Neil Woodford’s LF Woodford Equity Income fund and Scottish Mortgage Investment Trust are among those making way for a number of new additions to the FE AFI Aggressive portfolio following the latest rebalance of the index series
The FE AFI portfolios are put together by a panel of leading financial advisers in the UK who each submit a maximum of 10 funds for a specific age group with the assumption that a client is saving for retirement at age 65.
Having previously looked at the new funds that advisers say any investor can hold – those funds with a weighting in each portfolio – in this article we focus on the FE AFI Aggressive portfolio.
The FE AFI Aggressive is made up of 150 funds and is suitable for a person in their late 20s. As such, it includes a number of funds usually found higher up the risk scale, given the longer investment time horizon involved.
Over 10 years, the FE AFI Aggressive has made a total return of 152.42 per cent compared with a 121.96 per cent gain for the average IA Flexible Investment peer.
Performance of indices during H1 2019
Source: FE Analytics
After a challenging 2018 – dominated by Fed tightening and concerns over trade wars – during the first half of the year FE AFI Aggressive has returned 12.97 per cent against the IA Flexible Investment sector’s 10.64 per cent as markets rallied in expectation of a rate cut.
Despite strong performance, however, there have been a number of changes following the rebalancing of the portfolios at the mid-way point.
In total 30 funds have left the FE AFI Aggressive portfolio, making way for 34 new funds.
Equity funds focused on the domestic market have seen the largest amount of change as nine names (five from the IA UK All Companies and two each from the IA UK Equity Income and IA UK Smaller Companies sector made) were removed, as just five funds were added.
Among those leaving the portfolio was Neil Woodford’s embattled flagship fund LF Woodford Equity Income, which has been gated following outflows, poor performance and concerns over liquidity.
Another fund leaving the portfolio is Woodford’s former fund Invesco Income – managed by Mark Barnett. Several other UK equity funds leaving the portfolio were value-focused strategies – such as Schroder Recovery and GVQ Opportunities – with the investment style still out of favour.
The biggest fund to exit the portfolio was the £8.6bn Scottish Mortgage Investment Trust, overseen by James Anderson and Tom Slater, a popular fund among retail investors. However, Fiducia Wealth Management who withdrew it from their selection noted that, as its smallest allocation, it came out due to the AFI fund limit.
Several other large funds made way for new entrants at the latest rebalance, including FE Alpha Manager Alister Hibbert and Giles Rothbarth’s BlackRock European Dynamic; Fiona Rowley and Justin Upton’s £3.1bn M&G Property Portfolio; FE Alpha Manager duo Andrew Headley and Charle Richardson’s Veritas Global Focus; M&G Global Dividend, overseen by Stuart Rhodes; and the team-managed TwentyFour Dynamic Bond.
Source: FE
However, there were a number of new faces joining the FE AFI Aggressive portfolio too, including some like-for-like swaps.
One such example was the addition of Artemis US Extended Alpha at the expense of Fidelity American Special Situations.
“Fidelity American Special Situations has been a core fund for us in the US for a while, but with its value-oriented style it has underperformed,” said Darius McDermott, managing director of Chelsea Financial Services.
“Artemis US Extended Alpha – pending the manager change [following the departure of Stephen Moore]– until recently was our number one US active fund. It’s like a 130/30 fund. So even though it’s got a growth [element] of around 100 per cent, it can have you know, 15, 20, 30 per cent in net shorts.
“Historically that gives an opportunity for alpha generation on both long and short. But if one fails – we’re late-cycle and markets are choppy etc – we feel it might give a little bit of downside protection if markets come off.”
However, there were also some new additions to the portfolio, such as MFM Junior Oils Trust managed by Angelos Damaskos. The fund invests in a portfolio of small- and mid-cap companies specialising in oil exploration and production.
Brian Dennehy, managing director of Dennehy Weller & Co, said he added the fund to its portfolio as the sector has been badly beaten up.
Dennehy said the manager’s area of focus is “almost a geared play on events in the Middle East getting out of hand”, noting recent friction between US and Iran, and the potential for oil to spike higher.
Source: FE
Among the new additions were several well-known names such as FE Alpha Manager Keith Ashworth-Lord’s CFP SDL UK Buffettology fund, the M&G Global Macro Bond, Mark Slater’s Slater Growth, and Threadneedle European Select fund managed by David Dudding and Benjamin Moore.
In addition, there were several passive strategies added to the portfolio, including ETFS Physical Gold, HSBC American Index, L&G Global Infrastructure Index, L&G Global Technology Index Trust, and fund of exchange-traded funds L&G Multi-Index 7.