This £250m fund is an Investment Adviser 100 Club 2015 member, having made its first appearance in the club in 2013. Co-manager Nathan Sweeney explains the aim is to provide an “above average” level of income while maintaining capital growth by managing the fund to a risk profile.
Turning to the investment process, Mr Sweeney says: “At a very high level, it starts off with asset allocation, then moving into fund research and finishing off with portfolio construction. Then you have a lot of ongoing monitoring within that. At the asset allocation level, the managers use an independent risk-rated model, which is sent to them on a quarterly basis.
“Essentially, the model is looking to find the most efficient portfolio, so it’s looking at a number of different metrics, such as valuation,” he notes. “As an example, if you were to look at the recent asset allocation we got from the model, it has put a lot into US equity [and] it has reduced European equity; the logic behind that is US equity looks more attractive from a valuation standpoint relative to European equity, so it’s quite simple.”
Mr Sweeney suggests: “That gives us a framework – the spine of our asset allocation – and then the real work begins because we have an asset allocation meeting. That’s looking at a lot of different factors, such as macroeconomic factors.”
Architas’s 20-strong investment team discuss how macroeconomic conditions may sway asset allocation decisions and implement those across portfolios. With strategic allocation decided by the model, the team’s fund research process is ongoing. Mr Sweeney says: “It’s a robust process at this stage and there are quite a lot of steps. That’s to ensure that we come to the right outcome and the guiding point for anything is, what are you looking for? A lot of people fail to do that. What they tend to do is focus on which products are performing best at any given time. That tends to drive the investment decision, which is the wrong way of looking at it. You need to define where you are within a certain business cycle, or investment cycle or market cycle.”
An example of how macro factors impact the portfolio’s asset allocation followed the Bank of Japan’s (BoJ) recent meeting. Mr Sweeney explains: “After that meeting, we discussed our weighting in Japan. We were not pleased the Japanese central bank didn’t do anything because we’ve been waiting for QE, which is yet to materialise. If you look at Japanese equities, they’ve performed poorly this year because a lot of people were expecting the BoJ to do something and they didn’t, so we’ve lost confidence and have reduced our allocation to Japanese equity.”
The fund sits in the middle of the risk-reward scale at level four, according to the key investor information document. The clean A income share class has ongoing charges of 1.43 per cent.
| EXPERT VIEW - Martin Bamford, managing director, Informed Choice |
Nathan Sweeney manages a series of funds at Architas, with the benefit of support from [outgoing] chief investment officer Caspar Rock. The fund has performed strongly over the longer term, delivering first-quartile returns over the past five years. It offers an above average yield for a fund in the IA Mixed Investment 20-60% Shares sector, with reasonably competitive ongoing charges. In its top 10 holdings, the fund blends well-known and lesser-known collective investment funds, demonstrating the breadth of research carried out by Mr Sweeney and his team. Investors in this fund are paying for asset allocation and fund selection decisions, making the charges look reasonable. |
The fund has outperformed its benchmark, the IA Mixed Investment 20-60% Shares sector over one, three, five and 10 years. Figures from FE Analytics show the fund generated 61.6 per cent over 10 years to May 24, compared with a sector average return of 41.4 per cent. In the past 12 months to May 24, the fund return is in negative territory, down 0.2 per cent, but has been protected from some of the downside experienced by the sector, which is down 2.9 per cent.
Mr Sweeney observes: “We talk a lot about income-producing names and that has benefited the portfolio. For us, adding specific names, like Fidelity Moneybuilder Dividend, has done well and I believe that will be a winner towards the end of this year.”
Coming into 2016, the manager expected to find UK equities challenging due to political instability created by the EU referendum. He reduced the portfolio’s exposure to the CF Woodford Equity Income fund. He points out: “We came across the Fidelity Moneybuilder Dividend fund, which is run by Michael Clark. If you look at the sector positioning, it’s a lot more diverse than [Neil] Woodford’s fund. We still like Woodford. If you look at the track record for that fund it tends to do well when the market is falling so it gives you downside protection and that’s how the fund has built its profile. I’m cognisant of that but I’m also cognisant of the fact we need to diversify in case you get market uncertainty, which was our central thesis for UK equity coming into 2016.”
