Artemis US Extended Alpha, JPM Global Macro Opportunities and TwentyFour Dynamic Bond should offer some protection for cautious investors during volatile markets, according to Architas’ Adrian Lowcock.
With markets enjoying a smooth ride over the past eighteen months, investors haven’t had much to worry about, said the Architas investment director (pictured).
However, a spike in volatility, as shown below, saw a big sell-off in markets more recently and seen investor sentiment switch from positive and risk-embracing to a more negative and cautious outlook.
Performance of VIX over 1yr
Source: FE Analytics
Below, Lowcock considers three funds suitable for more cautious investors’ ISAs.
Artemis US Extended Alpha
The first fund on Lowcock’s shortlist is the four FE Crown-rated Artemis US Extended Alpha fund, managed by FE Alpha Manager Stephen Moore.
“The US market is one investors can’t afford to ignore,” said Lowcock. “The US is still the world’s largest economy and accounts for over 50 per cent of global stock markets by value as well as listing some of the world’s largest companies.
“More importantly not investing in the US would have meant missing out on some impressive returns”
Indeed, Lowcock said the S&P 500 had delivered more than double the return of the FTSE 100 over the past 20 years.
However, the investment director noted that valuations had reached high levels making accessing the market more difficult, particularly in times of heightened volatility.
Lowcock said the Artemis fund’s ability to ‘go short’ allowed it too potentially profit from expensive areas of the market and offer some protection to investors from a sell-off in markets.
“The fund has a growth focus but should also be able to protect investors in weaker markets,” he said. “This late in the economic cycle a long/short fund is attractive as the quantity of shorting opportunities should be greater.”
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Moore is part of the US equities team led by Cormac Weldon, which moved across from Threadneedle in 2014.
“The team have an excellent knowledge of the wider economic picture in the US and use this to generate broad themes which are then used to guide stock selection ideas,” Lowcock noted.
Performance of fund vs sector and benchmark since launch
Source: FE Analytics
Over three years, the fund has delivered a total return of 86.51 per cent compared with a gain of 57.77 per cent for the average IA North America sector fund and a 65.94 per cent return for benchmark S&P 500 index, in sterling terms.
The fund has an ongoing charges figure (OCF) of 0.82 per cent
JPM Global Macro Opportunities
The second fund on Lowcock’s list is JPM Global Macro Opportunities, a fund from the IA Targeted Absolute Return sector that has capital preservation as its main focus.
“The sector is often a source of much criticism, some of which is justified,” he said. “However, absolute return funs can have a useful role to play in a portfolio.
“They offer diversification, reducing volatility and risk, protecting investors during weak or volatile markets as well as delivering good returns.”
The £964.5m JP Morgan fund has been overseen by James Elliot, FE Alpha Manager Shrenick Shah and Talib Sheikh – who is leaving to join Jupiter as head of multi-asset – since launch in 2013.
“Unlike many fund managers in the sectors, the team at JPM focus on global macro trends as they believe these are the main drivers of returns for asset classes and they look to identify,” said Lowcock.
“They exploit these with the aim of delivering positive returns across all market and economic conditions.”
Current themes in the fund include Japanese economic recovery, global political divergence and China in transition.
“The fund will invest in cash, equities and bonds and will use derivatives extensively to go short a sector,” said the Architas investment director.
Since launch the fund has delivered a total return of 56.20 per cent, compared with a 14.45 per cent return for the average sector fund, although it should be noted that IA Targeted Absolute Return is home to a range of strategies.
JPM Global Macro Opportunities has an OCF of 0.75 per cent.
TwentyFour Dynamic Bond
The final fund recommended by Lowcock for cautious investors is the five FE Crown-rated TwentyFour Dynamic Bond fund.
“Bonds have become riskier again as interest rates are already rising in the US with the UK looking increasingly likely to follow suit with further rate rises possible this year,” he said.
“Inflation fears have also returned causing havoc in stock markets. In this climate, investing in bonds is much more challenging but investors still need to hold a diversified portfolio and many still look to bonds for that as well as the income they provide.”
The £1.6bn fund is managed on a team basis – made up of Eoin Walsh, Gary Kirk, Mark Holman, Felipe Villarroel, Pierre Beniguel, and Robert Arnold – with each member specialising in a particular part of the fixed income space.
Performance of fund since launch
Source: FE Analytics
“The investment committee establish the bigger picture view of the world leaving the managers to decide how and when to reflect this within the fund,” said Lowcock.
“This allows the team to be dynamic and have the flexibility to go anywhere in the fixed income space. As such this could be considered a best ideas fund.”
Over three years, the fund has delivered a total return of 14.24 per cent, compared with a 9.83 per cent gain for the average IA Sterling Strategic Bond fund. The fund has an OCF of 0.77 per cent and a yield of 4.53 per cent.