Arcturus has not been immune to the falls in equity markets and it slipped by 2.85 per cent in January. However, it outperformed its sector and major equity markets which fell by at least 10 per cent.
Miton says asset class diversity and high levels of cash have protected the portfolio to some degree. Exposure to gold produced double-digit returns while holdings in Schroder agriculture and Quadris teak funds returned around 5 per cent.
On the negative side, two structured products linked to the Japanese market fell through their 25 per cent protection barrier. The way structured products are priced meant that a 15 per cent fall in the market led the share price of the structured products to drop by 7 to 8 per cent. This reflected that the market had to fall by 25 per cent before the share price fell by 25 per cent. However, it meant that Miton saw a rapid descent in the share price when the market fell through the protection barrier.
Miton now insists on higher levels of protection from its structured holdings during volatile markets. It has added another structured product to Arcturus which is linked to a basket of four stockmarket indices. This provides a return of 11 per cent a year and a full capital return unless one of the indices falls by more than 50 per cent – a level of protection it feels more comfortable with.
Fund manager Tom McGrath says: “When we bought the Japanese structured products, they looked like a very good exposure to Japan, with extended upside and full capital protected unless the markets fell by 25 per cent.
“At the time, you do not think the market is going to fall by 25 per cent. The more volatility that is around, the better the returns but the lesson we learnt is that we have to be careful in finding the right structure for choppy markets.”