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 three-year total returns relative to their average peer. Below, we look at the cautious funds in the IA Mixed Investment 20-60% Shares sector for investors who want to grow savings without taking volatile positions
Orbis Global Cautious
Fund size: £81m
Despite being one of the smallest players in its category, the Orbis Global Cautious fund has generated the highest return of its peer group over the past three years. The portfolio is up 20.7% over the period, boasting a considerable lead against the 2.4% return made by the average IA Mixed Investment 20-60% Shares fund.
Such outperformance could serve as testament to the asset allocating skills of manager Alec Cutler. Since launching Orbis Global Cautious in 2019, Cutler has driven returns up 29% (a 6.9 percentage point lead against the sector average) by investing in a blend of shares and bonds. US Treasury Inflation-Protected Securities (TIPs) account for much of the fund’s top positions, with TIPs of varying durations making up almost a quarter (23.8%) of the portfolio.
Cutler’s fund may be the best-performing cautious fund of the past three years, but it also has some of the lowest volatility. It is the third-least volatile fund in the 190-strong sector, meaning investors get top returns for less risk. Orbis Global Cautious also has the lowest maximum drawdown of any fund in the IA Mixed Investment 20-60% Shares sector over the period. When the fund did make a loss, it only dropped by a modest 3.5%, which is almost four times lower than the 12.9% maximum drawdown of its peers on average.
Chelsea Managed Monthly Income
Fund size: £60m
Another outperformer investors may have overlooked is the Chelsea Managed Monthly Income fund. This £60m portfolio may be small, but its 13.9% return over the past three years is 11.5 percentage points higher than the average IA Mixed Investment 20-60% Shares fund.
As its name suggests, the fund is aimed at investors who want to use their savings to generate a reliable monthly income stream, which can be used to budget with confidence. It does so by investing in funds and investment trusts across different asset classes. For instance, it has top allocations to alternatives and property specialists such as Greencoat UK Wind (worth 4.2% of all weightings) and Assura (4.1%), as well as equity dedicated portfolios such as Man GLG UK Income Professional (3.9%), Chrysalis (3.8%) and M&G Global Dividend (3.6%).
Chelsea Financial Services describes this combination of different investment vehicles as “a jigsaw puzzle” that culminates as a singular income-generating product.
It claims: “All the pieces have to be in place for the picture to come together. Assets will yield differently at different times, so we will strategically combine diverse sources of income to target a high and resilient yield, year in, year out.”
This mixture of fund and trusts has allowed Chelsea Managed Monthy Income to offer one of the highest yields in the IA Mixed Investment 20-60% Shares sector, at 4.6%.
Canlife Diversified Monthly Income
Fund size: £59m
Another small fund to deliver a return almost six times higher than its larger peers is Canlife Diversified Monthly Income, which is up by 13.8% over the three-year time frame. It has achieved this result by investing across a diversified set of 119 holdings, ranging from equities and bonds to property. By investing in these assets, the two managers, Craig Rippe and Jordan Sriharan, aim to provide investors with a monthly income through the dividends, interest payments and rental income they provide.
Listed international shares make up most of the top holdings (and 27.1% of the portfolio as a whole), with the likes of Microsoft, Broadcom and Amazon among some of the largest positions. Overall, however, Canlife Diversified Monthly Income has an almost equal weighting to equities and fixed income across the portfolio, at 44.4% and 45.9%, respectively. This could appeal to an investor who wants a more balanced exposure across different asset classes.
Invesco Global Income
Fund size: £60m
Also trouncing its larger peers is Invesco Global Income, up 8.6% over the past three years. Lead manager Stephen Anness has built an extensive portfolio of 276 holdings since taking charge in 2019, the bulk of which (65.1%) is made up of bonds. Equities account for just under a quarter (24.6%) of allocations.
Investors who held Invesco Global Income over the past three years would have enjoyed the fourth-highest upside capture of any fund in the sector, climbing 165.3% in rising markets. In contrast, the portfolio was hit harder than most funds when markets were in decline. It has one of the steepest maximum drawdowns of 19.3% over the period, meaning its high gains came with more volatile performance.
This article originally appeared in the June issue of Portfolio Adviser magazine
