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Adviser Fund Index

The global financial turmoil has not surprisingly prompted investors to increase the level of caution in their portfolios. The Investment Management Association’s fund statistics for August show that the most popular sector for the third consecutive month was absolute return. The most popular UK-domiciled Isa sector was guaranteed protected funds.

At the next AFI rebalancing in November, will the AFI panellists do the same and take a more cautious stance or will they keep faith with their existing fund picks?

Whitechurch Securities head of research Ben Willis says he will increase the level of caution in his selections although his aggressive allocations will remain largely the same. He says: “In terms of assets, it will still be quite aggressive. We are long-term investors. We may reduce or cut resources but overall we will maintain our position. When the market recovers, we will be in the right position to benefit from it.”

One of the funds that Willis expects to add to his Cautious and Balanced AFI portfolios is the £94.6m Cazenove absolute target fund. Launched in July and managed by Tim Russell, the fund aims to achieve positive returns independent of stockmarket movements and economic conditions. Its target is 10 per cent a year, net of fees.

According to Morning- star, the fund is ranked third out of 11 funds in the IMA’s absolute return sector since launch. It produced a return of 2.3 per cent from July 21 to October 6 against a sector average fall of 1.68 per cent.

The fund that was selected most often at the last AFI rebalancing in May was the BlackRock UK absolute alpha fund. It occurred seven times in the Cautious AFI, six times in the Balanced index and five times in the Aggressive AFI.

City Asset Management chief investment officer Hilary Coghill holds BlackRock UK absolute alpha across all three of her AFI portfolios. She says flexibility in volatile environments is important which is why she has chosen funds that have the ability to adjust their equity exposure.

Coghill says: “It is very difficult to formulate a long-term view. I do not think people can see six weeks ahead, let alone six months. I have used funds that have the ability to move between their equity weightings. You are having to rely on the managers to make the asset allocation switch.”

Charles Stanley investment manager Shauna Bevan says she will reduce her exposure to corporate bonds at next month’s rebalancing in favour of global government bonds. However, she intends to maintain her overweight position in emerging markets and Asia. She says: “I do not think the flight to Western markets is rational or logical. While we watch market falls with trepidation, we are sticking to those positions. At some point, the market will return to fundamentals.”

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