Lindsell Train UK Equity, Artemis Global Income and Henderson Strategic Bond are three funds which, when held together in a portfolio, should provide enough diversification and downside protection that investors can sleep soundly at night, according to FE Research’s Charles Younes (pictured). 
The research manager pointed out that, while none of these funds are particularly high-octane or under-the-radar, they have proven themselves with long-term track records and are differentiated enough in investment style that investors can continue holding them together over the very long term.
This comes as part of an ongoing series, which has previously picked the brains of Hawksmoor’s Ben Conway, Shore Financial Planning’s Ben Yearsley and Charles Stanley Direct’s Rob Morgan, among others.
Now, in the below article, Younes highlights the three funds he would recommend for those looking to make their cash work while storing it away without repositioning their portfolios over the course of several years.
For exposure to UK equities, Younes would opt for star manager Nick Train’s five FE Crown-rated CF Lindsell Train UK Equity fund.
He said: “We all know his style; he practises long-term investment in high-quality companies as part of a very concentrated portfolio. It is quite illiquid but, if you’re holding it for the long term, that shouldn’t matter too much.
“It is quite exposed to international markets so it’s not really a UK-focused fund, even though the companies are listed in the UK. The fund might underperform over short-term time frames but, over the long term, it should work well.”
The £4.2bn fund’s largest individual holding is Unilever at 9.7 per cent. It also holds 9.6 per cent in Diageo and 9.3 per cent in RELX, with its 10 largest individual constituents accounting for 78.4 per cent of the overall portfolio.
Over five years, the fund has returned 116.54 per cent compared to its average peer and MSCI World benchmark’s respective returns of 68.54 and 62.68 per cent.
Performance of fund vs sector and benchmark over 5yrs
Source: FE Analytics
It has done so with a top-quartile maximum drawdown (which measures the most money lost if bought and sold at the worst possible times) and Sharpe ratio (which measures risk-adjusted returns). However, it is in the bottom quartile for its annualised volatility, which suggests it may not be best-suited to shorter term investors.
Lindsell Train UK Equity has a clean ongoing charges figure (OCF) of 0.72 per cent.
Next on Younes’s list is Jacob de Tusch-Lec’s Artemis Global Income fund, which aims to provide both a rising income as well as capital growth over the long term.
“Once again it’s a fund you can hold and sleep at night without thinking too much about it. We really rate Jacob de Tusch-Lec,” the research manager said.
“It’s not a typically bottom-up approach, the fund is more flexible than Nick Train’s and it has a higher turnover.
“The manager has a good understanding of the macroeconomic background and can make calls as to whether the market is going to be driven by value, whether markets can be driven by European equities, by smaller companies, by larger companies and so on.”
Younes added that, because the fund has an income mandate, this will add an extra layer of protection to the portfolio and further diversify investing styles.
Had an investor placed an initial £10,000 into the fund five years ago, for instance, they would have received £2,749.26 in income alone.
The fund has a diversified portfolio, with its largest individual holdings currently accounting for no more than 3.7 per cent of the overall fund. These include the likes of Norwegian life insurance company Storebrand, US vehicle manufacturer General Motors and US investment bank Citigroup.
“The feature which interests me the most is that it has more of a top-down approach, which is very different from Train,” Younes continued.
“Sometimes it might so happen that these two funds have similar positioning, but it might also happen that Jacob has completely opposing views to Nick Train at points, which could be beneficial for portfolios.”
Over five years, the fund has outperformed its average peer and benchmark by 44.49 and 16.35 percentage points respectively with a total return of 122.08 per cent. It has done so with a top-quartile Sharpe ratio, a third-quartile maximum drawdown and a bottom-quartile annualised volatility.
Performance of fund vs sector and benchmark over 5yrs
Source: FE Analytics
It has a clean OCF of 0.81 per cent and yields 3.49 per cent.
The third and final fund that Younes has chosen is in the fixed income space in order to diversify assets. Henderson Strategic Bond, which is £1.9bn in size, has been headed up by John Pattullo and FE Alpha Manager Jenna Barnard since 1999 and 2006 respectively.
“It has a great track record of calling pricing and valuation within the fixed income market in our new world, in terms of what is expensive and what is cheap now,” the research manager explained.
“The managers can decide whether they hold more government bonds or more in credit at any time, for instance. It’s a genuine strategic bond fund.”
In terms of sub-asset classes, the fund’s largest sector allocation is to high yield non-financial corporates at 24.9 per cent. It also has 27.4 per cent in investment-grade non-financial corporates, 11.8 per cent in investment grade financials and 9.4 per cent in government bonds, as well as smaller weightings across other assets.
Over the last five years, the fund has returned 29.85 per cent compared to its average peer’s return of 24.67 per cent. In terms of risk metrics over this time frame, it has a second-quartile maximum drawdown, Sharpe ratio and annualised volatility.
Performance of fund vs sector and benchmark over 5yrs
Source: FE Analytics
“If you don’t have a view on bond markets and you want to leave this to experienced fund managers, Jenna Barnard and John Pattullo could do this on your behalf,” Younes continued.
“Whether it’s deciding on asset class or duration, these managers will be able to do this for you and you won’t have to think too much about it. It’s a one-two solution for investing in bonds.
“They are experienced managers, it’s a large strategy and they have plenty of flexibility.”
Henderson Strategic Bond has a clean OCF of 0.69 per cent.