Jupiter Absolute Return, Old Mutual Gold & Silver and PRS REIT are three funds held in the five FE Crown-rated MI Hawksmoor Vanbrugh fund which maximise diversification for steady long-term returns, according to senior fund manager Ben Conway.
Conway, who has been co-manager on the fund since 2014, works alongside Daniel Lockyer and FE Alpha Manager Richard Scott. They aim to provide both capital growth and income, although they also have a marked interest in protecting investors on the downside which they achieve through a diversified range of open- and closed-ended funds.
Over the last three years, for instance, Hawksmoor Vanbrugh has outperformed its average peer in the IA Mixed Investment 20%-60% Shares sector by 7.71 percentage points with a total return of 30.06 per cent.
Performance of fund vs sector and benchmark over 3yrs
Source: FE Analytics
It has done so with a top-quartile annualised volatility, maximum drawdown (which measures the most money lost if bought and sold at the worst possible times), Sharpe ratio (which measures risk-adjusted returns) and downside risk (which predicts susceptibility to lose money during falling markets) over this time frame.
In the below article, Conway talks through three examples in the portfolio which he believes complement each other and provide steady returns over the long term.
Headed up by James Clunie (pictured) since 2013, the £1.3bn Jupiter Absolute Return fund is Hawksmoor Vanbrugh’s second-largest holding at 4.7 per cent of the overall portfolio. 
Conway explained that the fund will tread water while the manager’s positions aren’t working but will perform well when most other funds aren’t. As such, he said it is an excellent diversifier.
“Clunie specialises in short-selling. His portfolio is run fairly close to market neutral however, so overall market risk in either direction is kept low,” the manager said.
“However, his net market sensitivity at the moment means the portfolio is likely to do best in falling markets.
“In fact, Clunie is at the forefront of academic research on short-selling and this enables us to point to a true “edge” in his process.”
Conway also pointed out that Clunie, alongside co-manager Ivan Kralj, specialises in mispriced optionality.
“They have correctly identified that call options on the S&P are cheap as everyone wants puts – this does not mean the team are bullish, just that the risk-reward on this position is very asymmetric in that there’s minimal downside and lots of upside,” he added. “We love managers that think like this.”
Over Clunie’s tenure, Jupiter Absolute Return has returned 16.31 per cent compared to its LIBOR GBP 3 Months benchmark’s return of 2.07 per cent.
Performance of fund vs benchmark under Clunie
Source: FE Analytics
It has done so with an annualised volatility of 5.27 per cent and a maximum drawdown of 3.36 per cent. Examples of its largest long positions include a physical gold ETF, BP, Centrica and Burford Capital.
The fund has a clean ongoing charges figure (OCF) of 0.86 per cent.
Old Mutual Gold & Silver is Hawksmoor Vanbrugh’s seventh-largest holding at 3.2 per cent. Launched by Ned Neylor Layland in March last year, the £162.4m fund invests predominantly in gold, silver or mining equities. It also has a 16.6 per cent allocation to gold bullion.
“While it is admittedly volatile, it should, like Jupiter Absolute Return, perform well when other assets are not,” Conway said. “We’ve spoken about our views on gold many times, but in short, investing in the metal is the best way to express a lack of confidence in central bank policies.”
The manager believes that investor confidence will soon prove to be misplaced and that gold will perform well as investors realise how central banks have “abused and devalued” the fiat monetary system.
“This fund will hold physical precious metals as well as equities,” he continued. “The latter will be held in higher proportions depending on the manager’s bullishness (which is currently high).
“The manager, Ned Naylor Layland, is among one the most thoughtful investors we know and his views on precious metals and other related areas, such as cryptocurrencies, chime with our own.”
He added: “It is important to invest with managers who challenge the current orthodoxy and do not take the current state of affairs – all powerful central banks – for granted.”
Since its launch, Old Mutual Gold & Silver has returned 33.63 per cent and has done so with an annualised volatility of 37.14 per cent and a maximum drawdown of 20.04 per cent.
Performance of fund since launch
Source: FE Analytics
It has a clean OCF of 1 per cent.
On the closed-end side, Conway said PRS REIT – a real estate investment trust – also acts as a good diversification tool within the portfolio, as it provides access to an area of property market which is uncorrelated to most other holdings.
“It gives access to the private rented sector – this is not social housing, which is noteworthy since many are now worried about political interference in the social housing sector should a Labour government get in,” the manager said.
“Rather, this REIT owns small family homes rented predominantly by young families who have not been able to get on the housing ladder – this is a huge demographic.
“This is the generation that have been disenfranchised from the UK’s property market given rising prices and stagnant wages.”
He said PRS – which currently yields 4.4 per cent and pays quarterly dividends – offers quality affordable housing on attractive developments near excellent schools.
“Each asset is a small proportion of the whole (no concentration risk) and security of income is excellent given almost all tenants want to stay in these homes for a long time, with demand far outstripping supply,” Conway explained. “The REIT is only £260m market cap so large fund-of-funds cannot make this a large part of their portfolios.”
Since its launch in May 2017, the trust has lost 83 basis points compared to its average peer’s return of 27 basis points. Although of course, this is far too short a time horizon on which to judge an investment vehicle’s performance.
PRS REIT is trading on a 6.9 per cent premium and details of its fee structure can be found on the AIC website.