24th May 2013
Charles Stanley Direct is currently suggesting five funds that may suit investors who want to diversify, lower their volatility or who want to build a defensive core in these difficult times for bonds and with equity markets clearly offering less value that they did a couple of years ago. The five were compiled by Rob Morgan is Pension and Investment Analyst at Charles Stanley Direct who writes below.
Many “absolute return” funds have had a bad press. Quite simply, they have not delivered what they set out to achieve – positive returns in most market conditions coupled with low volatility. Standard Life Global Absolute Return Strategies is an exception. The fund uses a range of strategies to generate returns encompassing equities, bonds, currencies, interest rates, real estate and more. For instance, one trade that has benefited the fund recently is backing the US dollar to appreciate against the Japanese Yen. Blending 20 or more strategies means no single position dominates performance, so provided the managers get the majority of their strategies right, the fund is likely to generate positive returns – though there are no guarantees.
This is a highly unusual bond fund. Its aim, rather than to produce a steady income is primarily to beat both returns on cash and inflation whilst sheltering capital. Seeking to achieve this, the manager, Stewart Cowley, has a wide variety of strategies at his disposal, including the full spectrum of the bond market, currencies and derivatives. Presently the fund is positioned for sustained inflation. Index-linked UK and US government bonds represent around half of the portfolio. There is also some exposure to corporate bonds. He is poised to short UK gilts and US treasuries when he believes the moment is right – something conventional bond funds are unable to do. However, Mr Cowley will have to judge carefully when to shift his portfolio. You can read more about his current views here.
Sebastian Lyon is perhaps better known for managing the Troy Trojan Fund, but his focus on capital preservation extends to this Investment Trust. Mr Lyon believes we are in an era of “reluctant speculation”. As investors scramble for income and returns that outstrip inflation, prices, and risks, are driven higher. As always the portfolio is invested conservatively in its “four pillars” – blue chip equities, index-linked bonds, gold and cash – with the aim of producing steady returns and dampening volatility.
Equities are not as cheap as they were but many companies are highly profitable and able to provide high and growing dividends. Equity income funds target these firms, providing investors with a rising income which, if not required, can be reinvested to produce compound growth. In our view equity income should form the core for most investors’ portfolios, whether they are looking for income or growth. Invesco Perpetual Strategic Income Fund managed by Mark Barnett is worth considering for exposure to the sector. He is currently positioned cautiously believing only a select number of companies have the ability to grow revenues, profits and dividends in a low growth world. You can read more about Mark Barnett’s current views here.
Martin Gray, manager of the CF Miton Strategic Portfolio believes the world’s economic ills have been pushed to one side, and at some point anaemic growth and stagnant corporate earnings will come back into focus. Mr Gray warns this is not a time for being brave. He only has around 30% presently invested in equities, even though the Flexible Investment sector, in which the fund sits, allows up to 100% equity investment. It means the fund’s performance has been relatively pedestrian in the last couple of years, but Mr Gray has tactically increased exposure to riskier assets successfully in the past, so whilst currently defensive it should also be seen as an opportunistic fund that may take on more risk in the future. You can learn more about the fund here.