While pure equity funds have been an investor’s best bet recently, there are still headwinds out there, and mixed-asset funds have the ability to take risk off the table quickly when things change.
Issues such as the Fed’s QE tapering, a slowdown in emerging markets and the ongoing European sovereign debt crisis all have the potential to de-rail positive sentiment.
With that in mind, we highlight the top-rated mixed-asset funds that can offer investors capital growth but at the same time have the flexibility to defend their unit-holders more effectively if markets tank.
This list of funds takes into account FE Alpha Manager and FE Crown ratings as well as whether the fund is included in the AFI indices.
The ratings page on FE Trustnet helps to identify the top-rated funds. Click here to carry out your own customised search.
CF Ruffer Total Return
- FE Crowns: 2
- FE Alpha Manager rating: Yes
- AFI indices: Aggressive, Balanced and Cautious
The £2.93bn CF Ruffer Total Return fund is run by the FE Alpha Manager duo of David Ballance and Steve Russell.
Our data shows that it is the best-performing portfolio in the IMA Mixed Investment 20%-60% Shares sector over 10 years, with returns of 130.24 per cent, beating its composite benchmark – 50/50 split between the FTSE All Share and FTSE British Government All Stocks – by more than 30 percentage points.
Performance of fund vs sector and benchmark over 10yrs
Source: FE Analytics
The fund is also top quartile over one and five years.
Although the fund sits in the Cautious Managed sector, Ballance and Russell set themselves the target of delivering a positive return in all market conditions. Except for 2006, the fund has made money in every year over the last decade.
It also returned more than 20 per cent in the crash year of 2008.
FE Research’s Charles Younes says that running an absolute return-style fund in the current environment is becoming increasingly difficult, but he expects CF Ruffer Total Return to be one of the more successful portfolios.
"The fund should keep meeting its target of generating a positive return regardless of economic conditions," Younes said.
"It will protect capital in falling markets and should catch some of the benefits of rising ones, too. Its performance depends on the managers’ capacity to identify assets that will go up when markets go down; since 2008 this task has been getting more difficult as most investments have started behaving alike."
"This means the fund’s future performance is likely to be subdued, although it is still expected to do well," he added.
The managers believe that inflation is the major threat facing the market at the moment, as they explained in an article last week, but they are also positioned for a number of other macro-economic scenarios.
Ballance and Russell currently hold 15 per cent of their fund in cash, 6 per cent in gold and gold equities and a further 33 per cent in index-linked bonds. Their favourite equity market is Japan, with Japanese equities making up 17 per cent of the fund’s assets.
CF Ruffer Total Return has an ongoing charges figure (OCF) of 1.53 per cent and requires a minimum investment of £1,000.
Cazenove Multi Manager Diversity
- FE Crowns: 4
- FE Alpha Manager rating: No
- FE AFI: Balanced and Cautious
The portfolio’s track record warrants the attention.
The fund of funds has been run by the duo of Marcus Brookes and Robin McDonald since October 2007.
According to FE Analytics, it has made 35.95 per cent in this time, nearly double the returns of the IMA Mixed Investment 20%-60% Shares sector.
Performance of fund vs sector since Oct 2007
Source: FE Analytics
It also boasts top-quartile returns over one and three years.
Amandine Thierree, analyst at FE Research, says that the managers' success stems from their top-down view of the market.
"The team begins its portfolio construction by putting together an accurate picture of the global macroeconomic environment, with the help of Cazenove’s economic and strategic team," she explained.
"The aim is to identify the economic factors influencing markets to determine a strategic asset allocation between equities, bonds and alternative assets (for example hedge funds, property and commodities)."
"Next, the team looks for funds that are best positioned given the economic context and conducts thorough research of their investment teams," she added.
Brookes and McDonald currently hold 33.28 per cent of their fund in cash. However, the managers use that weighting to avoid having to hold too many bond funds, as they see little value in fixed income.
The Cazenove fund’s top-10 holdings include Fidelity Special Situations, GLG Japan Core Alpha and M&G Optimal Income.
It requires a minimum investment of £1,000 and is also much cheaper than the majority of funds of funds, with an OCF of 1.59 per cent.
HSBC Income Fund of Funds
- FE Crowns: 5
- FE Alpha Manager rating: Yes
- FE AFI: No
Although it does not feature in any of the FE AFI indices, it has been awarded the coveted five crown-rating and is headed up by Julian York, an FE Alpha Manager.
York took over the portfolio in January 2011. Since then, it has been a top-quartile performer in the IMA Mixed Investment 20%-60% Shares sector, with returns of 22.88 per cent.
Performance of fund vs sector since Jan 2011
Source: FE Analytics
The fund has also beaten the sector over the last 12 months.
It has a yield of 3.99 per cent. The manager obtains that income from a concentrated portfolio, with nearly 90 per cent of the fund’s assets in its top-10 holdings.
York clearly favours the UK dividend-paying market as he counts Fidelity MoneyBuilder Dividend, Schroder Income, Cazenove UK Equity Income and Artemis Income, which is headed up by FE Alpha Managers Adrian Frost and Adrian Gosden, as top-10 holdings.
For his fixed income exposure, York has gone with experience, choosing FE Alpha Manager Richard Woolnough’s M&G Corporate Bond and Invesco Perpetual Corporate Bond, which is managed by Paul Causer and Paul Read.
HSBC Income Fund of Funds has an OCF of 1.93 per cent and requires a minimum investment of £1,000.
