There is a way around this, however. Fettered fund of funds only invest in in-house products, which means they can get access to vehicles at a discounted price.
Rob Morgan, pensions and investment analyst at Charles Stanley Direct, says that there are a number of negatives associated with them, however.
“I do tend to think that I’d rather have a fund of fund that is unfettered because then there is a greater level of flexibility,” he said.
That being said, Morgan says that if an investor can find a group with a good selection of top performing funds, then a fettered fund of funds is a good option.
One such group is Invesco Perpetual, he says.
As FE Trustnet recently highlighted, Invesco has been the best performing fund group in the IMA universe over the last decade. The research highlighted that more than 80 per cent of the firm’s funds have beaten their sector averages or benchmarks over 10 years, and the vast majority have repeated the trick over three and five years.
With star managers such as Paul Causer, Neil Woodford, Mark Barnett and Paul Chesson working for them, Morgan says Invesco is one of the few groups that has strengths across the board.
“They have a decent range and I only think fettered fund of funds work if the manager has a broad selection of funds to choose from,” Morgan said.
“I think you can put Invesco Perpetual into that category as there aren’t many chinks in their armour. But while they do have a reasonable level of coverage, there are always going to be gaps as a fund group is never going to be perfect,” he added.
Invesco Perpetual’s have two fettered fund of funds – Managed Income and Managed Growth, which are both run by the firm’s chief investment officer Nick Mustoe(pictured).
Our data shows that both funds have been top quartile performers in their respective sectors over a one, three, five and 10 year period.
Performance of funds versus sectors
| Name | 1yr | 3yr | 5yr | 10yr |
|---|---|---|---|---|
| Invesco Perp - Managed Growth | 23.87 | 33.76 | 61.39 | 137.45 |
| IMA Flexible Investment | 13.74 | 22.73 | 40.72 | 94.04 |
| Invesco Perp - Managed Income | 20.56 | 31.98 | 60.98 | 125.71 |
| IMA Mixed Investment 40%-85% | 13.6 | 23.86 | 42.74 | 92.68 |
Source: FE Analytics
Mustoe (pictured)
draws upon the expertise of FE Alpha Manager Neil Woodford in his £215m Invesco Perpetual Managed Income fund. Woodford is commonly regarded as one of the best UK fund managers, and his five crown rated Invesco Perpetual Income fund is Mustoe’s largest holding, making up 17.93 per cent of the portfolio.
It has been the second best performing fund in the IMA UK Equity Income sector over 10 years with returns of 210.14 per cent – 70 percentage points more than the FTSE All Share.
Performance of fund versus sector over 10yrs
Source: FE Analytics
The £5.6bn Invesco Perpetual Corporate Bond fund – which is run by the star manager duo of Paul Causer and Paul Read – is Mustoe’s second largest holding with a 14.89 per cent weighting.
Causer and Read are two of the most experienced managers in the bond market, having run funds together since the mid-1990s. Their fund has a yield of close to 4 per cent and sits in the top quartile of the IMA Sterling Corporate Bond sector over 10 years, with returns of more than 70 per cent.
Mustoe also has a high weighting to FE Alpha Manager Mark Barnett’s Invesco Perpetual UK Strategic Income fund.
Though the manager holds the likes of Woodford and Barnett in his Invesco Perpetual Managed Growth fund, Mustoe also uses a number of the groups other highly rated fund managers to create a diversified mix.
His largest holding is the Invesco Perpetual Asian fund, making up 18.35 per cent of his portfolio.
He also counts FE Alpha Manager Paul Chesson’s Invesco Perpetual Japan fund and FE Alpha Manager Martin Walker’s Invesco Perpetual UK Growth fund as top 10 holdings.
Walker’s five crown rated UK Growth fund has been a top quartile performer in the highly competitive IMA UK All Companies sector over one, three and five years. The best of those relative performances has been over three years, during which the fund has returned 68.67 per cent.
Performance of fund versus sector over 3yrs
Source: FE Analytics
Though Invesco Perpetual clearly have a good product range, as Morgan pointed out earlier, it is very difficult for any fund group to top every performance table. Morgan says that there are a few areas where the group could fall down.
“I’m not sure they have a really good North American offering, but saying that not many fund groups do,” he said.
“It is also very hard for fund groups to do emerging markets well, so that would be one of their big gaps. They do have a good Latin American fund and Asian fund, but they don’t really have a broad presence in the global emerging markets sector,” he added.
The Invesco Perpetual US Equity fund has been a bottom quartile performer in the IMA North America sector over 10 years and sits in the third quartile over three and five years.
However, the current management team of Simon Laing and Simon Clinch only took over the portfolio last year and will be attempting to turn around performance.
Mustoe holds the US Equity portfolio in both of his fund of funds.
Invesco Perpetual’s broader emerging markets fund has by no means disappointed, but hasn’t exactly shot the lights out either.
The £89.9m Invesco Perpetual Emerging Countries portfolio, which is headed up by Dean Newman, sits in the second quartile of the IMA Global Emerging Markets sector over three, five and 10 years.
However, the fund has protected its investors much more effectively than its competitors recently and sits in the top quartile over one year, with returns of more than 12 per cent. This is during a time when sentiment has been increasingly negative towards the developing world.
Performance of fund versus sector over 1yr
Source: FE Analytics
Despite that performance, Mustoe doesn’t hold the Invesco Perpetual Emerging Countries in either of his fettered portfolios. However, he said in a recent FE Trustnet interview that emerging markets was one of the areas that Invesco is looking to improve in the coming years, so this could change in the foreseeable future.
For those interested in buying the Invesco Perpetual Managed Growth and Managed Income funds, they both require a minimum investment of £500 and have ongoing charges of 1.9 per cent.
