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Adviser Fund Index: Playing cautiously

Cautious managed funds have become increasingly popular in recent months as investors have sought shelter from uncertainty in the equity and commercial property markets. According to statistics from the Investment Management Association, the cautious managed sector was the most popular retail sector in November with a net inflow of over £150m.

FundsNetwork also reports an upsurge in investor interest. It says cautious managed was the third most popular sector for investors using the platform in 2007, up from fifth place in 2005 and fourth in 2006.

The CF Midas balanced income fund and John Chatfeild-Roberts’ £1bn Jupiter Merlin income portfolio both featured among the top 10 most popular funds sold through the platform last year. The Midas fund also appears in the Balanced and Cautious Adviser Fund Indices, which were rebalanced in November.

Like an increasing number of funds in the sector, CF Midas balanced income takes a multi-asset approach to investing. Alongside its equity and bond allocations, the fund held positions in property, alternatives and structured products at the end of November.

Darius McDermott, managing director of Chelsea Financial Services and an AFI panellist, says he is a big believer in multi-asset products and expects them to gain more investor support this year.

He says: “Chelsea has not had a lot to do with the cautious managed sector historically. We have tended to use best-of-breed equity income and corporate bond funds instead but multi-asset funds offer a number of lowly correlated asset classes which used to be the preserve of the mega-rich. Truly balanced portfolios should have a mixture of assets, including private equity, hedge funds, environmental plays and resource plays. Over a five-year period, this should give equity-like returns with bond-like volatility.”

McDermott says Chelsea will start promoting multi-asset funds to its clients more actively in 2008 and HSBC Open global return, Newton Phoenix multi-asset and Insight diversified target return all appear on the firm’s buy-list.

HSBC Open global return, which sits in the balanced managed sector, joined the AFI in November after McDermott selected the fund for the Cautious index.

Despite his upbeat view of such products, the AFI panellists were less enthusiastic on cautious managed funds in November. Insight diversified target return, Barmac ACDS Castleton growth, New Star managed distribution and Sarasin Globalsar IIID were all ejected from the indices, causing the overall cautious managed sector allocation to fall by over three percentage points to 0.79 per cent.

Only the UK equity income sector fared worse, as its weighting dropped by 3.5 percentage points.

CF Midas balanced income and Cazenove multi-manager diversity are now the only cautious managed sector representatives in the AFI. The biggest sector winner was UK other bond which rose by 2.3 percentage points.


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