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Cautious approach

The life of a salaried employee of a financial services business need not be devoid of interesting events but I have found the last few months to be particularly stimulating by virtue of the different types of operation I have come into contact with.

Towards the end of March, I became involved with a conference organised by Cofunds, which has been busy putting together a publication to aid the education of IFAs and to facilitate communication between the fund management groups that use them and their clients. This conference was the inaugural get-together aimed at making this communication process two-way.

This first conference was to allow a group of managers of cautious managed funds to set out their stalls, the topic of the first Platform editorial being what would replace with-profits funds. The first speaker up was Old Broad Street Research’s Richard Romer-Lee. Not having any funds to promote, he contented himself with setting the scene for the cautious managed sector.

This was where I found some of my long-held assumptions being undermined. Knowing that market timing is one of the most difficult elements of running a portfolio to get right, I take the view that generally it is better to be invested than not. In other words, remaining committed to the equity market over the longer term will serve you best in overall performance terms.

Richard produced average performance figures for a range of IMA sectors over both bull and bear phases since the start of the new millennium. Unsurprisingly, active managed produced the best numbers for the bull period of the past four years but equally were the laggards over the bear market of 2000-2003. Cautious managed, of course, fell by significantly less during the bear years but lagged when the market turned up.

Put the two periods together, though, and a very different picture emerges. Leading the field over the aggregate seven years covered with a rise of 42.7 per cent was – wait for it – cautious managed.

Remarkably, cash produced the second-best return, with active managed funds coming in fourth with an overall rise of 27.9 per cent – about the same as bond funds. Balanced managed did even less well, returning just 24.8 per cent over the period. UK all companies pushed active managed into fourth place with a 30.3 per cent rise.

These are, of course, average figures but it did strike me as one of the best illustrations of the tortoise and the hare philosophy demonstrated as working in the fund management industry. Yet cautious managed funds account for just 3 per cent of the total universe, with the 98 that are listed in this category worth just £11bn. If, indeed, markets prove trickier over the next few weeks, then the argument for including them in a portfolio mix looks powerful indeed.

But, as the five fund managers who spoke subsequently demonstrated, there is a very wide range of ways in which these funds are managed. With M&G, Jupiter, Gartmore, New Star and Schroders all educating us on how they believe funds of this nature should be run, I was left with the view that this sector is as worthy of research as any other.

The second long held view that, if not destroyed, certainly suffered some damage, was that high total expense ratios were to be avoided at all costs. Of course, ridiculous TERs should be shunned but it was clear that the added costs involved in running a fund of funds approach could be justified.

I only wish I could be around for the second of these events but instead I shall be playing bridge in Belgium. But perhaps it is just as well or I might find yet another belief consigned to the scrapheap.

Brian Tora ( is principal of the Tora Partnership.


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