Fund Legal Name:  Newton Phoenix Multi-Asset FundManager:  Phil Collins, BNY Mellon Asset Management

Initial Charge:  4.00%

AMC:  1.50%

Launch Date:  11 April 2003

IMA Sector:  Cautious Managed

Performance YTD:  -4.72%

Annualised Standard Deviation:  6.34%

Annualised Sharpe Ratio:  0.09

Aim:  The fund aims to achieve long-term capital growth in excess of benchmark cash returns from a balanced portfolio diversified across a range of asset classes.

Commentary:  The fund pursues a diversified asset approach in order to deliver returns in excess of cash but with bond-like levels of volatility.  The fund targets a return of at least 2% above cash over a rolling 3-year period.  It invests across a broad range of asset classes including commodities, hedge funds, private equity, property, equities, bonds and cash.

The Newton Multi-Asset Fund combines a broad spread of differently correlated asset classes in such as way as to maximise returns while minimising volatility.  While the fund manager is free to adjust the Fund’s allocation in response to market conditions, in practice such changes are unlikely to be either frequent or dramatic, as Newton does not attempt to forecast the next ‘fashionable’ asset class or sector.  This approach tends to limit the transaction costs associated with frequent trading while maintaining consistent, low volatile returns throughout the investment cycle.

Funds that offer exposure to multiple asset classes continue to prove popular with investors looking for a safe haven in present market conditions.  Such ‘Cautious Managed’ funds range from those offering exposure to equity, fixed interest and cash to funds providing exposure to alternative assets in addition to exposure to the traditional asset classes. Some of these ‘Cautious Managed’ funds have delivered disappointing returns in the past year.

Although the Newton Phoenix Multi-Asset Fund has been hit by recent losses (-4.72% YTD), it’s losses are a fraction of those suffered by rivals such as Investec Cautious Managed (-6.35% YTD), AXA Cautious Managed (-8.08% YTD) and New Star Managed Distribution (-13.93% YTD).  Therefore, Newton’s asset allocation strategy and multi-asset approach, although currently falling short of ‘cash plus returns’, continues to shield investors from substantial losses during the current market turmoil.

One of our contributors was asked to prepare a short presentation to compare and contrast two funds from the same IMA sector and chose:

• Invesco Perpetual High Income; and
• Jupiter Income Trust funds

both of which are in the IMA UK Equity Income sector.

You can download the presentation by clicking here (this is a MS PowerPoint file).

It is interesting to show how two funds in the same sector, with the same objective and which both invest over 90% in UK Equities take a totally difference approach to investing/achieving that objective.

It’s interesting to see from the performance data how the funds performed similarly in 2005, 2006 but how much performance has diverged from 2007 to date as market conditions have altered – with Neil Woodford taking a defensive approach from a ‘macro’ viewpoint while Anthony Nutt sticks to his high yielding stocks (esp financial stocks).

This just goes to that focusing purely on past performance – or selecting a fund that was doing well then never bothering to review it – can come back to haunt you.

One of the most popular sectors in recent years has been commodities and this fund from JPM has been used by many paraplanners and advisers, Fund Legal Name: JPM Natural Resources Fund      

Manager: JP Morgan Asset Management

Initial Charge: 4.25%

AMC: 1.5%

Launch Date: 01 June 1965

IMA Sector: UT Specialist

Aim: The JPM Natural Resources Fund invests primarily in the shares of companies throughout the world engaged in the production and marketing of commodities.  The fund aims to provide capital growth over the long term.

Commentary:  The JPM Natural Resources fund is one of the few open ended funds that allows investors to invest exclusively in the commodities market.

JPM Natural Resources fund is broadly diversified across more than 100 commodities in the stock world.  It has the freedom to target both large and small companies and can invest in any area of the market from oil and gas to gold and basic materials.

Fund manager Ian Henderson is confident that the supply shortage of many established and emergent commodities and increasing demand from emerging markets for infrastructure projects will continue to drive strong returns from the natural resources sector for years to come.  However, many market commentators, including George Soros, are raising concerns as to whether there is a global commodity bubble, with too much money chasing too few commodities.

There exists speculation as to whether a commodities fund is required to provide exposure to the asset class within a diversified portfolio.  Nearly a fifth of the average UK equity fund is likely to be in oil and mining already, with about 16% of the FTSE 100 accounted for by resources companies.  It could be argued that investing in a pure commodities fund is the same mistake we all made with tech stocks.  Vodafone was such a big component of the index at the time that we didn’t need a specialist tech scheme.

Fund Legal Name:  CF 7IM AAP Moderately Cautious

Manager:  Seven Investment Management

Initial Charge:  4%

AMC:  Class A: 1%, Class C: 0.50%

Launch Date:  27 March 2008

IMA Sector:  Unclassified

Aim: CF 7IM AAP Moderately Cautious Fund aims to provide a total return, substantially by way of income though with some capital appreciation.  There may be a moderate risk to capital.  The manager will invest the majority of the portfolio in fixed interest and equity instruments using predominately passive strategies while also utilising alternative asset classes, some of which will be actively managed.  The asset allocation for the entire portfolio will be actively managed.

Commentary:  The AAP funds reflect the same 7IM strategic and tactical asset allocation as the existing, actively managed 7IM funds.  However, instead of utilising active funds the AAP funds will employ passive investment vehicles such as Exchange Traded Funds for a majority of the portfolio.

7IM have launched the AAP funds partially as a result of the increased demand for lower costs in multi asset portfolios and partially because the development of the Exchange Traded Fund market has progressed to the point where it is now possible for 7IM to do so.  The passive investment world has developed enormously over the past decade, allowing the 7IM AAP funds to be very precise in selecting where to invest.  Using a passive Exchange Traded Fund, 7IM is able to invest directly in precise baskets of, for example, water or timber stocks and thus take advantage of scarce commodities in a more direct manner than via a broad based commodities fund.

While the majority of the portfolio will be invested in fixed interest and equity instruments, the fund may also invest in, warrants, deposits, cash and near cash, money market instruments, other transferable securities, derivatives and forward transactions and other investments to the extent that each is permitted by the regulations.

The 7IM AAP funds are now available via Capita Financial Managers, Zurich’s Sterling platform and 7IM’s platform.  7IM is hoping to make the funds available on the Cofunds, Fidelity Funds Network and Selestia platforms given an appropriate level of demand.

Fund Legal Name:  Multi Asset Platform: Conservative Portfolio

Manager:  Frontier Capital Management LLP

Initial Charge:  Up to 5%

AMC:  A Share Class: 1.5% (including trail fees), C Share Class: 1.0%

TER:  A Share 1.8%, C Share 1.3%

Launch Date:  September 2005

IMA Sector:  N/A

Offshore Fund Domiciled in the Cayman Islands.

Aim: The investment objective of the Frontier Multi Asset Platform (MAP) Conservative Fund is to deliver capital growth and stable consistent annual returns through the economic cycles.  The fund will provide the investor with a global multi-asset class portfolio with exposure to eight major asset classes with returns currency hedged into the investor’s base currency.  The asset class weights are maintained within specified boundaries to produce a low risk, low volatility portfolio.  Six of the eight asset classes are accessed through fee efficient index funds and advanced index replication techniques that allow the fund to access the return from each asset class for very low or no fees.

Commentary:  Over the 12 months to February 2008 the MAP Conservative Fund generated strong returns despite the recent financial market turbulence, increasing in value by roughly 6.6%.  The Fund outperformed a number of industry benchmarks such as the average performance of funds in the UK Cautious Managed and Balanced Managed sectors.

The Frontier Capital investment approach is based on four key concepts that Frontier calls its “four investment pillars”, the first being that asset allocation drives the majority of portfolio return and risk.  The other investment pillars are: the importance of diversification and Modern Portfolio Theory; the efficiency and low cost of indexing; and that alternative assets reduce overall portfolio risk.

The asset allocation of the MAP Conservative Fund is determined on an annual basis.  Frontier follows a strategic approach to asset allocation as opposed to a tactical or market timing approach.  One significant input into the asset allocation is the asset allocation of the large US University endowment funds.  The university endowment funds of Harvard and Yale have been leaders in diversified multi-asset class investing for over two decades.

The Frontier MAP Conservative Fund can be thought of as a diversified wealth management solution suitable as a core portfolio of investments in the same way that a fund of funds might be used, except at a significantly lower cost.  Numerous studies have shown that the costs of active fund management and of switching between funds and sectors can erode a significant part of a portfolio’s returns.  Therefore, by establishing a core, diversified, low cost investment, investors can benefit from a stable return on their investment complemented by low costs with a low level of monitoring required.

The Frontier MAP Conservative Fund is suitable for holding in a number of investment wrappers, including SIPPs, SASS and life company bonds.  Frontier Capital Management LLP is planning to establish an onshore fund version sometime later in the year.

Manager: HSBC Investments

Initial Charge: 4%

AMC: 1.25%

TER: 2.49%

Launch Date: 30 November 2006

IMA Sector: Balanced Managed

Aim: The HSBC Open Global Return Fund aims to provide a high level of income by investing in a broad range of asset classes across global markets. The fund employs strategic asset allocation based on the Yale endowment model with a tactical asset allocation overlay that is rebalanced on a monthly basis in light of market conditions. The fund is not constrained by any particular benchmark, with the aim being to provide consistent returns with minimal volatility.

Commentary: The HSBC Open Global Return Fund has a fund of funds structure that is managed by HSBC Investments’ multimanager team. Since inception the HSBC Open Global Return Fund has been within the first quartile within the IMA Balanced Managed sector. The Fund has achieved a year to date return of 0.28% against a sector average of -2.03%.

The HSBC Open Global Return Fund is a multi-asset fund of funds solution that is designed to provide a well diversified investment in a broad range of asset classes. The Fund has a capital growth objective and a multi-asset approach. The Fund is diversified both globally and across a range of asset classes, with no inherent bias to the UK or stock market based investments. HSBC believe that the Fund’s geographic and asset class diversification will reduce the average risk over time when compared to the more common approach of less diversified funds that have a UK bias.

Fund Legal Name: CF Arch cru Investment Portfolio

Manager: Arch Financial Products

Initial Charge: 6%

AMC: 1.3%

Launch Date: 07 May 2005

IMA Sector: Cautious Managed

Aim: CF Arch Cru Investment Portfolio is a multi-asset open-ended investment company that targets consistent returns with a significant focus on risk management. The Fund invests in both public market securities (equities, bonds, real estate) and private investments. Because of the risk techniques employed and the total return mindset, the Portfolio has generally low correlation with traditional public investments such as bonds and equities. The fund has a target return of cash + 4% per annum.

Commentary: The vast majority of fund managers have suffered during the last 3 months, with all major public asset markets (equities, property, bonds and credit) registering significant declines. However, based upon the Portfolio’s diversified exposure to private assets and markets, its returns have continued to move forward at a steady pace, achieving a return of 1.90% for the year to date.

In terms of performance, this Fund remains a top performer in the Cautious Managed Sector. In addition, it continues to record extremely low volatility relative to other managers in the Cautious Managed sector. As such, this Fund remains an excellent alternative to cash-based and bond-based investments and is an excellent diversification for those investors with significant public market investments.

It has recently been reported that pension funds are increasing their exposure to alternative asset classes, such as private equity, to compensate for having lower equity content in recent volatile markets. Indeed, UK pension funds have doubled their investment in alternatives from 0.8% to 1.6% in 2007 to enhance returns whilst reducing their correlation to equity markets.

Last week the ARCH cru Investment Portfolio came under criticism in Citywire due to concerns regarding the amount of off market private equity holdings. ARCH value their private equity investments regularly as per the British Venture Capital guidelines.

The Featured Fund reviews are provided by Laura Firth.