Launched in January 2013, the £15.9m CF Canlife Total Return feeder fund to the master fund, which launched in 2006, aims to achieve a positive return of cash plus 5 per cent a year over a full market cycle.
Managed by Jason Vaillancourt and the global asset allocation team at Canada Life Investments’ sister company Putnam Investments, the fund invests in a diversified portfolio of global equities, fixed income securities and alternative asset classes.
Mr Vaillancourt points out the investment process behind the fund is based on the belief that the traditional approach to building a diversified portfolio consisting of 60 per cent equities and 40 per cent bonds “is imperfect and can expose investors to unwanted levels of risk”.
“To address this,” he explains, “we use a risk-parity approach that focuses on allocating risk as well as allocating assets.”
The risk-reward indicator for the C-share class is five out of seven, with ongoing charges of 1.4 per cent, according to the key investor information document.
The fund is managed in a three-step process. The first step is to design a policy portfolio at the asset class level, starting with a core, neutral, strategic portfolio for average market conditions, as a baseline for policymaking.
While the actual weightings may vary according to the outlook, the fund’s key characteristics include a balance of risks across the four different sources – equity, interest rate, credit and inflation – with roughly 50 per cent of the core portfolio’s risk coming from equities. It also conservatively uses non-financial leverage, through the use of derivatives, to distribute risk across the four sources.
Mr Vaillancourt adds: “The fund will have wide asset class exposure, covering global equities, global fixed income, commodities, property-related assets, currencies and cash.”
The manager notes the team does not allocate an equal amount to each risk segment, mainly because maintaining the same level of risk would require significantly more leverage.
Meanwhile, the second step uses dynamic allocation to reposition the actual portfolio over time, with the final step focused on finding the best way to gain access to each asset class.
Although the process has remained consistent the economic outlook has evolved, with the manager noting the team adjusts the portfolio to reflect their view of the world.
Mr Vaillancourt explains: “The entire investment team synthesises all inputs to develop policy on risk allocation, portfolio positions and leverage.”
Since launch in January 2013 the fund has delivered a steady return of 9.16 per cent, according to Morningstar figures, while the IMA Specialist sector peer group, used for comparison purposes only, has produced a similar return of 9.17 per cent, according to FE Analytics data.
Mr Vaillancourt notes the team is constantly monitoring the portfolio to ensure it takes advantage of opportunities in global markets, with the fund’s exposure to credit risk through US high-yield bonds rising “slowly but steadily to become the largest overweight position” in 2014.
“Conversely, equity and commodity positioning has fallen slightly to a more neutral level, while interest rate risk is the largest underweight position,” he adds.
The manager attributes the fund’s performance to its exposure to US and non-US equities, US high yield, as well as US small caps.
In July, he notes emerging market equity “was one of the few bright spots”, as commodities detracted, as did US investment-grade fixed income, high-yield fixed income and Treasuries.
He adds: “The strategy’s underweight position in commodities was beneficial, as the asset class sold off considerably during the month. An underweight to US fixed income detracted as returns, although negative, held up better than those of risky assets.”
EXPERT VIEW
Martin Bamford, chartered financial planner and managing director, Informed Choice
Verdict
This feeder fund sits within the IMA Specialist sector, rather than Targeted Absolute Return, which makes the relative performance a little tricky to compare to other similar funds, as the Specialist sector contains a real hotchpotch of strategies. Ongoing charges of 1.4 per cent are very low relative to similar funds, particularly as investors can benefit from a highly flexible investment approach. For investors who are looking to target absolute returns and want their fund manager to have a lot of freedom to invest widely across different asset classes, this fund could represent a good solution.
