This sector is comprised of funds that have a portfolio invested in the asset classes of equity, fix...
This sector is comprised of funds that have a portfolio invested in the asset classes of equity, fixed interest and money market, with an equity content typically in the range of 30%-70% of the portfolio. This flexibility allows fund managers to limit their equity exposure in difficult market conditions, while achieving a proportion of the upside of bullish markets.
The ability of these funds to move into fixed income instruments has not insulated them from the more difficult equity market conditions this year, and average returns in the sector have fallen by around eight percentage points. The leading fund during the year gained just over 24%; this fund was also ranked first in the year prior. It is one of the most volatile funds in the category. Only two funds (both denominated in US dollars) saw losses over the period - one of which has been consistently in the fourth quartile for each of the last four years.
One example of a fund coping well with exposure to two different asset classes is the BL Global Asset 50 fund, which has been assigned an A-rating by Standard & Poor's. The fund returned 18.5% during the year, easily outperforming its peer group average of 11.7%. It is referenced against a composite index, and is weighted 47% in equities, with the remainder in bonds. The ratings report notes that the equity component of the fund is focused towards large-cap, blue-chip, growth companies, though the fund usually avoids sectors such as cars, basic chemicals and insurances. The bond element of the portfolio is mainly seen as offsetting the risk of the equity part, and is mainly comprised of euro government debt. The report continues to say that though 2003 was a more difficult year performance-wise for the fund (its gains of 21% were broadly in line with the sector), this was due to its higher bond allocation compared to other funds in the sector, and lower beta stock picking.
The Diversified Securities Fund - Medium Portfolio, which is A-rated, holds a more conservative exposure to equities as the fund is limited to a maximum exposure to equities of 39%. The remainder of the portfolio is invested in cash and fixed income instruments. The mandate for cash adds a safety net to the fund: when discussing the management style of the fund, the ratings report notes that cash is not managed separately, but when they are cautious on the outlook there is scope for the cash element to rise to up to 30% of the assets under management. Standard & Poor's fund analysts pointed out that though the fund is not formally managed as an absolute return fund, the risk averse nature of the investment process means that it is likely to be effective at preserving capital in downturns, but it may lag in rising markets.
Putting the tech into protection
Square Mile’s series of informal interviews
Fallout from Haywood suspension
Launching later in 2019
£80bn funds under calculation