 2005 to June 2006 through to September 2016 to September 2017. This covers the full track record of the sector.
Out of these 46 periods, the average fund in the sector made a positive return in 37 – given it an 80.4 per cent success rate.
When we looked at the multi-asset sectors, only IA Mixed Investment 0-35% Shares had a better track record as it was in positive territory in 82.6 per cent of the 46 12-month periods. For IA Mixed Investment 20-60% Shares and IA Mixed Investment 40-85% Shares the success rate was 78.3 per cent while it stands at 73.9 per cent for the IA Flexible Investment sector.
However, on an individual fund level there are plenty of multi-asset funds that have a better track record than the average absolute return offering for consistently making positive returns.
The table below shows all the funds from the IA Mixed Investment 0-35% Shares, IA Mixed Investment 20-60% Shares, IA Mixed Investment 40-85% Shares and IA Flexible Investment sectors that have made a positive return in more than absolute return sector’s 80.4 per cent of the periods.
There are 25 in total, with members of the IA Mixed Investment 0-35% Shares occupying the top two spots. This is unsurprising, given the fact that this is the most cautious of the four multi-asset peer groups.
Source: FE Analytics
However, it is not the most common sector on the list. While six of the 25 funds are from this peer group, another nine come from IA Mixed Investment 20-60% Shares. Five each are housed in the IA Mixed Investment 40-85% Shares and IA Flexible Investment sectors.
The fund at the top of the list – Threadneedle Navigator Cautious Managed – is managed by Alex Lyle and has assets of just £12.1m. Head of managed funds Lyle also runs Threadneedle Managed Equity & Bond with chief investment officer Mark Burgess; this fund is in second place and is substantially larger with assets of £1.4bn.
The four FE Crown-rated Threadneedle Managed Equity & Bond fund takes an active approach to asset allocation, which draws upon Columbia Threadneedle Investments’ house view and the expertise of the entire platform of the firm’s equity and fixed income teams.
The list of outperforming multi-asset funds does contain some big names, that are popular with both professional and private investors.
Troy Asset Management’s Trojan fund is the largest, with FE Alpha Manager Sebastian Lyon running £4.4bn in the portfolio. The IA Flexible Investment sector fund is managed with an absolute return mindset, having remained in positive territory in 84.8 per cent of the 46 12-month periods examined here.
In a recent update, the manager explained why he has this mindset when building a portfolio: “While some are forever seeking out of the next water-into-wine stock, others have learnt the virtues of capital preservation and look to the downside before considering the upside.
“I started my career in 1989, following the shock of the 1987 crash. The UK economy was heading into a double-dip recession. For three years, markets tracked sideways but with materially divergent performances for their constituent parts.”
Performance of funds vs sector over 5yrs
Source: FE Analytics
Invesco Perpetual Distribution, managed by Paul Causer, Paul Read and Ciaran Mallon, is another one of the industry’s bigger funds beating the average absolute return fund. It has assets of £3bn.
Run with income in mind, the fund favours companies with visibility of revenues, profits and cash flows, which have a focus on distributing a sustainable and growing dividend. In fixed income, the portfolio is cautious on interest-rate duration.
Other notable multi-asset funds to be included on the list are Jupiter Distribution, AXA Distribution, Schroder MM Diversity and Fidelity Moneybuilder Balanced.