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Insight out of focus

John Kenchington reports on a multi-asset fund range that puts the emphasis on caution

Insight Investment’s range of diversified multi-manager funds has come in for criticism for poor performance.

Statistics show that over the past five years, four of the firm’s UK-based multi-asset funds report bottom-quartile returns and the fifth is narrowly third-quartile.

According to Morningstar, the worst – diversified high income – delivered -6.7 per cent over the period versus an average gain of 14.9 per cent from funds in the Investment Management Association’s cautious managed sector.

The Insight range was created in February 2005 under the management of the group’s then multi-asset heads Patrick Armstrong and Ana Cukic-Armstrong. Insight hired Mike Pinggera from Credit Suisse to head the multi-manager operation from January 2009.

Over the past year, the figures show the performance has been poor relatively, with each of the five funds ranking in the bottom decile for performance in its sector.

This came as there was disruption at Insight in August 2009 when Lloyds Banking Group – which bought Insight as part of its acquisition of HBOS – decided to sell the firm to BNY Mellon.

But Pinggera defends the funds’ performance since he took over. He says he and co-manager Steve Waddington are not focusing on outperforming other funds in the IMA sectors. He says: “In January 2009, when I came on board, we spent the first quarter getting to know the funds and one of the first things I did was go and talk to the investors.

“People bought the funds as diversified funds that would prove to be safe through any period. We really took those messages on board and that is how we repositioned them in the first quarter of 2009.”

Pinngera says the funds’ chief aim is to protect capital on the downside, in addition to participating in any market rallies, not simply chasing performance rankings and risking losses if markets turn down.

So while other funds in the IMA cautious managed sector can tend to adopt high weightings to volatile areas such as equities, the Insight funds retain low market directionality.

“From a client point of view, if you asked us if diversified target return was a cautiously managed fund, we would say yes.

“There are a lot of funds in the sector and the IMA guidelines say you can have up to 60 per cent equities and all of that could be in emerging markets – does that make them cautious?”

From the end of March 2009 to date, the statistics show all the funds have delivered between 19.3 per cent and 37.5 per cent.

The flagship diversified target return fund reports a return of 22.47 per cent.

Pinggera says these cumulative statistics conceal the underlying levels of volatility that funds have delivered over the periods analysed.

He says: “If you look at the drawdown on the diversified target return fund in negative markets, the fund has behaved itself exactly as our investors would have expected.”

He says the fund has delivered flat or positive returns in each month in which markets have fallen, except in May 2010 when a small loss was reported.

“Our objective is very much about delivering consistent returns over a cycle. There will be periods of that cycle when markets draw down a lot.”

He says the volatility rating on an iShare exchange traded fund that tracks the FTSE 100 is 18.6 per cent since the end of March 2009.

The volatility on an iShare that buys UK gilts was closer to 6.76 per cent.

The return on the diversified target return fund came with a volatility level of 6.33 per cent, according to Pinggera.

He adds that the managers focus on keeping internal fees down on the funds but are prepared to make investments that charge more if they represent good value. He says: “We have rejected a number of investments where we like the fund and we like the manager but it is just too expensive.”

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