Architas MA Active Reserve, Rathbone Total Return Portfolio and Standard Life Investments MyFolio Managed Income IV are among the more cautious risk-targeted funds that have shielded investors from the UK market’s falls over recent years.
FE Analytics shows the FTSE All Share has made a 13.31 per cent total return over the past three years but this has not been the easiest period in which to make money. While 2013 was a good for risk assets (the index rose 20.81 per cent over the full year), annual returns in the following two years were just 1.18 per cent and 0.98 per cent while 2016 so far has been a challenging time.
The index has also witnessed annualised volatility of 10.48 per cent and a maximum drawdown – which indicates the most an investor would have lost if they bought and sold at the worst possible times – of 11.12 per cent, while it made a loss in 16 of the 36 months.
Performance of index over 3yrs
Source: FE Analytics
Investors concerned about the level of risk across their portfolio have a number of options open to them and one that is growing in popularity is risk-targeted funds, which are managed to a pre-defined risk target rather than one that focuses on returns.
Although there are no dedicated sectors for funds of this kind in the Investment Association universe, FE has built five bespoke risk-targeted sectors to help investors make comparisons between the funds in the market. We thought it would be interesting to see how they have performed in the recent, difficult market environment.
The two lowest risk sectors are UK RTMA Risk Band 1, which is home to the funds that have shown less than 30 per cent of the FTSE 100’s volatility over recent years, and UK RTMA Risk Band 2, which is for funds with between 30 per cent and 50 per cent of the index’s volatility.
Over the three years in question, the average UK RTMA Risk Band 1 fund has had 13 negative months, while its annualised volatility has been 3.23 per cent and the maximum drawdown was 3.09 per cent.
Source: FE Analytics
As the table on the previous page shows, Caspar Rock and Nathan Sweeney’s Architas MA Active Reserve fund has given its investors the fewest sleepless nights – it’s been negative territory for just nine of the past 36 months. However, it was recently announced that Rock is departing Architas to join Cazenove Capital Management.
The £76.8m fund of funds aims for a combination of capital growth and income over the long term, through a portfolio that is primarily invested in fixed income and cash. It currently has 26.22 per cent of its assets in the money market, with 19.83 per cent in property and 13.68 per cent in gilt funds.
Square Mile Investment Consulting & Research, which had the fund on its ‘recommended’ list but suspended the rating on the recent news of Rock’s departure, says the fund was a good option for “investors seeking an approach which aims to more carefully control risk”. It will be interesting to see if this view is amended following the manager’s exit.
Performance of fund vs sector and indices over 3yrs
Source: FE Analytics
Another eight funds, including David Coomb’s Rathbone Total Return Portfolio and two managed by Scottish Widows, have only had 12 negative months in the last three years.
Bambos Hambi has the strongest presence on the list as three of his funds – Standard Life Investments MyFolio Managed I, Standard Life Investments MyFolio Managed II and Standard Life Investments MyFolio Managed Income II – feature.
Previous research by FE Trustnet into the funds topping the risk-targeted sectors for total returns and annualised volatility also showed that Hambi’s ranked very highly. Hambi runs 30 funds of funds at Standard Life Investments, spilt across six ranges with differing aims and focuses.
Moving over to the UK RTMA Risk Band 2, where funds take more risk than the previous peer group, and FE Analytics shows that its average member posted negative returns in 15 of the 36 months – doing better than the FTSE All Share by one month.
In all, 14 funds have had 12 or fewer months in negative territory over the period in question and FP 8AM Multi-Strategy Portfolio II leads after being down in just nine.
Source: FE Analytics
This fund, run by Harwood Multi-Manager chief investment officer Richard Philbin, is aimed at ‘cautious’ investors (FP 8AM Multi-Strategy Portfolio I is for ‘defensive’ investors).
Just under half of the portfolio is held in fixed income funds, including Baillie Gifford Corporate Bond, Kames High Yield Bond and TwentyFour Income. There’s 12.20 per cent in equities through the likes of CF Miton UK Multi Cap and 24.98 per cent in ‘others’, including largest holding Old Mutual Global Equity Absolute Return. The manager also has 13.60 per cent in cash.
Philbin is cognisant of the likelihood of continued risk in the current environment, saying in his latest update: “Market direction is uncertain at the moment.”
“With a US election looming, a UK referendum, a weakening Chinese economy, signs of inflation starting to emerge but weakening GDP in the UK, the property market starting to cool off from the peaks, ongoing issues with numerous European economies and a relatively poor earnings season it is not surprising that volatility is quite high.”
Performance of fund vs sector and indices over 3yrs
Source: FE Analytics
Architas and Standard Life Investments also come out strong, with the former having three funds on the list of those given the fewest sleepless nights while the latter has two.
Brooks Macdonald also has two funds appearing: IFSL Brooks Macdonald Defensive Income and IFSL Brooks Macdonald Cautious Growth, both of which are run by Jonathan Webster-Smith, Mark Shields and Jim Mackie.