Increased volatility across several asset classes prompted the joint managers of Marlborough ETF Absolute Return to move away from equities and towards fixed income and commodities.
While the fund aims to invest the bulk of its assets in ETFs, the allocation includes an 8% weighting in Smith & Williamson’s offshore-domiciled Short-Dated Corporate Bond Oeic.
“Where the ETFs don’t exist, we will hold a managed fund,” says Ash. “This includes the high yield end of the bond market, physical property and short-dated bonds.”
The Smith & Williamson fund, which was launched last year, invests the majority of its assets in sterling, dollar and euro-denominated securities with less than six years to maturity. On August 31, the portfolio’s weighted average maturity was 3.8 years.
Commodities account for about 16% of ETF Absolute Return. Hard commodities exposure includes an ETF Securities physically-backed precious metals fund, which joined the portfolio in May, and Ash boosted the soft commodities allocation by adding a grains ETF in September. Equities, meanwhile, form just 13% of the portfolio, with two-thirds of the allocation invested in the emerging markets.
The range of dedicated funds of ETFs available to British retail investors has grown this year, with the launch of T Bailey’s Growth Fund Lite portfolio and the risk-rated Barclays Wealth Global Markets range. However, Ash says it is too soon to say whether such products will prove a significant draw for investors, and the funds will have to prove that they can compete with traditional multi-manager portfolios on performance, as well as cost.
In the meantime, Ash concentrates on his core investor base. “Our clients tend to be more sophisticated investors – discretionary managers and IFAs – who are prepared to look at things in a different way,” he says. “We don’t start off with a pre-defined asset allocation. We start with a blank sheet of paper and focus on risk and return.”