Launched in May 2010, this £113m portfolio sits in the middle of Cornelian Asset Managers’ range of multi-asset funds, although investment director David Appleton notes the objective is the same across all the products.
He explains: “We have the same, simple and straightforward investment objective, which is to preserve and grow our clients’ real wealth over time. [This] underpins everything we do and it is explicit in the targets we set for the funds, which are based on RPI [retail prices index]. Our objective in the Managed Growth fund is to generate returns in excess of RPI plus 2 per cent per year after fees in the medium term.”
The team of five investment professionals is led by Hector Kilpatrick and adopts an unconstrained approach to the fund range, with each portfolio managed with an upper risk limit set by investment software provider Distribution Technology (DT). The Managed Growth fund could be considered medium risk at a DT level five.
Mr Appleton notes: “That gives us a risk budget, but crucially we’re not under any obligation to spend it. We have no minimum level of risk or any constraints so we’re free to invest in any asset class, but equally we don’t have to invest in anything we don’t like. We don’t pay attention to strategic asset allocations or anything like that. It is a completely unconstrained approach in terms of what we hold in the fund.”
Therefore, the portfolio can hold not just any asset class, but also any type of structure — from investing directly in UK equities and UK government bonds, to third-party funds and listed structures such as closed-ended funds. “We have a broad palate we can paint from, but without some of the artificial constraints some might have if they have risk bands or strategic asset-allocation constraints,” the director says.
He notes there is a strong commonality of investments across the fund range, with the main difference being the proportion of assets in each class according to the risk and expected returns. But he adds the portfolios are run as a family, with the lower-risk vehicles delivering less volatility than the higher-risk ones, while the riskier end of the spectrum has delivered higher returns than the more cautious products.
The fund sits at a level four out of seven on the risk-reward scale, while the ongoing charges for its D-platform share class are 1.2 per cent, its key investor information document shows.
For the five years to October 22 2015, the Managed Growth fund has delivered a respectable 36.3 per cent against the UK RPI plus 2 per cent target gain of 26.7 per cent, data from FE Analytics shows. The vehicle has also outstripped its benchmark across one and three years.
The team has been quite active in the management of the funds in the past year, mainly selling positions and raising cash levels. Mr Appleton says: “We became very nervous of equity markets in the past 12 months and we’ve aggressively de-risked all our portfolios. We’ve been reducing equities very significantly and we’re fortunate that the portfolios have held up well under the recent volatility.”
He notes the reduction in equities and other linked assets — such as private equity — is a significant change in the funds. This was triggered by concerns the outlook had become “a lot more challenging and uncertain for the global economy and valuations had become extended and investors too optimistic”. The director says: “That has benefited performance, and we’ve also been raising cash levels and increasing allocations to absolute return funds. We’re trying to find assets that will protect capital in a volatile market, and even benefit from volatility in the case of absolute return strategies.”
Looking ahead, Mr Appleton says the team remains cautious as there are a number of headwinds to growth, particularly how the situation in China will affect the rest of Asia and global equities. “Pull all that together and we think investors should expect moderate returns in the next six to 12 months, so we’re cautiously positioned as a result,” he adds.
EXPERT VIEW
Darius McDermott, managing director, Chelsea Financial Services
This fund is in the unclassified sector, which I always think is a bit of a ‘cop-out’. It has no specific exposure limits — which is good — and it invests in a wide range of assets, including infrastructure trusts and real estate investment trusts. The ongoing charges are 1.2 per cent, as it invests in third-party, actively managed funds. But the performance has been better than the L&G fund in spite of this, proving that cheap isn’t the be-all and end-all. Again, volatility is lower than its target range.
