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Pick of the funds

NICK SUDBURY SELECTS THE PICK OF WHAT’S NEW, WHAT’S POPULAR – AND, MOST IMPORTANTLY – WHAT YOUR CLIENTS ARE READING ABOUT IN THE PAPERS.

A Question of Evolution

FUND FACTS

Name: TM Darwin multi-asset fund
Type: UK OEIC
Sector: Cautious Managed
Fund Size: n/a
Launch: 19 May 2011
Portfolio Yield: n/a
Estimated TER: 1.74%
Manager: Darwin Investment Managers
Website: www.darwinim.com

TM Darwin multi-asset fund

David Jane, the former head of equities at M&G, has recently launched a new multi-asset fund at his investment boutique, the Darwin Group. He spent just over 3 years running a similar mandate at his previous employer and is now looking to build on his solid if unspectacular track record.

The whole point about a multi-asset fund is that it’s an outcome driven product with the scope to invest accordingly. Of course all funds have a specific objective, but most are more constrained as to how they can go about it.

The challenge, as Jane sees it, is to successfully preserve investors’ capital in difficult times while earning decent returns when conditions are more favourable. This is easier said than done and requires clever portfolio management and a decent sense of market timing.

He believes that the developed markets currently offer better scope for stock pickers than the emerging markets, which is why he has a 24% weighting in UK equities, with a further 15% in the US and 10% in Europe.

The next largest exposure is a 24% allocation to fixed interest. Most of this relates to government bonds in the developed markets, and there is also a 10% investment in commodities.

A good multi-asset fund can make an ideal core portfolio holding that achieves acceptable returns in all market conditions with a relatively low level of volatility. The test will be whether the manager is up for the challenge and can use the wide remit to his investors’ advantage.

THE FUND IS CURRENTLY YIELDING A HEALTHY 3.8%

Nice little earner

FUND FACTS

Name: M&G Income Multi Asset Fund
Type: UK OEIC
Sector: Cautious Managed
Fund Size: £13m
Launch Date: 11 November 2010
Portfolio yield: 3.8%
TER: 1.73%
Manager: M&G
Website: www.mandg.co.uk

M&G Income Multi Asset Fund

One of the beauties of the multi-asset approach is that it gives the manager the freedom to switch to the most appropriate asset classes at each point during the economic cycle. This means they can invest where they think they will get the best returns and are not tied down to one particular area.

The M&G Income Multi Asset Fund is case in point. It is run by Steven Andrew, whose main aim is to generate a high and rising level of income over time. Subject to this he will also look to deliver long-term capital growth.

Andrew has the mandate to search out the best sustainable income opportunities across a wide universe of different assets. This allows him to invest directly in diverse areas such as fixed interest, equities, warrants and money market instruments. He can also have an indirect exposure via funds or derivatives.

The fund’s largest exposure is a 49.9% weighting in fixed interest, with the biggest individual holdings being UK and US government bonds. A further 45.1% is invested in equities with most of the other 5% in the M&G Property Portfolio.

The fund is currently yielding a healthy 3.8% and is one of the few in its peer group to offer a monthly income distribution. This is a very attractive feature for those who rely on their investment income.

It is too early to judge the M&G Income Multi Asset Fund, but the manager certainly has the mandate to produce a high and increasing level of income without eroding the underlying capital value. There are very few other funds with the scope to actually do this.

Safety Catch

FUND FACTS

Name: Investec Multi-Asset Protector Fund
Type: UK OEIC
Sector: IMA Protected
Fund Size: £382m
Launch Date: 30 January 2009
Portfolio Yield: 0.37%
Estimated TER: 2.01%
Manager: Investec Asset Management
Website: www.investecassetmanagement.com

Investec Multi-Asset Protector Fund

One of the strongest arguments in favour of multi-asset funds is that they provide greater diversification, which can help to limit the downside in difficult markets. Unfortunately this wouldn’t really work in the event of a sharp selloff when all the risk assets tend to move together.

Cautious investors who want to guard against these sorts of extreme risks might be interested in the Investec Multi-Asset Protector Fund. This aims to provide long-term capital growth, whilst also delivering protection at 80% of the fund’s highest ever share price.

The way the managers limit the downside is by moving more of their assets into cash when the markets fall. They also invest in a derivative contract to provide the solid 80% floor.

The idea behind this approach is to perform better than a money market fund, but not as well as a pure equity product in an upward trending market. In the two and a half years since it was launched it is up around 34%, which is consistent with its objective, although it is yet to be tested in a severe bear market.

At time of writing the fund had a 14.7% exposure to UK equities and a further 32.5% invested in international shares, with the largest weighting being the 12% in the US. The more defensive holdings were a 29.3% allocation to fixed income and an additional 15.9% in cash. There were also small exposures to property and alternatives.

The underlying holdings are a mixture of passive ETFs and actively managed funds including in-house ones from Investec. So far the mandate has worked pretty well, but it remains to be seen whether the willingness to shift into cash will provide the intended protection or just act as a drag on returns when markets recover.

It’s a kind of magic

FUND FACTS

Name: Jupiter Merlin Income Portfolio
Type: UK OEIC
Sector: Cautious Managed
Fund Size: £3.2bn
Launch Date: 14 September 1992
Portfolio yield: 2.8%
Estimated TER: 2.33%
Manager: Jupiter Investment Management Group
Website: jupiteronline.co.uk

Jupiter Merlin Income Portfolio

common way for retail investors to achieve greater diversification was to invest in a fund-of-funds. These provide two levels of active management but also a dual layer of fees.

Perhaps the best known and longest established fund-of-funds is the Jupiter Merlin range headed up by John Chatfeild-Roberts. In fact the Jupiter Merlin Income Portfolio was one of the most popular investments during this year’s ISA season.

Jupiter Merlin aims to produce a high and rising income with the potential for capital growth. It does this by investing in managed funds and ETFs that provide exposure to equities, fixed interest, commodities and property. The main priority at the moment is to select managers who can protect investors’ wealth in an inflationary environment.

There are currently 15 fund holdings with the largest weighting being the 37.8% exposure to UK equities. This is made up of a couple of Jupiter’s inhouse products as well as popular third-party funds like Artemis Income and Invesco Perpetual Income.

The next biggest area is the 28% allocation to fixed interest where the holdings include the likes of M&G Strategic Bond and Thames River Global Bond. There is also a 15.8% weighting in overseas equities, with the balance comprising a 7.2% exposure to a physical gold ETF and 11.2% in cash.

Jupiter Merlin has an excellent long-term performance record with a 90% gain in the last decade and a 5-year return of 32.3%. There is also a decent 2.8% yield that it distributes on a quarterly basis. It is proof that the fund-of-funds model can work despite the double layer of fees.

The personal touch

FUND FACTS

Name: Personal Asset Trust (PNL)
Type: Investment Trust
Sector: Global Growth Market Cap: £334m
Launch Date: 22 July 1983
Yield: 1.7%
TER: 1.18%
Manager: Self managed
Website: patplc.co.uk

Personal Assets Trust

The most tried and tested multi-asset mandates are to be found amongst the investment trusts. One such is the self-managed Personal Assets Trust, which aims to deliver a high total return while keeping the risk below that of the FTSE All-Share index.

Personal Assets invests in a concentrated portfolio of UK and international shares, but will also move heavily into liquid assets when the market outlook deteriorates. The most famous example of this was at the end of April 2008 when it went 100% into cash and fixed interest. This limited the decline in its share price over the next year to less than 10%, whereas the All-Share lost 30%.

Once the managers have determined how much of the fund to invest in the markets they then identify the most attractive sectors before selecting the individual stocks. At time of writing the equity exposure was The personal touch just over 50%, split almost half and half between UK and US large caps. This was made up of just 18 individual share holdings. The balance comprised a 13% weighting in gold and 34% in fixed interest mainly in the form of Treasury Inflation Protected Securities.

Timing the market like this can be extremely difficult, but the managers have shown a conspicuous aptitude for delivering long-term returns at a substantially reduced level of volatility.

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