Using data from FE fundinfo, Portfolio Adviser shines a spotlight on the funds across different sectors that are smaller than £100m in size, but have achieved top-quartile returns over the past three years relative to their average peer. This month, we look at the small IA Volatility Managed funds that have delivered top returns, while also avoiding the turbulence rocking markets.
Investors have flocked to IA Volatility Managed funds in recent years as soaring inflation and rising interest rates sent markets into disarray. It was the best-selling sector for two years running in 2022 and 2023, according to the Investment Association, raking in net inflows of £5.6bn.
And this year, investors upped their holdings in the sector by a further £2.6bn (until the end of August), sending the assets under management (AUM) of the average volatility managed fund to £364m. But some funds managed to outdo their peer group despite being a fraction of that size.
WS Aegon Risk-Managed 6
Fund size: £99m
The WS Aegon Risk-Managed 6 fund is up 23.9% over the past three years – the third-highest return in the sector, yet it is significantly smaller than some of its peers, with AUM of £99m. It is the highest-risk portfolio in the six-fund range, consisting mostly of equities (94.3%), but some might argue it is worth the additional gamble given its sector-beating return.
However, investors might want to keep an eye on concentration levels, with just two trackers – iShares’ US Equity and UK Equity Index funds – accounting for half (49.9%) of the entire portfolio. The fund factsheet says it is “designed for investors who have high tolerance for risk, are seeking to maximise capital growth over the long term and are comfortable with the potential for significant and sustained falls in value”.
Anthony McDonald, head of portfolio management at Aegon, highlights the industry’s “tendency to overcomplicate fund design”, stressing that groups can “add value through simplicity”. The risk-managed range is intended to be simple because it keeps costs low, with an ongoing charges figure of 0.25% being less than half of that of the 0.57% average charge across the sector.
Aviva Multi-asset Core V
Fund size: £90m
Offering an even lower fee of 0.15% – while still beating the sector average with high returns – is the Aviva Multi-asset Core V fund. This is also the highest-risk option in its range, with a 100% weighting to equities. But this has paid off for investors, who would have seen their savings rise 22.5% over the past three years.
The fund simultaneously managed to avoid the widespread volatility plaguing markets over the period, taking a different approach than its peers in avoiding risk, according to researchers at RSMR. “An important differentiator for the range relative to the wider market is their risk-targeting approach, which is set towards specific levels of global equity volatility,” they say. “[The team believes] a relative volatility target is more appropriate than an absolute target as the market environment and volatility regime constantly evolve over time.”
This combination of high returns for relatively low risk makes the fund a prime holding for fee-conscious investors seeking steady returns, analysts at RSMR add.
“The funds are managed by a well-resourced and experienced multi-asset team, using a well-established and detailed investment process, and with an OCF fixed at 0.15%, the funds are very competitively priced,” they claim. “Based on these factors, we believe the funds are an excellent option for advisers seeking exposure to a lower-cost, risk-targeted multi-asset solution for their clients.”
Invesco Summit Growth 5
Fund size: £32m
Another tiny fund that is outshining its larger peers is Invesco Summit Growth 5. The fund is up 22.4% over the past three years, overtaking the IA Volatility Managed sector’s average return by 15.5 percentage points.
With an 84.5% weighting to global equities, it is again the highest-risk option in its range. Over a third (38.5%) of that is held in US equities, with its two largest holdings – Invesco’s S&P 500 and MSCI USA ETFs – accounting for 27.8% of the fund.
BlackRock Volatility Strategy IV
Fund size: £8m
Though a fraction of the size of its average peer, the £8m BlackRock Volatility Strategy IV fund generated a return more than three times the size of the IA Volatility Managed sector over the past three years. It soared 21.3% despite the turbulence of the period, while its average peer gained a more modest 6.9%.
Many investors fled to the perceived safety of cash in recent years, but this fund managed by Julian Steeds, Victor Bozza and Fabrizio Coiai is designed to be an alternative to removing money from the market. Instead, it aims to deliver steady, low-volatility returns that will grow investors’ savings and maintain their purchasing power, according to BlackRock.
It says: “Don’t let clients flee to cash and miss out on potential long-term growth. Instead, seek to reduce risk in portfolios, while staying closely aligned to a steady asset allocation.”
Liontrust MA Dynamic Passive Adventurous
Fund size: £62m
Another tiny gem that has outperformed its larger peers is the £62m Liontrust MA Dynamic Passive Adventurous fund. Managers John Husselbee and James Klempster (pictured left to right) generated a 20.1% return over the past three years.
This fund of funds offers investors exposure to a spread of equity markets across the globe, such as North America (32.17% of all regional weightings), emerging markets (20.9%) and the UK (15.1%).
This article originally appeared in the November issue of Portfolio Adviser magazine
