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Adviser Fund Index – Diverse solutions

Some investors will be looking to inject more caution into their portfolios as a result of market volatility and dramatic share price falls in the last few weeks.

Equity markets have suffered across the board amid fears of a US recession and a re-examination of asset allocation is a natural response.

Figures from Financial Express show volatility rose sharply across the Adviser Fund Indices and the Investment Management Association sectors in the fourth quarter of last year. In November and December, the cautious managed sector saw more retail sales than any other sector, taking over from specialist which dominated throughout most of 2007.

AFI panellists say they have considered a number of strategies in response to market movements but not a complete change of direction. Their plans vary from reducing exposure to commercial property and Japan to increasing portfolio weightings in fixed interest.

AWD Chase de Vere savings and investment manager Anna Bowe says the only change she is likely to make is reducing her exposure to property. She says: “Our portfolios will not alter a great deal because we are looking at the long term. We have reduced exposure to commercial property and that might be something we would continue for new portfolios but our approach is the same.”

Bentley Jennison investment director David Wynn says he is looking to reduce his exposure to commercial property by transferring assets into other portfolios offering diversification, such as asset-backed securities.

“Asset-backed securities and hedge fund strategies are becoming more appealing. There is a stronger market for them now. We are looking to fine-tune the risk. We will do most of the work in the cautious portfolios but we still believe property has a place,” he says.

One of the alternative funds favoured by Wynn in current market conditions is the Cazenove multi-manager diversity fund in which he has a maximum weighting.

Over one year to January 28, the Cazenove multi-manager diversity fund, managed by Marcus Brookes, is ranked eighth out of 89 funds in the IMA cautious managed sector, according to Morningstar. Over three years, it ranks second out of 58 funds.

Wynn says diversification is the key to protecting clients’ assets. He says: “We are finding there are a lot of other funds coming to the market that are very similar to the Cazenove fund. That is great for us. Diversification is what we are about. The design is to not lose money, especially in volatile times.”

Barclays Wealth associate director Kypros Charalambous is also looking to safeguard his portfolios from stockmarket falls. He says he might reduce his exposure to equities over the short term in both his balanced and cautious portfolios by increasing his weighting in fixed interest. He also intends to reduce exposure to Japan.

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