Nine months have now passed since the announcement of effective Covid-19 vaccines and the election of a new US president. Yet the fund winners from this period haven’t necessarily acted in conventional fashion.
The events of last November saw equity investors set their sights on economic recovery and ushered in the ‘reflation trade’, premised on US stimulus plans and the gradual reopening of the global economy.
But the resultant rally in value stocks has petered out for the moment, as renewed concerns over growth are accompanied by a US tech stock resurgence and another move downwards for bond yields.
So for all the talk of a market rotation – both away from tech, and away from the US in favour of other regions - the Nasdaq index has again beaten all other major global indices over the past nine months.
There is another twist in the tale, however. For many multi-asset managers, being underweight the US over this period has proven the right call after all.
Below are some of the top performers since last November, and the asset allocation strategies driving their portfolios.
Chelsea Managed funds
Chelsea Financial Services’ multi-asset range has outperformed with a negligible US weighting: just 3.8 per cent of its Balanced Growth fund is held in US equity products.
The ratings agency is among those that use global equity funds to bump up its US exposure. But it has also sought out different routes, such as taking exposure to private markets via the Chrysalis Investments trust run by Jupiter and the Schiehallion trust.
Chelsea has also maintained a mix of value and growth funds throughout the period, helping it navigate the swings seen since last November.
The firm’s Balanced Growth and Monthly Income funds are top decile in their respective Mixed Investment sectors over the period and over three years.
Momentum Diversified duo
Momentum Global Investment Management bought multi-asset manager Seneca last October. That deal brought together two distinct teams of portfolio managers who nonetheless shared a then-contrarian preference: a dislike of US shares.
The former Seneca funds, now renamed Momentum Diversified Growth and Momentum Diversified Income, have made good use of that stance, rising to the top quartile of the Mixed Asset sectors over one and three years.
Both suffered steep drawdowns at the nadir of the coronavirus crisis last spring, but have since rallied strongly courtesy of their value tilts. The funds combine direct UK equity positions with collectives investing overseas and relatively elevated cash positions.
Axa Distribution funds
An old-fashioned distribution approach has paid off for Axa IM’s Matthew Huddart and Jamie Forbes-Wilson in recent months. The funds typically combine direct UK stock-picking with sovereign bonds – in the latter case, a focus on index-linked UK issuance was of benefit as inflation concerns mounted at the start of 2021.
In an ESG-conscious age, it’s little surprise that the range’s Ethical Distribution fund has proven the standout performer over the period. But it’s also a sign of the times that the underlying yields offered by such funds remain much lower than historic standards.
Schroder multi-manager range
Schroders’ multi manager team is another with a longstanding aversion to US equities. Their Diversity Balanced fund, for example, has no exposure at all, other than that held within a 14 per cent weighting to global equity strategies.
Instead, the managers have focused on UK value funds, as well as alternatives such as Majedie Tortoise.
Alternative funds as a whole make up the largest single asset class weighting in the portfolios. By contrast, the flagship Diversity fund takes a limited equity exposure relative to its peers. These moves have meant the recent renaissance for US tech, in particular, has begun to hurt relative performance again.
Premier Miton Diversified range
The Premier Miton group has a wide range of multi-asset offerings, but the Diversified funds run by Neil Birrell have proven most adept at capturing returns over the past year.
Unlike the other offerings mentioned above, the stragies do have a material exposure to US equities – running to almost a quarter of its Diversified Growth fund, for instance. The portfolios are directly invested, which means this weighting is typically in the form of tech shares like Microsoft and Nvidia.
But the asset manager’s separate fund-of-funds range has also performed strongly, and these strategies have done so without looking to the US. The Multi-Asset Global Growth fund holds 90 per cent in equities, but just 7.4 per cent of the portfolio is held in the US. Instead it looks to UK strategies like Evenlode Income, and a healthy weighting to some of the most popular Japanese equity funds.
The future
The value rally's recent stumble has seemingly affected some of these portfolios: the Momentum and Schroder funds are back in the fourth quartile on a three-month view, although the Chelsea and Premier Miton offerings have continued to outperform.
In any case, no adviser will be basing their fund selection decisions on a single quarter’s worth of performance. But some intermediaries will nonetheless be cheered by the sight of a renewed uptick in performance for lower-cost options.
Most funds in Vanguard’s LifeStrategy range, for example, have posted better numbers since the spring - likely helped by the government bond rally. As ever, advisers will be weighing the likelihood of delivering appropriate returns to clients versus the overall cost of the portfolios they choose.
