M&G says the exclusion of commodities and hedge funds from its new cautious managed multiasset fund will not undermine the diversification benefits of its investment approach.
David Jane, who will manage the fettered fund of funds, believes that investment in gold is risky because returns depend on its spot price at any given moment while fixed interest, equities and property all deliver yield and the prospect of rental income.
Jane is also negative on hedge funds as he says investing in this asset class would call into question the cautious risk profile of his fund. He says hedge funds are geared plays on beta – the term used to measure how sensitive the price of an individual stock is to changes in the price of the stockmarket.
Under the Investment Management Association rules, a cautious managed fund can hold up to 60 per cent in equities. According to Jane, it is doubtful whether a fund that combines hedge fund exposure with a maximum 60 per cent in equities could be considered a cautious managed fund.
As an alternative diversifier to commodities and hedge funds, Jane will explore areas of the fixed-interest market such as leveraged loans.These are variable-rate bank loans to big companies, usually to finance expansion, acquisitions, mergers or buyouts. They provide cash-like exposure with little or no correlation to high-yield bonds, Government bonds or equities.
Jane says: “Commodities just speculate on price, they do not give you a natural return. I do not care what everyone else says, I do not believe in this speculation on price.
“We have a leveraged loans fund in house. The intention is to invest in leveraged loans when we are less keen on bonds.”