Mixed fortunes in the Cautious camp

The AFI Cautious index outperformed its Aggressive and Balanced stablemates in season 12 but fell between comparative indices, with returns of popular funds ranging from 1.7% to 5.5%.

The five most popular new additions to the index had a tough time in relative terms in season 12, with third- and fourth-quartile performance in their sectors. All gained in value, however, and the best absolute return came from Fidelity MoneyBuilder In­come. The £2.4 billion fixed income portfolio, chosen by one panellist in May, produced a return of 5.5%, beating the IMA Sterling Corporate Bond sector by about 40 basis points.

Ben Willis, the head of research at White­church Securities and an AFI panellist, held M&G Property Portfolio in his Cautious selection between May and November. While the fund did not “shoot the lights out” in performance terms, Willis says it worked well as a diversifier for his equity and bond exposure. “It’s a big fund, and when they invest in property, that does have some weight,” Willis says.

“M&G have a very experienced team there – they get a lot of deals off-market, or maybe clinch deals in the market because of who they are and their track record of dealing with clients. It’s a solid property fund and one of our default choices.” Whitechurch Securities boosted its property exposure in September last year and increased its allocations in the AFI during the November 2009 rebalancing, he adds.

Two of Willis’s strongest performers in season 12 were funds listed in the IMA Sterling Strategic Bond peer group: Jupiter Strategic Bond and Invesco Perpetual Monthly Income Plus. The £300m Jupiter portfolio, managed by Ariel Bezalel, produced a third-quartile return of 4.2%, while the £3 billion Monthly Income Plus fund achieved a gain of 5.1% – enough to take it into the second quartile.

The Invesco portfolio invests in bonds and equities, with management responsibilities divided between Paul Causer, Paul Read and Neil Woodford.

“They were holding a lot of financial sector bonds and it suffered in 2008,” says Willis. “But it had a fantastic recovery in 2009 and it has continued to deliver. It produced some excellent returns [during season 12].”

At the other end of the scale, Willis was disappointed with Cazenove UK Absolute Target. The fund took in a reported £60m when it was launched in July 2008, including money from Whitechurch. However, it has struggled this year, falling by 5% between May and November. Willis says its explicit 8-10% annual target return has become an “albatross around the neck” of its manager, Tim Russell.

“The Cazenove fund did not deliver,” says Willis. “[Russell] positioned himself for a double-dip – in the stock picks and where he was shorting. And yet whenever the market was going through down ­periods and you were anticipating that the fund would start moving in the opposite direction, it didn’t seem to.

“So we lost a bit of faith in the fund manager. Losing 5% is unacceptable for that kind of fund.”

All the funds in Willis’s equity selection produced positive returns. The strong­est performer was BlackRock UK Income with a 4.9% gain, followed by Cazenove UK Equity Income (4.6%), Newton Global Higher Income and Schroder Income (1.4%). BlackRock UK Income was selected by three panellists for the AFI Cautious benchmark in the May rebalancing, giving it an index weighting of 1.4%.