M&G received a significant boost in the Cautious index during last month’s Adviser Fund Index rebalancing. The firm rose to first place in the list of most popular providers as panellists increased their weightings in M&G funds by more than one percentage point. The shift was driven mainly by greater support for Richard Woolnough’s Optimal Income portfolio, which topped the table of highest-weighted funds.
Seven panellists selected Optimal Income in November, up from four in May. The £250m portfolio – a bond fund that also uses derivatives and equities to produce a total return – has performed relatively well over the past year. According to Financial Express, the fund declined by just 7.48% in the 12 months ending November 25 compared with a fall of 14.22% for the Investment Management Association’s Sterling Strategic Bond sector.
One panellist increased M&G’s weighting further by adding Woolnough’s GBP 200m Strategic Corporate Bond port- folio to his selection. This addition contributed to a one percentage point increase in the overall Cautious fixed income allocation. Its weighting grew to 39% as Cazenove UK Corporate Bond, City Financial Strategic Gilt, Invesco Perpetual Global Bond and L&G Dynamic Bond also joined the benchmark.
The global equity weighting in the Cautious index remained stable at 47%, but there were geographical shifts. As in the Aggressive and Balanced indices, domestic shares fell out of favour. Panellists cut the weighting to British equities by five percentage points to 27% as both Standard Life Investments UK Equity High Income and BlackRock UK Dynamic were ejected, by one and two advisers respectively.
Despite the allocation change, panellists also added Artemis UK Special Situations, Cazenove UK Absolute Target and Dimensional UK Core Equity to the index. The Artemis fund, run by Derek Stuart, features in all three AFI indices. The £680m portfolio held a quarter of its assets in small-cap stocks at the end of October but its largest positions were in Royal Dutch Shell and BP.
Oil and gas producers accounted for 16.7% of the fund. Cazenove UK Absolute Target was the most popular addition to the index, with five selections.
In contrast to the patterns seen in the Aggressive and Balanced indices, exposure to continental European equities rose in the Cautious index, by one percentage point. Artemis European Growth and Jupiter European Special Situations were ejected but the allocation was boosted by the arrivals of Fidelity European, Newton European Higher Income and Cazenove European. The £370m Cazenove fund, selected by two panellists, is managed by Chris Rice, the firm’s head of European ex UK equities. The highest-weighted European fund in the index remains Resolution Argonaut European Income.
The North American equity allocation also rose, by two percentage points to 5%. Three panellists selected BlackRock US Dynamic, making it the second most popular addition and taking it above Martin Currie North American in the weightings table. The £160m BlackRock portfolio, run by Bob Doll, was 10% overweight technology stocks at the end of September compared with the Russell 1000 index. Other America-focused portfolios to achieve higher Cautious index weightings included HSBC American Growth and JP Morgan US.
Exposure to Asia Pacific equities grew by one percentage point to 4%, as Gartmore China Opportunities and Schroder Tokyo joined the benchmark. The addition of Schroder Tokyo marked the end of a one-year absence from the AFI – the fund was ejected in November 2007. The arrival of the funds, as well as higher weightings for existing Asia Pacific holdings, more than offset the departure of Fidelity Japan and Newton Asian Income. First State Asia Pacific Leaders, chosen by three extra advisers, rose to 12th spot in the weightings table, from 32nd in May.
The Asia Pacific weighting was also boosted by the addition of Aberdeen Emerging Markets, which two advisers selected. Away from bonds and equities, the cash allocation grew by two percentage points and property fell by one percentage point. Support for New Star International Property fell from five advisers to four, but the overall weighting of the fund rose slightly, allowing it to maintain eighth place.
Financial Express data shows CF Ruffer European was the best-performing Cautious index fund, in absolute terms, for the three years ending November 1. The fund generated a return of 58%.
The Adviser Fund Index series comprises an Aggressive, Balanced and Cautious index each tracking the performance of portfolio recommendations from a panel of 18 investment advisers. For each risk profile, all panellists specify a weighted portfolio of up to 10 funds from the authorised UK unit trust and Oeic universe that, when aggregated, define the constituents and weightings of the three AFIs (see www.fundstrategy.co.uk/adviser_fund_index.html).