Twenty-one multi-asset funds from six asset management firms including Standard Life Investments, L&G and HSBC are among the latest additions to the FE Invest Approved List.
The FE Invest Approved List reflects the preferred funds of the FE Invest team and is rebalanced twice-yearly.
Focusing on the FE Risk Targeted Multi-Asset Solutions universe, analysts scored and ranked funds quantitatively using several proprietary measures.
As well as the FE Crown and FE Alpha Manager ratings, the team scored funds based on the FE Group rating, which considers how a group has performed with every penny it has invested in an asset class.
They also ensured each asset manager has funds to cater for each risk level: from low- to high-risk investors and everything in-between.
Finally, FE Invest’s qualitative overlay means that all quantitative components require verification and reasonable explanation from the team. No range smaller than £100m is considered for inclusion.
Below, we look at the six fund houses that made it through the process and the funds that have made it onto the FE Invest Approved List.
Standard Life Investments
The fund house with the highest number of active funds on the list is Standard Life Investments, with MyFolio Multi Manager II, III, IV and V portfolios all added to the list.
The active fund range is run by head of fund of funds Bambos Hambi, who uses both quantitative and qualitative criteria when investing.
Scatter chart of funds over 5yrs
Source: FE Analytics
“The investment process draws on the group’s large resources by combining the fund solutions team, responsible for the fund selection of the MyFolio ranges, and the multi-asset investing team, overseeing the tactical asset allocation choices,” noted analysts at FE Invest.
“The fund selection’s first phase consists in narrowing a vast universe by applying quantitative filters, to keep only those funds displaying consistent risk-adjusted outperformance over a five-year period.
“The second phase is a qualitative due diligence, involving one or several face-to-face meetings with the fund manager. The due diligence is articulated around five pillars, called the ‘Five Ps’: philosophy, process, people, performance and price.”
Also included is the £1.06bn, four FE Crown-rated passive strategy Standard Life Investments MyFolio Market II, also run by Hambi.
“The fund selection process for the MyFolio Market range is centred around how closely a passive fund tracks its benchmark, and how cheap it is,” FE Invest noted.
“Exposure to property and high yield bond funds is accessed through active managers, with care taken to ensure they well represent the market they invest in.”
Additionally, it is worth noting the Market range has recently undergone a fee reduction that saw the fund’s operating cash flow halve.
L&G Investment Management
The five crown-rated L&G Multi-Index 3 and four crown-rated L&G Multi-Index 5 funds have also been added to the FE Approved list.
The range – which invests in L&G index funds – was created by manager Justin Onuekwusi during his time at Aviva Investors, and brought to L&G when he joined in 2013. He runs the funds alongside deputy managers Bruce White and Martin Dietz.
Along with the five funds in the range, the multi-asset team manages three risk-targeted income-focused portfolios.
FE Invest analysts said: “The use of in-house funds is justified by a willingness to keep costs low and as a way to achieve greater transparency. It allows for more effective monitoring of concentration levels, having access to real-time data.
“The overall process is a big machine with quite a lot of formal meetings and checks in place, especially on the risk management side. We like the emphasis on managing losses.”
HSBC Global Asset Management
The other all-passive selections are from the HSBC Global Strategy fund range, with the Balanced, Cautious and Dynamic portfolios all making the list.
The range was created following a study by the asset manager and, with the help of consultants, risk bands were set up covering the broad risk spectrum, the FE Invest analysts noted.
“All asset classes are used in all the portfolios to respect the multi-asset denomination, even in the highest risk fund where most other providers have all-equity solutions.
“The regional split in the strategic asset allocation is derived from the market capitalisation of each region. While this may seem simplistic, we believe it makes perfect sense and avoids some judgement errors, such as domestic bias (for example, a high exposure to UK stocks for UK investors).
“The choice to invest in HSBC passive funds is driven by cost: the range is the cheapest of all passively managed families we looked at.”
The range is run by FE Alpha Manager Jane Davies with both the Balanced and Dynamic portfolios achieving a five crown-rating.
Architas
The only other passive multi-asset range to make the grade is the Architas MA Passive range, with the Dynamic, Growth, Intermediate, Moderate and Progressive funds all added to the FE Approved list.
The passive range is run by FE Alpha Managers Steve Allen and Sheldon MacDonald, who run the portfolios by looking for an investment style, a market sub-segment or just a particular region before applying quantitative filters to narrow the universe using a proprietary tool aimed at isolating funds displaying consistent performance.
Also included in the FE Invest Approved List is the four crown-rated Architas MA Active Reserve fund run by Nathan Sweeney and Jaime Arguello.
The only Architas fund on the list investing in active strategies, it uses the same initial qualitative process as the passive funds before adding a qualitative fund selection process that includes meeting the management teams of potential holdings.
Scatter chart of funds over 5yrs
Source: FE Analytics
“Architas’ investment team has been headed by Jaime Arguello since October 2016,” noted FE Invest.
“The ex-Barclays chief investment officer brought discipline and additional rigor to the process. Remuneration has also been overhauled to reflect better alignment with the team’s recommendations.
“We like how the team is trying to reach a high level of objectivity: third-party research providers are chosen because they are more factual than others or because they are not selling funds, which avoids conflicts of interest.
“The cost of the funds in the Architas MA passive family is about average when compared to other funds with a passive focus.”
Premier Asset Management
Both the Premier Liberation IV and VI actively managed portfolios were also added to the FE Invest Approved List.
Originally created in 2004, the range was initially externally managed before Premier became the investment manager in 2012 and the funds became risk-targeted.
The team of fund managers – which includes David Hambidge, David Thornton, Ian Rees and Simon Evan-Cook – are also responsible for other multi-asset mandates at Premier.
“The team’s fund selection process includes a face-to-face meeting with the external managers it is interested in and quantitative filters applied to their track records,” FE Invest said.
“The team can invest in less well-established funds at its discretion: it has backed newly launched funds in the past, which has allowed it to negotiate very low fees, although this requires a high degree of confidence in an unproven investment.
“The multi-asset investment team has great freedom in the tactical changes it can make to the mix, as long as it respects the risk characteristics.
“These changes can be influenced by short-term market opportunities, such as an asset class looking cheap relative to another, or macro-economic trends making a region more or less attractive.”
Rathbones
The final fund house with multi-asset portfolios added to the FE Approved List is Rathbones, with the Enhanced Growth, Strategic Growth and Total Return portfolios all recommended by the FE Invest team.
Run by FE Alpha Manager David Coombs and deputy manager Will McIntosh Whyte, the funds have an inflation-plus benchmark and has a different approach to other ranges as the level of risk that is targeted is a percentage of world equity market volatility rather than a definitive volatility band.
In the case of the Enhanced Growth Portfolio, for example, the risk is equivalent to that of world equity markets and the investment horizon recommended is ten years-plus.
“Contrary to many multi-asset funds in the UK, the Rathbone Multi Asset range does not have a UK-centric approach, which is due to David Coombs’ background,” FE Invest analysts noted.
“The team researches large-cap developed equities, government bonds and highly rated corporate bonds itself, with quality and valuation as criteria to make it into the portfolios.
“External managers have to go through a thorough due diligence process including a quantitative screening, with strong emphasis on risk-adjusted returns and consistency; and a qualitative part, where the management team, staff, organisation and processes are scrutinised.”