The Architas MM Balanced fund had a difficult year in 2011 as it was hit by the Greece fallout and correlations between assets classes rose, but the three-year figures are more positive.
Caspar Rock, the chief investment officer of Architas, admits 2011 was a difficult year for the Architas MM Balanced fund. “Last year was the toughest year for a very long time,” he says. “Correlations between asset classes went up, specifically looking at different parts of global equity markets.”
The fund suffered particularly poor performance over one year, ranking 51 out of 70 funds in its sector after falling 0.45% over one year to February 24, 2011, according
Three-year figures are more encouraging, as it returned 51.27% to investors to February 24, but it is still ranked 24 out of 59 funds in its peer group. (FoFs continues below)
Rock says the fund was also hindered by the poor performance of emerging markets. “Interestingly, emerging markets performed worse than continental Europe. Even though they have very different fundamentals, the global market was driven by what was going on in Greece. We struggled a bit from that,” he adds.
“We made a decision to shift away from mid-cap equities [in 2011], which had done very well throughout 2009 and 2010. With hindsight, we would have done this much more aggressively.”
He uses Standard Life UK Unconstrained as an example of a fund which he pulled money from for this reason. “We took it down some way but could have done more. It was the right call, but we should have been more aggressive,” he adds.
”We were concerned from a credit risk point of view and couldn’t see much upside from gilts”
After global and British equities, fixed income is the next largest asset allocation in the fund, with over 15% of the portfolio invested in the asset class. Rock says 2011 was a “year of two halves” for fixed income.
“When we went into last year people were concerned about things like inflation. We thought it was better to have a shorter duration portfolio with more investment grade than sovereign debt. Then it turned around and we didn’t have enough long duration – especially gilts. We were concerned from a credit risk point of view and couldn’t see much upside from gilts.”
Rock points out what he says was a rapid turn around for global equities in December, when the market flipped from mid cap to small cap in terms of performance.
“If you look at performance of large cap versus small cap in relative terms, the chart completely flips round in December. It is the same time that the equity market went up, [and also] the same time investment grade started outperforming,” he adds.
Movements made in the Architas MM Balanced fund are tactical and often this means holdings are trimmed rather than completely sold. Many of the positions are long-term investments, such as the Standard Life Investment Company UK Equity, which has been a holding in the fund since its launch 2005. “It has been a truly fantastic performer,” he adds.
Rock says an asset class he thinks is attractive for 2012 is emerging market debt. However, he adds the number of new funds being launched and investors’ increased demand in the emerging market debt area worries him.