Skip to the content

Only four multi-asset funds made money in Oct

20 November 2018

Research by FE Trustnet shows that the vast majority of funds which aim to spread risk across markets lost money during October’s sell-off.

By Gary Jackson,

Editor, FE Trustnet

Just 0.75 per cent of the funds in the Investment Association’s four main multi-asset peer groups were able to eke out positive returns in October’s sell-off, research by FE Trustnet shows, although results were better in the absolute return sector.

October saw global equity markets gripped by a sharp downturn as investors dropped stocks on the back of tighter monetary policy in the US, trade tariffs spats, stretched valuations and a surprise uptick in bond yields.

FE Analytics shows the MSCI World index dropped 5.44 per cent, in sterling terms, over the month while the FTSE All Share was down 5.19 per cent. Emerging markets came off worse with a 6.83 per cent slump.

Performance of indices during October 2018

 

Source: FE Analytics

In this environment, multi-asset funds – which are designed to offer investors diversified exposure to a range of assets – struggled to hold up, with the average fund in each of the four peer groups making a loss during the month.

The IA Mixed Investment 0-35% Shares sector, which is home to the lowest risk funds, declined by 1.64 per cent while IA Mixed Investment 20-60% Shares was down 3.01 per cent. The average IA Mixed Investment 40-85% Shares member shed 4.62 per cent and the IA Flexible Investment sector – where funds are able to hold all their portfolios in equities – dropped 5.06 per cent.

In fact, of the 533 funds that reside in these four peer groups, just four of them ended October in positive territory – and even then the gains were relatively small.



The £615.6m Schroder MM Diversity fund, which is in the IA Mixed Investment 20-60% Shares sector, was the best performer after making a 0.30 per cent total return.

The multi-manager fund has been cautiously-positioned for some time as managers Marcus Brookes and Robin McDonald believe a decade of ultra-loose monetary policy following the global financial crisis has left markets looking distorted and prone to a correction.

McDonald told FE Trustnet that the fund has a tilt towards the value investing style, which has been out of favour for some time but performed better than growth during October. It also has exposure to several long/short equity funds that held up well in October, with examples being Majedie Tortoise and Morgan Stanley Multi Asset Opportunities.

The multi-manager also said the sell-off could be “a rehearsal for a very disruptive period ahead”, adding that investors should consider moving more defensive for the year ahead.

“In the short term what we're anticipating is that the market is probably going to have an attempt at rallying but we quite strongly view this is an opportunity for people to reposition for what will be a tough year in 2019,” McDonald said. “The market appears to be very lopsided in how people are positioned and I think there is a fantastic opportunity to lean against the consensus portfolio here and make good returns.”

Performance of funds in October 2018

 

Source: FE Analytics

As the chart above shows, Troy Asset Management’s Trojan fund was the second-best multi-asset performer in October 2018 with its 0.27 per cent gain. The fund is a member of the IA Flexible Investment sector but is cautiously-positioned with a portfolio built around blue-chip equities, index-linked bonds, gold and cash.

FE Alpha Manager Sebastian Lyon, who runs the portfolio with deputy Charlotte Yonge, argued that it is difficult to pin down the exact reason for the sell-off but one obvious factor was that high valuations are “burdened by weighty investor expectations”. He noted that expensively-valued, economically-sensitive businesses, especially those in the luxury goods and tech sectors, took the brunt of October’s falls.

“Nine years into an economic recovery, it is by design that the Trojan fund’s exposure to more cyclical businesses is low. The overall equity allocation also remains modest as valuations remain close to historic highs. The companies in which the fund is invested have generally held up better than the wider market thanks to their more defensive earnings profiles,” Lyon added.

“We continue to monitor a select group of franchises, including several not yet held in the fund. When these reach our valuation targets, we will increase the allocation to equities. Where such companies are more cyclical, one must be wary of ostensibly low multiples of earnings but where the earnings are nearing a cyclical peak.”

Pimco GIS Strategic Income (up 0.13 per cent) and Investec Diversified Income (up 0.10 per cent) were the other two multi-asset funds to make money last month.


Moving away from the four multi-asset peers and over in the IA Targeted Absolute Return sector, where funds are designed to act as a cushion against falling markets, we saw that 24 of its 128 members were able to make a positive return in October.

City Financial Absolute Equity, which is run by FE Alpha Manager David Crawford, made the highest return in the peer group after gaining 8.42 per cent. It’s worth noting that the long/short equity fund is one of the riskier members of the sector and has made a 20.62 per cent loss between the start of 2018 and the end of October.

In his monthly update, Crawford said: “The gains in October were spread across a broad number of short positions as market sentiment turned sharply negative. The general UK stock market fell around 5 per cent and the US stock market around 7 per cent with the US technology index down around 8 per cent. At its lows, the US technology index was down over 10 per cent. The VIX, an index which shows the US stock market’s forward-looking volatility, more than doubled from its lows during the month.

Performance of best performing absolute return funds in Oct 2018

 

Source: FE Analytics

“We think there are numerous companies whose market values cannot be justified by their fundamentals. This includes cyclical companies on high profit multiples of probable peak or near-peak profits; technology/biotechnology companies on high multiples of sales and with limited prospect of generating positive near-term cash flows; and structurally impaired companies with a poor outlook for profitability and with uncertain terminal equity value. We remain short of a diverse selection of all the above.”

The chart above shows all the IA Targeted Absolute Return funds that made more than 3 per cent last month. The worst performance came from Polar Capital UK Absolute Equity, which was down by 13.8 per cent, while FP Argonaut Absolute Return fell 10.81 per cent.

Editor's Picks

Loading...

Videos from BNY Mellon Investment Management

Loading...

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.