The £36.7m CF Canlife Portfolio IV fund is a diversified fund of funds that aims to achieve long-term capital growth and income while seeking to remain within a defined risk band.
The vehicle was launched in November 2013 and is part of a suite of CF Canlife Portfolio funds, with this product aligned to Distribution Technology’s (DT) strategic allocation for Risk Profile 4.
David Marchant manages the fund, which invests about half of its assets in fixed interest securities and cash, with the balance in UK and international equities and UK commercial property. He notes the Portfolio suite has been designed to provide a ready-made investment solution that aligns with the risk appetites of advisers’ clients. The manager explains: “Since the implementation of RDR, there has been strong demand from intermediaries for products that enable them to outsource asset-allocation decisions while ensuring they adhere to clients’ risk profiles. [The funds] are simple, transparent and cost-effective solutions.”
The Portfolio IV fund follows DT’s asset-allocation models. The DT team analyses up to 14 asset classes, with a focus on returns, volatility and correlations to provide asset allocations for specific risk profiles. Canada Life Investments then builds each portfolio using primarily in-house, actively managed funds from within the firm to meet these asset allocations.
Mr Marchant notes: “As risk-target managed funds, they adhere to a specific volatility range and do not have any tactical tilt applied on top. We believe this results in a better outcome for investors because the service makes it easier for advisers to identify multi-asset funds that are committed to risk targeting and adhere to DT’s asset-allocation models.”
As a result of this approach and the use of internal funds from Canada Life, any macroeconomic factors are dealt with by the underlying fund managers. At the end of April there were 11 holdings in CF Canlife Portfolio IV.
“Each of the managers of the underlying funds has the freedom to tilt its portfolio to suit market and economic conditions,” he says. “In a region such as Asia-Pacific, macroeconomic factors can have a major impact on the CF Canlife Asia Pacific Fund as the manager seeks to achieve growth in an environment of shifting demographics, cheaper oil prices and low inflation rates.”
Since launch the fund has outperformed the Investment Association Mixed Investment 20-60% Shares sector with a return of 11.78 per cent against the sector average of 10.51 per cent, data from FE Analytics shows. It also outperformed the sector across six and 12 months to June 2 2015, with a 12-month return of 10.05 per cent compared with the sector average of 7.22 per cent. Mr Marchant points out that as a fund of funds with a risk-targeted approach, it “has so far achieved its objective”.
He adds that for the most part, the fund’s asset allocation remains largely static so the active management and stock-picking decisions are left to the managers of the underlying in-house funds. The manager explains: “Earlier this year we updated the asset allocations for all of our risk-profiled portfolio funds to align them with the latest models from DT. The changes took effect on January 15, with the aim of improving diversification, reducing the overall weight of each asset class where possible and maximising each fund’s risk-reward profile. The biggest change was the inclusion of global high-yield bonds, using the Putnam Global High Yield Bond fund.”
Specifically, in the CF Canlife Portfolio IV fund the team added a 6 per cent weighting to global high-yield bonds along with a 5 per cent weighting to UK index-linked gilts. In addition, the portfolio saw a 3 per cent increase to its weightings in UK gilts and UK equities, while the team trimmed holdings in UK corporate bonds, North American equities and Europe ex UK equities. The fund also exited its position in international bonds.
Mr Marchant says the biggest contributors to growth in the Portfolio IV fund have been the CF Canlife UK Equity Fund and the CF Canlife Japan Fund, with the latter benefiting from a combination of Japan’s monetary easing, the low price of oil and an improving domestic economy.
EXPERT VIEW
Juliet Schooling Latter, director of research, Chelsea Financial Services
This is a fettered fund of funds, which is one of a range of five with different risk profiles. It underperformed the Mixed Investments 20-60% shares sector average in the first year, but started to come into its own towards the end of last year. It’s still very small and is therefore very diversified across 11 funds, which are a mix of Canlife funds and passives. The product currently has 46 per cent in fixed income, 27 per cent of which is in the Canlife Corporate bond fund. Half of the bonds in this sub-fund have a maturity date of five to 15 years, with a third at more than 15 years. This concerns me as long-duration bonds could be hit quite hard once interest rates start to rise.
