The Nationwide Balanced fund is a bit like a dying relationship - too bad to stay, but not bad enough to leave. It is managed by Morley and is near the bottom of the Balanced Managed sector over 5 years (61st out of 63 funds). It has shown better performance over the past year, rising to the middle of its sector over 3 and 12 months. But it is a large fund at £328m and is typical of large building society funds offering its many investors mediocre, tracker-like returns. Here, leading advisers give possible alternatives.
Bates Investment services
My preferred funds in the Balanced Managed sector are Gartmore Portfolio-Balanced Strategy and New Star Balanced Portfolio. Gartmore's fund is managed by Bambos Hambi and Marcus Brookes, both recognised multimanager specialists. They also benefit from the asset allocation expertise of Peter Gale who head's Gartmore's private equity division. Although the bulk of the outperformance potential is from fund selection, they do also aim to derive further performance through limited active asset allocation.
New Star's Balanced Portfolio is very actively managed both in terms of fund selection and asset allocation. Mark Harris and his team don't believe the majority of funds can perform consistently well so they are not afraid to replace funds when they can identify turning points. The actual asset allocation policy is to keep the fund weightings within +/-5% of its benchmark weightings, but within this there is a lot of activity. Taken together this provides a good degree of performance potential.
In these sectors I like the Framlington Balanced Managed and Neptune Managed funds.
The Framlington fund is run by Richard Peirson and is more suited to a traditional pension vehicle. Many of the Framlington fund managers invest their own pension money and it has one of the best 10-year track records in the sector.
The Neptune fund is a bit different. Manager Robin Geffen is an excellent asset allocator and is willing to hold quite high chunks of the fund in cash. He has had one bad year in five when he got caught with too much cash, but now the fund is at the top of the Active Managed sector. He will hold fixed interest, but at the moment most of his fixed interest holdings are in cash. Overall, however, I think the scope should be a bit wider and include international growth funds. In a way, Robin's fund isn't balanced at all, but I think it does the job we're paying fund managers to do - not to put 1% above benchmark in the US. Out of preference I would have four or five funds, each of them aiming to do something different. This way you get a diversity of management and approach and you don't end up with an Equitable Life situation where someone has £500,000 with the same company.
Chelsea Financial Services
Generally I would prefer to blend the best-of-breed equity funds with best-of-breed corporate bond funds. But we do realise that some of our clients don't want that level of participation. My big bug-bear with these types of funds is asset allocation. I like funds that do asset allocate. If I am paying up to 3% with the double-charging that is inevitable for multi-manager funds, I expect the fund manager to be adding value through more than just fund selection.
As a result I like the Miton Special Situations fund and all of the funds run by Jupiter's multi-manager team under John Chatfeild-Roberts. Miton has an astonishing track record. Jupiter has 4/5 different funds, all of which are top quartile. Both these groups are good at picking funds and getting the right asset allocation.
The accusation thrown at both these groups is that they are more risky. Yet if you look at the volatility of both funds, Jupiter's is below the sector average and Miton's is about in line with the sector average. Often people are talking about risk versus a benchmark and we believe this is largely meaningless. Asset allocation is not an easy science, but it accounts for a large chunk of the performance of these funds. They should provide sound overall total returns.
Slow progress in improving diversity
Share purchase deal with assets of £28m
Came into effect in January
Three examples of compensation rule issues
Buying in baskets