This article is part of Morningstar's Guide to Alternative Investing; providing everything you need to know about property, commodities, infrastructure and other diversifying assets.
Jupiter Merlin Balanced
Morningstar Analyst Silver Rated
John Chatfeild-Roberts and Algy Smith-Maxwell’s high-conviction approach to manager selection has served investors in the Jupiter Merlin Balanced Portfolio well, providing them with significant outperformance of its category peers over time. They run a concentrated list of underlying managers, typically backing them for many years; for example, Neil Woodford and Findlay Park have featured throughout. The fund has outperformed consistently in the tougher years like 2008, 2011, and 2015, doing a better job than peers at protecting investors’ capital, and has outperformed in the majority of other years.
Chatfeild-Roberts and Smith-Maxwell have managed the fund from its inception in October 2002, and worked together at Lazard along with Peter Lawery before joining Jupiter in 2001. Lawery stepped back from fund management at the end of 2014. However, before this the team had added two new and experienced fund selection professionals: Amanda Stillars and David Lewis.
The team’s investment process starts with a thorough assessment of the macro environment, which guides portfolio allocation and influences manager selection. As with manager selection the team’s approach to asset allocation is relatively high-conviction and long-term, albeit constrained by the guidelines of the IA Mixed Investment 40-85% Shares sector for Merlin Balanced.
It has been effective within this sector, where there is more leeway to apply an asset allocation view than at the range extremes where the approach is either all equities in Merlin Worldwide or mainly fixed-income in Merlin Conservative. There seems to be enough flexibility to outweigh the high charges, and the fund has outperformed by over two percentage points annualised from inception.
Henderson Cautious Managed
Morningstar Analyst Silver Rated
Henderson Cautious Managed is a strong choice for investors seeking a plain-vanilla U.K. equities and bonds mandate. Chris Burvill was the sole named manager of this fund from launch in February 2003 until July 2012 when he was joined by named comanagers John Pattullo and Jenna Barnard. Burvill has remained responsible for the overall structure and asset allocation, including the final positioning of the fixed-income portfolio. However, he makes significant use of Pattullo and Barnard for fixed-income ideas, and they can deal on this segment of the fund, typically putting on individual credit names directly.
Burvill is highly experienced in managing mixed assets U.K. equities and bonds mandates, and he established a credible track record at Investec where he ran the Cautious Managed fund from 1993 to 2002 before leaving to join Gartmore, where he originally launched this fund.
Pattullo, director of fixed-income, and Barnard are experienced fixed-income managers, having joined Henderson in 1997 and 2002, respectively. The equity portion is managed using a contrarian, value-based approach, including stocks across the market-cap range, albeit with a large-cap bias, and informed by top-down views on the economy. The fixed-income component is managed to complement the equity portfolio, and to offset volatility. The managers do not use derivatives or any complicated fixed-income strategies in the fund, which remains true to its traditional mandate.
Investec Cautious Managed
Morningstar Analyst Silver Rated
This is a good choice for UK investors who are looking for long-term capital preservation and willing to accept significant divergence from its IA Mixed Investment 20%-60% Shares peer group and the GBP moderate-allocation Morningstar Category. This potential for divergence was extended in 2014 when the fund’s benchmark was changed from a composite 50:50 equities and bonds index to CPI plus 4%, and the manager was granted additional UCITS powers to use derivatives beyond efficient portfolio management.
Adoption of the CPI plus benchmark does not in itself lead to any change in the approach, which has reflected a concern for long-term capital preservation throughout Alastair Mundy’s tenure from August 2002. However, application of the extended UCITS powers could widen peer group divergences.
Mundy has confirmed that he will not use the new derivatives flexibility to go overall net short equities; he is happy to stay within the fund’s existing IA Mixed Investment peer group, rather than transfer to Absolute Return, and observe its rules on net equity exposure. However, Mundy is making active use of the new derivatives flexibility on regions, and has been net short US equities, which he considers extremely overvalued, during 2015. He thinks that equities, and bonds, are overvalued but is still able to find segments of good value – for example, Japanese equities and mining stocks. He also considers large-cap UK equities fairly-priced and is able to find good selective value in them.
