View more on these topics

The next generation of cautious managed funds

Most investors want two things from their investment – a stable return with as little risk as possible. One of the best ways to achieve this goal is through diversification at the asset allocation level, in other words, getting the right split between equities, bonds, property and cash at the right time.

There are huge diversification benefits to be achieved from correctly predicting which asset classes will outperform. Over the last year alone, equities generated returns in excess of 10% while bonds trailed behind. Concentrating on the right asset classes and avoiding the laggards in this time would therefore have given you an indisputable advantage.

Flexibility undoubtedly comes into play here – a fund manager needs to have the freedom to back his convictions. So while diversification at the asset allocation level can reap rewards, unless a fund manager can support his investment decisions with 100% conviction, a multi-asset strategy will start to lose its impact.

A fund manager should be able to back his asset allocation choices with belief in order to achieve the best possible returns for investors. This is why the M&G Cautious Multi Asset Fund is the first in the next generation of cautious managed funds. Unlike managers who practice tilting, whereby they move asset class weightings by a small amount around a predetermined portfolio framework, the fund’s manager, Citywire AAA rated David Jane has the power to fully support his investment decisions.

“Why should a fund manager who does not expect bonds to perform well devote nearly half of his portfolio’s assets to this area of the market?” As David Jane says, a fund manager who is focusing on asset allocation as the key driver of performance should not be shackled by a rigid portfolio structure but should instead enjoy the freedom to act as strongly and as dynamically as possible.

He adds: “Only in this way, can investors have access to top-performing asset classes while still retaining balance and diversification through other areas of the market. The great thing about the M&G Cautious Multi Asset Fund is that I have the flexibility to back my views with conviction.”

To help ensure that the fund’s risk is sufficiently diversified, the M&G Cautious Multi Asset Fund can invest in assets, which have little correlation with the traditional areas of equities and bonds such as commercial property. While owning property shares will expose investors of a multi-asset fund to more risk, investing in funds which invest in actual bricks and mortar can enhance performance, while limiting volatility due to their lack of correlation with the equity market over the longer term.

Risk analysis also has an important role to play in the running of a multi-asset fund. As well as deciding which investments to include in his portfolio, a fund manager should keep abreast of its risk levels to minimise volatility wherever possible. With this in mind, David talks regularly with M&G’s in-house risk analysts who keep track of the fund’s holdings, performance and risk levels to help him develop conviction in his investments. Input from the risk analysts also improves the structure of the portfolio, with the aim of maximising investment returns while keeping risk in line with the sector average.

Given the potential diversity of a multi-asset portfolio its manager must be in a position to fully exploit the growing number of asset classes at his fingertips. This is where a large asset management house like M&G, with expertise and strength across all of these investment areas can provide an edge in the running of multi-asset portfolios. The fund manager must be able to leverage the skills and resources and gain an informed understanding of what to expect from each asset class in terms of risk and reward. He can only develop this knowledge through access to a high level of competence in each of those areas.

Unconstrained multi-asset portfolios such as the M&G Cautious Multi Asset Fund offer investors potential for steady reliable returns with limited risk. With access to more asset classes than traditional cautious managed funds and more flexibility through active asset allocation, the M&G Cautious Multi Asset Fund is the next generation of cautious managed funds.

For financial advisers only. Not for onward distribution. No other persons should rely on the information contained in this advertisement. Citywire rating as at 31 August 2007. A Citywire rating is not a recommendation to buy, sell or hold any interest in an investment.

Recommended

Sore points

Generally speaking, I have always tried to steer clear of writing about payment protection insurance in this column. PPI is not a product that, traditionally, has generated much interest from IFAs, so, a bit like current accounts, there does not seem to be much point in harping on about the subject more than once or twice a year.

Infinity is back after securing new funding

Infinity Mortgages returned to the lending market last week after it temporarily withdrew from the sub-prime market at the beginning of August.The firm has retained Inv­estec as provider of its funding line. Infinity head of mar­keting Simon Biddle saysthe new range reflects the current market conditions and it has compressed its loan to value ratios […]

Don’t drop your Hs

The first of two articles spells out the recent changes to the IHT reporting regime for lifetime transfers

CML’s role is criticised

Mortgage brokers have questioned the role of the Council of Mortgage Lenders in the Northern Rock debacle.Speaking at a Money Marketing sub-prime round table, Robert Sterling managing director Kevin Duffy compared the situation with when Victoria went into administration and both TMB and GMAC-RFC quickly arrived with lifeboats for its clients.Duffy said: “It was clear […]

Thumbnail

Case study: administration — managing group life schemes

Our client leads the global market in high-tech electronics manufacturing and digital media. The trustees of the company’s final salary pension scheme insure death-in-service lump sum and dependants’ pension death benefits for active employees, as well as dependants’ pension benefits for deferred members (those who have left service).

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment