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Adviser Fund Index

The performance of the FE Adviser Fund Index balanced portfolio has comfortably outperformed its benchmark sector. That said, with new products hitting the market, is it time for panellists to start employing more flexibility in their approach?

Over the past five years, the AFI balanced index has returned 10.73 per cent against an Investment Management Association balanced managed sector average return of 6.11 per cent. That much of this outperformance took place in the equity market rally from March 2009 tells you that the portfolio’s risk profile is somewhat higher than the average.

Some panellists argue that the remit if these investment products is to provide equity-like returns albeit with slightly less volatility.
Close Asset Management portfolio manager and fund research specialist James Davies says: “I think the term ’balanced’ can be a bit misleading. You can have up to 85 per cent equity exposure in these funds, which if maxed out would not be considered very balanced.”

Yet not all funds in the sector appear to be operating as such a structure would suggest. Two particularly distinct products are the Trojan fund, managed by Troy Asset Management, and the CF Miton special situations fund. The Trojan fund aims to achieve its performance objectives through investing in a range of asset classes. While the positions are certainly punchy the historical volatility of the fund has been lower than both its sector and the FTSE All Share with its return profile considerably higher. The same can be said of the Miton Special Situations Fund, which offers investors a portfolio of equities, fixed-interest and specialist exposure to closed ended investment trusts.

Over the past five years, the Trojan Fund has delivered a return of 54.2 per cent while the Miton fund has returned 42.5 per cent to 27 September. Their impressive run has also demonstrated a disconnect between the performance of the funds and mainstream British equity indices. AFH Independent Financial Services head of investment research and AFI panellist Graham Toone says: “A lot of the funds in the sector have a static asset-allocation model but funds like the Miton fund follow a more dynamic approach. In some respects, these funds are different beasts entirely with a total return aim.”

Hugging an equity index may be a tempting position for fund managers to take as it lessens the chance of sustained underperformance relative to the sector average. This approach, however, risks highlighting the advantage of more flexible management styles during periods of increased market volatility.

To date, the sector has done little to give major cause for concern to investors. Davies says: “I view the balanced managed sector as a one-stop-shop. So far the sector has broadly done its job but you still only want to look at the best 20-30 per cent of funds.”

Data supplied by Financial Express

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