It is not the most glamorous sounding investment but AXA Framlington Managed Balanced is probably the type of fund most investors should own. Like most funds in its sector it blends a range of equities, bonds and cash to form a ready-made portfolio.
The manager, Richard Peirson, has one of the longest track records – he has been running it since 1994 – and one of the best. The numbers speak for themselves: £10,000 invested in the fund at launch would be worth £51,720 today against £31,185 for the sector and £44,580 for the FTSE All Share with dividends reinvested.
At the heart of the fund is a simple approach – invest up to 80 per cent in equities and the remainder in bonds and cash. The latter component has the effect of dampening the volatility of the fund, and Mr Peirson favours government bonds over corporate bonds as they are less correlated to equity markets. If he wishes he can increase this more stable part of the portfolio if he believes equities look vulnerable, though he tends to be guided by valuations rather than any macro-economic news.
At present the fund has close to 80 per cent in equities and around 20 per cent in cash and bonds, around half of which is cash as he views many sovereign bonds as expensive. While he has favoured German Bunds in particular, he has recently been trimming back his positions because yields have fallen so much.
Mr Peirson looks after stock selection within the UK equities and bond components of the fund himself. For overseas equities, which represents around half the equity component, he decides the size of the allocation to each geographic area, but individual stock selection is taken care of by other AXA Framlington managers such as Stephen Kelly, who runs the American Growth Fund.
Mr Peirson will question them and discuss what they are doing but he won't interfere with their investment processes, leaving them to run their portfolios as they see fit.
So how has the fund outperformed so significantly over the past few years? A large part of it has been the UK equity component of the portfolio run by Mr Peirson. Many managers of this type of fund will tend to invest only in the FTSE 100, the largest companies on the UK market. Mr Peirson, however, looks for opportunities in the next tier, the FTSE 250, which has outperformed the FTSE 100 considerably over the past decade.
Here, he has been able to uncover some outstanding opportunities, and he continues to be excited about this part of the market despite weakness in the UK economy. For instance, he has added to housebuilders Barratt Developments and Persimmon over the past year. This is nothing to do with any view that mortgage lending is about to pick up, more that expensive land bought pre-2007 is falling out of their inventories and cheaper land bought subsequently is taking up a greater proportion. This is gradually improving margins. He has also invested in Imagination Technologies, a UK firm making microchips for Apple and Samsung mobile products. There are also some traditional blue-chips in the portfolio including BT, which he thinks will be a major beneficiary of broadband services.
While this is a fund whose manager has 40 years' experience, he is clearly not going to go on for another 40 years. However, there is an excellent team behind Mr Peirson and despite the charges of the fund being slightly higher than some of its competitors – turgid pension and insurance funds with low charges but lacklustre performance – it has shown them a clean pair of heels for a very long time. I believe it continues to be a fine choice of fund for those investing for the long term in their pension or ISA.
Mark Dampier is head of research at Hargreaves Lansdown, the asset manager, financial advisor and stockbroker. For more details about the funds included in this column, visit www.hl.co.uk/independent
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