Absolutely different funds
In an increasingly complex world, where both risks and opportunities are not always obvious to the untrained eye, funds that employ a richer mix of strategies, wherever they might arise, are attracting growing interest. All the more so when they also apply this strategy with somewhat less risk, and lower volatility, than mainstream equity funds.
Here we look at three such funds that complement each other.
Newton Real Return - the granddaddy
This Newton fund has a long history, back to 1989. Over the last 10 years the fund has grown 44%, impressive for a relatively low risk fund, sharply outperforming both the stock market and deposit returns.
In some respects the fund takes a traditional approach, having a large exposure to equities (around 50%), and buys taking a long view in the style of the likes of M&G Recovery or Fidelity Special Situations. Where it is different is that it takes somewhat less risk (about half the level of the stock market) by having higher allocations to cash in times of raised uncertainty, or use put options for insurance, or by buying other assets, such as bonds.
As with each of these three funds, there is no guarantee and when the markets fall sharply this fund will not be immune. For example, it fell about 15% in the Autumn of 2008. But this compares favourably with the UK stock market, which fell 45%. Better still, the manager reacted rapidly to events, making up all the lost ground and more by January 2009, whereas the broader stock market carried on falling for a number of months.
The Standard Life Investments Global Absolute Return Strategies fund enjoyed a very similar experience in Autumn 2008 - if the value falls over a short period it need not be unduly worrying where the managers of the fund have the skills and flexible brief which allows them to adjust rapidly in the wake of unfolding events. This feature is vital.
Standard Global Absolute Return - huge range of strategies
This Standard Life fund has much less emphasis on equities and more on a wide range of strategies, wherever they might arise around the world.
Spreading the net in this way (as we write 27 individual strategies are being pursued) is key to spreading risk, and limiting downside, as evidenced in Autumn 2008.
This fund went up 18% in 2009, taking less than half the risk of a typical stock market-focussed fund.
Artemis Strategic Assets - off to a flying start
This is the youngest of these three funds that do things just a bit differently from so many of their peers. It has a similar approach to the Newton fund, but is a little more aggressive than these two peers, up a chunky 18% since launch in May 2009.
For example, the fund had 45% in cash in June, but only 20% by the end of 2009.
The manager, William Littlewood, was previously best known for his highly succesful tenure managing the Jupiter Income fund, and his reputation and the early success of the fund has allowed the fund to quickly grow to in excess of £300m.
how they fit in your portfolio
These funds are part of the low risk mix in your portfolio, being somewhat less volatile than pure stock market funds. As such they can account for a large proportion of your portfolio, and we would typically recommend a selection of these funds, to take advantge of the range of strategies.
(Taken from TopFunds Guide January 2010)