Mark Dampier: Why try to reinvent investing? Stick to the old-fashioned way
Friday 16 May 2014
Once every few years the investment industry tries to invent a new product. At present multi-asset investments are very much in vogue. It sounds exciting, except in the main it is simply the new buzz word for what we used to call a managed fund.
Multi-asset investments blend more than one asset class into a single fund. As well as shares fund managers might also hold bonds, property, cash and currencies. Some even use alternative investment techniques and derivatives with the aim of benefitting from falling asset prices or changes in other variables like interest rates.
In the main it is just a regurgitation of the old (but correct) maxim that you should not put all your eggs in one basket.
One of the problems with this "new" way of investing is it gives you every chance of losing as much as you might make. Many investors think asset allocation needs to be changed all the time, but I just don't believe this is true.
One fund I would highlight as evidence of this is AXA Framlington Managed Balanced. Richard Peirson, the fund's manager, has achieved great success over the past 20 years.
He has added value for investors slowly and incrementally, only ever making small changes to the fund's asset allocation. Mr Peirson's strategy, as far as asset allocation is concerned, is simply to take profits from areas that have done well and add to those that have lagged.
It is not exactly rocket science, but as can be seen from the performance chart it has certainly been effective. When compared with most insurance company managed fundsit has comfortably outperformed.
Between 75 per cent and 80 per cent of the portfolio tends to be invested in shares, with the remainder in cash and government bonds. Presently around 14.5 per cent of the fund is held in cash, with 9.5 per cent in government bonds.
The government bond exposure is skewed towards gilts – bonds issued by the UK government. Over the past year gilts have generally delivered lacklustre returns as an improving economic outlook has led many investors to favour higher risk assets such as equities. However, along with cash this part of the portfolio is designed to provide some balance to the equity holdings, helping to reduce volatility and offering some relative protection if share prices fall.
Mr Peirson then aims to add as much value as possible through his equity holdings while maintaining a portfolio that is diversified across different countries, sectors and companies of various sizes.
He is responsible for the UK portion of the fund which accounts for around 40 per cent. This part of the portfolio delivered strong returns in 2013 helped by exposure to medium-sized companies and businesses with a bias to the UK economy, finally growing at a stronger pace. House builders such as Barrett Developments and Persimmon benefited from an improving housing market, while BT and ITV had rising customer numbers and robust advertising revenue respectively. After such a strong performance Mr Peirson has taken some profits and increased exposure to UK-listed companies which derive a greater proportion of earnings internationally, including Rolls Royce and Royal Dutch Shell. Given sterling's strength this is probably a good time to start doing this.
The overseas portion of the portfolio gets input from AXA Framlington's experienced global team. Stephen Kelly picks the US stocks, Mark Hargreaves is the European stock picker, and Chisako Hardy provides expertise in Japan. Around 13 per cent is invested in the US with approximately 12 per cent in Europe, 4 per cent in Japan and 6 per cent in Asia and emerging markets.
Mr Peirson recently topped up his exposure to emerging markets slightly, following a couple of disappointing years when compared with developed counterparts.
This fund does not have the sexy "multi-asset" label. It's about good old-fashioned investing and common sense. Mr Peirson's fund has stood the test of time and you soon begin to appreciate that we don't need new products, especially when they are an inferior remake of those already in existence. If only the industry stopped trying to turn lead into gold.
Mark Dampier is head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more details about the funds included in this column, visit www.hl.co.uk
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