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According to Phil Collins, the “manager risk” on the £155m Newton Phoenix Multi-Asset fund is low. This is because his hands are tied by a rigorous system of minimum and maximum weightings. These constrain the value he can add on the one hand, and the value he can lose on the other. “If I wake up one morning and think gold is the best thing ever, the maximum exposure I can give it is 2.5-3 per cent,” he says.

According to the manager, this gives the return profile a predictability which some investors find appealing. “If you know the state of the underlying markets, then you know how Phoenix will perform.”

He goes on to explain: “We had double-digit returns in 2003-05, which was great. But since there were double-digit returns in equities, junk bonds, property, private equity and commodities, any fund invested in those things should have produced double-digit returns. In 2007, when we produced around 5 per cent, the only underlying asset which had double-digit returns was commodities, and that was offset by an appalling year from property.”

This makes Phoenix unusual in the ballooning world of multi-asset vehicles. Whereas its peers often shift money between the various asset classes in search of higher returns, Newton’s fund offers a “reasonably stable” basket of diversified returns.

This premise rose from the ashes of the last bear market. It was set up in April 2003 in what Mr Collins calls “pretty hairy market conditions”. He recalls the mood of the time: “People were saying: we understand that equities will give us a long term attractive return, but we’re getting a bit bored of that story. We don’t like the volatility, can you do anything else?”

Diversification, rather than more active strategies like shorting or asset allocation, was Newton’s answer. The product development team analysed long-term return versus volatility statistics for various different asset classes, as well as correlation data. They eventually came up with a mix compatible with an absolute return mandate of Libor plus 2 per cent and low volatility: one third equities, one third bonds and cash, and one third alternatives.

Mr Collins is allowed to overweight or underweight each third of the portfolio by 5 percentage points. Again in the interests of diversification, he is not allowed to invest more than 1 per cent in any single equity or corporate bond.

Following these rules, Mr Collins easily beat his mandate in 2003 to 2006. But the past 12 months have proved more challenging. In the year to 11 August, Phoenix Multi-Asset fell 3.4 per cent. This compared favourably with its retail peer group, which lost on average 5.1 per cent. But it was a far cry from Libor plus 2.

This raises doubts that an absolute return mandate is appropriate for a fund based on the principle of diversification. Have the years since its launch in 2003 seen higher levels of correlation between the various asset classes? Does this make the original premise problematic?

“Alternatives are becoming a little more correlated with equity markets,” Mr Collins admits. “More recently we’ve seen that correlation break down, particularly for commodities and property – property and equity have fallen at different times. But there is a risk that correlation will increase, and that is a risk for all funds, including Phoenix.”

Many investors have sought to control that risk by buying market neutral funds, which can offer positive returns in a declining market. Newton offers one such vehicle: the £382m Newton Absolute Intrepid fund, which delivered 6.4 per cent over the year to 11 August. But Mr Collins calls for caution: “You have to understand all the risks involved.” He is also wary of paying performance fees – due to be introduced on Absolute Intrepid – in a low-return environment.

Phoenix is currently overweight bonds and cash, underweight equity and neutral alternatives. According to Mr Collins, his equity position is not so much a call on market direction as risk-control measure. “We think equities are going to be a source of a lot of volatility for not much return over the next few months,” he explains.

The 28 per cent of the portfolio which is in stocks is directly invested, according to Newton’s thematic and democratic approach. The research team will generate a set of themes. The analysts will then identify the stocks likely to benefit from them. After much debate between the researchers, analysts and managers, a list of stocks is defined from which the managers build their portfolios.

Mr Collins tends to select the more defensive equities on the list. “I have an absolute return mandate so I will be more cautious than, say, Alex Stanic, who runs the Global Opportunities fund. He has no regard for volatility - he’s out there to generate returns,” he says.

The overweight in fixed income masks considerable divergences of position between the various types of bond. Mr Collins is very positive on the credit spreads to be found in the corporate bond market, but he owns no gilts, instead opting for index-linked securities as a hedge against inflation. He is very negative on junk bonds, instead filling his position with structured products which offer bond-like returns. Bonds, like equities, are chosen on the basis of discussions with the Newton fixed income team.

As for alternatives, which Mr Collins holds indirectly, current overweights in hedge funds and commodities are neutralised by underweights in private equity and property. Hedge funds are now account for over 20 per cent of the total portfolio. “You would expect us to be negative on hedge funds because of their fees and their gearing at a time when the world is deleveraging,” he says, echoing the argument against private equity. “But volatility has increased, so you’d expect arbitrage strategies to become more profitable. In truth, they haven’t been great performers: year-to-date they’re still negative.”