It is not very often that I feel compelled to write about a boring fund but bear with me as I am going to do just that. It is in a terribly unexciting sector, the balanced managed sector, and is a fettered fund of funds. For those of you I haven’t put off yet, stick with me as I think this is a fund well worth considering for a core holding over the long term.
Managed by Andrew Yeadon this fund has a history dating back over 20 years, although he only took over in 2003. For a long time, the fund mainly consisted of small pooled pension funds and the style and look of the fund really developed from there.
It is worth pointing out that Yeadon can invest in pretty much any Schroder fund on or offshore. In fact, he has over 130 funds to choose from.
Yeadon sees it as a core holding and actually is quite embarrassed by the strength of last year’s perform – ance when he outperformed the sector by around 11 per cent.
For a core fund that is not taking too many risks, he thinks this performance was too high. However, he believes that 2009 was a one-off and is unlikely to be repeated.
He freely admits that he could have picked any of the Schroder managers and delivered outstanding performance as last year many of them bought banks and cyclical stocks. However, it was not just down to the Schroder managers choosing the right stocks, Yeadon also increased the allocation to equities in March 2009 and made another great call to hedge sterling at what turned out to be the low point at $1.36 to the pound. So although this is a core fund that will just invest in equities, Yeadon will use a few techniques around the edge to add a bit of extra value.
That’s a bit about the past but what about the future? Mr Yeadon still thinks equities look cheap although it will probably be more of a choppy
ride over the coming few years. Indeed, not just equities, but he also thinks most asset classes look relatively cheap.
In bonds, he is favouring highyield credit over investment-grade or anything with interest rate risk. The income from high yield is still large enough to make it worthwhile taking the extra risk of holding the asset class.
To obtain high-yield exposure, he has a near 10 per cent position in Adam Cordery’s Schroder monthly high-income fund.
In the equity area, he is starting to get slightly uncomfortable about valuations and growth levels in emerging markets and Asia. He thinks those markets might be in for a tougher time or even a period of underperformance over the coming few years.
To run alongside that view, he does think that many have become overly negative on the developed markets such as the UK and US. He does not think the situation is as bad as many are making out and many companies are in decent shape with strong balance sheets.
Normally, I would not suggest a fettered fund of funds as I would prefer a manager to have the flexibility to go anywhere and buy anything. However, sometimes, one has to change one’s way of thinking and I believe this is one of those occasions.
Not only do Schroder possess a strong array of talent including Buxton, Howard-Spink, Purves, Lance and so on, they also have an excellent fund of funds manager in Andrew Yeadon who pulls it all together to create a fund that is ideal for long term investors.
Yeadon describes his approach as “not wanting to drop the ball”. If you are looking for a good core balanced managed fund that has shown consistent outperformance and one with a manager who is not afraid to take risk-controlled bets, it may well be worth looking at this fund.
Ben Yearsley is investment manager at Hargreaves Lansdown