UK Equity and Bond sector can compete: Canada Life

The UK Equity & Bond Income sector can compete with the managed sectors despite its relative unpopularity, according to Canada Life's UK division.

As of 28 July, the UK Equity & Bond Income sector had higher three-year performance than the Cautious Managed sector, with returns of 6.9 against 6.6 per cent. It also had lower three-year volatility than the Balanced Managed sector, at 2.6 compared with 2.9.

Craig Rippe, manager of the £271.6m Canada Life Income fund, said performance characteristics were steadier than in Balanced Managed, despite the fact the sector has posted higher three-year gains.

"It offers a more stable equity growth return, and the volatility is lower," he said. "A balanced fund on average will also have more bonds in it."

However, the average fund size in the sector was just £166m as of 28 July, while the average size of a fund in Cautious Managed was £171.6m. In Balanced Managed, it was £168.5m.

The number of Balanced Managed funds with a track record also increased from 104 over three years to 127 over one year, while the number of Cautious Managed funds went up from 71 to 103. The UK Equity & Bond Income rose to just 28 funds from a lower three-year base of 24.

Although Mr Rippe's own fund has lost 14 per cent over one year, placing it 14th in the sector, it has gained 11.4 per cent over three years, which raised it to eighth.

More recently, Mr Rippe responded early to signs of a downturn last year and has bought into defensive sectors. "I turned quite cautious about 18 months ago," he said.

He reduced his positions in convertibles and banks and increased his weightings in utilities and, more recently, in healthcare. "Utilities have held up pretty well. They still tend to yield more than 4 per cent."

However, he said he could not foresee himself having a market weight in banking in the foreseeable future.

"I have no faith in the outlook from here," he said. "Until I see a change in the momentum of the bad news, I'll stay underweight."

He has also been playing the growth in the energy sector adding to the major oil companies over the last 16 months.

As a UK Equity & Bond Income fund, Mr Rippe can invest between 20 and 80 per cent in equities, while Cautious Managed funds are restricted to an equity holding of no more than 60 per cent. Balanced Managed funds can hold 85 per cent in stocks, with a minimum of 10 per cent overseas.