Troy Trojan, Newton Real Return and Jupiter Absolute Return are three funds that Charles Stanley Direct’s Rob Morgan (pictured) believes would complement each other in a portfolio from a diversification and risk-adjusted return perspective. 
This comes as part of an ongoing series at FE Trustnet, which asks industry professionals for a combination of investment vehicles they believe are run by capable managers and can put long-term investors’ minds at ease.
In the below article, Morgan talks through each of his three choices and what he believes they can offer investors.
Troy Trojan
Headed up by FE Alpha Manager Sebastian Lyon, the £4.2bn multi-asset fund aims to provide long-term capital growth and income while protecting investors on the downside as much as possible.
“Manager Sebastian Lyon has a reputation for navigating volatility, carefully blending a variety of assets to produce consistent returns,” Morgan explained.
“He takes a balanced approach, allocating portions of the fund to four areas: equities, index-linked bonds, cash and gold.
“This has proved a resilient combination as performance of these areas tends to be independent rather than moving up and down in tandem.”
Performance of fund vs benchmark over 10yrs
Source: FE Analytics
While the investment analyst pointed out that Lyon’s often-cautious stance can mean the fund lags during bull markets, he said it tends to come into its own during times of market turbulence.
While it has more than halved the total return of its FTSE All Share benchmark over the last five years, for instance, it has managed to outperform it over the last decade with a significantly lower volatility and maximum drawdown (which measures the most money lost if bought and sold at the worst possible times), as shown in the above graph.
“[Lyon] offers a focus on capital preservation rather than 'relative' returns which other managers are focused on,” Morgan added.
Lyon is currently bearish relative to many of his peers, which is perhaps why his fund has fallen significantly below the index. For instance, the fund currently has a 29 per cent cash weighting and has a total of 34 per cent of its overall portfolio in equities. It also has a 29 per cent weighting to US and UK index-linked government bonds, as well as an 8 per cent weighting to gold-related investments.
Troy Trojan has a clean ongoing charges figure (OCF) of 1.05 per cent.
Next on Morgan’s list is Newton Real Return, which is £10.4bn in size and has been headed up by Iain Stewart since 2004.
He said: “This targeted absolute return fund invests in a diverse portfolio of assets, aiming to beat the return on cash by 4 per cent a year while limiting the scope for losses.
“The manager's determined focus on longer term trends and capital preservation should serve investors well. This should especially be the case if the manager’s current expectation for an environment of low returns and high volatility prevails.
“It could help make up the stable core of a portfolio around which more adventurous investments can be added if appropriate.”
Performance of fund vs benchmark over 5yrs
Source: FE Analytics
Stewart aims to generate long-term real returns through an unrestricted approach to portfolio construction, which involves hedging positions to minimise volatility.
As with all funds at Newton, the manager makes his investment decisions adopting a thematic approach which focuses on global economic changes such as increasing demand for healthcare and demographic shifts.
The research team at Square Mile, which has awarded the fund an ‘AA’ rating, said: “The key attractions of this fund are the established Newton Global Thematic approach that is at the core of the process, combined with the experience of Mr Stewart.
“We think this is an appealing option for investors seeking a fund that is focused on capital preservation and delivering positive absolute returns over the long term.”
Over five years to the end of August, the fund has returned 16.94 per cent with an annualised volatility of 5.36 per cent and a maximum drawdown of 6.13 per cent.
Newton Real Return has a clean OCF of 0.79 per cent and yields 2.31 per cent.
The third and final fund on the list is Jupiter Absolute Return, which has been headed up by James Clunie since 2013. The £1.2bn fund aims to provide an absolute return over rolling three-year periods through a diversified portfolio of long and short positions in global equities.
“Funds in the IA Targeted Absolute Return sector vary significantly in terms of strategy and levels of risk but this fund could be a real diversifier aiming to eke out positive returns whether markets rise or fall,” Morgan explained.
“Manager James Clunie balances long and short positions and is developing a reputation for shorting 'glamour' stocks, notably in the technology sector which have exciting stories attached - innovative products, disruptive business models or star entrepreneurs - but whose prospects he perceives as hindered by unhealthy balance sheets.
“This has hampered performance of late but I believe the fund could turn out to be a particularly useful holding if market sentiment takes a turn for the worse.”
Over five years to the end of August, the fund has returned 17.16 per cent compared to its Libor GBP 3 Months benchmark’s return of 2.56 per cent.
Performance of fund vs benchmark over 5yrs
Source: FE Analytics
Examples of Clunie’s largest long positions include a physical gold ETF, global financial services company Burford Capital and multinational oil & gas giant BP. The portfolio currently consists of 81 long positions and 126 short positions.
Jupiter Absolute Return has a clean OCF of 0.86 per cent.