Research: Cautious funds disappoint in 2015

This year’s eventful market activity has proven difficult for many cautious managers as just a third of cautious funds managed to avoid losses, new research finds.

According to a study conducted by FE Research, only 19 funds with a cautious investment style managed to return in excess of 1 per cent from January to September 2015.

At the same time, only 46 funds out of 150 cautious funds analysed by FE have managed to avoid losses. 

Among these funds, the one that returned the most is the Kames Ethical Cautious Managed fund, managed by Audrey Ryan and Iain Buckle and which has returned 3.96 per cent year to date, FE data shows.

In second place is the Sharefunds Cautious fund which returned 3.72 per cent over the same period, followed by the JP Morgan Cautious Managed fund returning 2.83 per cent.

Hargreaves Lansdown senior analyst Laith Khalaf says a reason for the poor performance of many cautious funds is that they are sensitive to the market’s turmoil by nature. 

He says: “Cautious funds are not absolute return funds, they are mainly equity and bond funds so when markets take a tumble, these funds are going to get hit, but to a lesser extent than a full blown equity fund.”

Throughout the year, tensions over the UK election, the Greek crisis as well as the oil price slump and China’s equity market falls have all been a tough call for global investors.

Additionally, the imminent US and UK interest rate hike will continue to weigh on investors’ decisions as markets will remain volatile, FE suggests.

“This year was always going to be tougher for investors,” City Financial investment director Peter Toogood adds.

He continues: “Cautious portfolios are invested in risk assets which can fall in value as well as rise. While not a comfort to investors this more difficult year comes after some outsized returns for the previous five years.”

Toogood says City Financial’s “mantra” all year has been to favour diversified risk and absolute return funds instead.

At the bottom end of those that delivered a return, but only marginally, were the Fidelity Multi Asset Income, Threadneedle Navigator Cautious Managed and the Margetts Fund Management Future Money Income funds, which returned 0.07 per cent, 0.03  per cent and 0.02  per cent respectively.

The Santander Max 50% Shares Portfolio and the Quilter Cheviot Libero Cautious funds returned 0 per cent for the same period.