RIT CAPITAL PARTNERS PLC FE Trustnet highlights the 'balanced' portfolios that the experts recommend for the 12 months ahead.
RIT Capital, CF Woodford Equity Income and Lindsell Train Global Equity are some of the funds that the experts think could be attractive options for investors wanting balanced exposure during 2016.
After a rather turbulent 2015, investors could be forgiven for not wanting a too aggressive approach to markets as many expect the volatility that has marked the past 12 months to persist. That said, there are a number of positives out there, so a very cautious stance might not necessarily be warranted.
With this in mind, in this article we hear from a range of experts about the vehicles they are backing in 2016 for those seeking a balanced fund.
First up, Charles Stanley Direct pensions and investment analyst Rob Morgan (pictured) says the RIT Capital Partners makes a good balanced pick due to holding a broad spectrum of assets with the aim of capital preservation.
The £2.8bn investment trust is closely associated with the Rothschild family, with Lord Jacob Rothschild - who has a substantial personal holding - sitting as its chairman. Its manager Ron Tabbouche has been at the helm since 2012.
Morgan says the trust's strategy aims for a long‐term return over and above inflation but without "the bumpy ride" of equity markets.
"Around a core of managed equity funds and individual stocks, the management team add absolute return and bond strategies, as well as active currency management, downside protection through derivatives and investments in private companies."
"The trust therefore provides a one‐stop well‐rounded portfolio, which combined with an agile approach to the overall level of risk in the portfolio could provide strong but less volatile long‐term returns.
"I like the current look of the portfolio and while the managers have been cautious in recent months they have been adding to stocks they believe have been unfairly punished for their emerging market exposure."
The trust has returned 45.83 per cent over the past five years, beating its sector and benchmark but with higher volatility.
Performance of fund vs index over 5yrsSource: FE Analytics
It has done very well in 2015's choppy market with a return of more than 20 per cent.
RIT Capital Partners is 30 per cent geared and has ongoing charges of 1.22 per cent, excluding performance fee.
Ben Willis, head of research at Whitechurch, tips one of the most popular portfolios in the Investment Association universe and the largest members of the IA UK Equity Income sector.
The £8.1bn CF Woodford Equity Income fund, managed by FE Alpha Manager Neil Woodford, is just 18 months old but it has seen the best returns its 80‐strong sector since launch and has taken on a swell of assets this year.
According to FE Analytics, the fund has returned 21.92 per cent since launch, beating its sector and benchmark by a wide margin while delivering lower volatility.
Performance of fund vs index since launchSource: FE Analytics
There were some question marks over whether the highly regarded manager would repeat his success after leaving Invesco Perpetual to set up on his own, Willis says, but he that the manager is a safe pair of hands.
"Woodford's long‐term success means that you know what you get. His approach does not change and he has continued to take a contrarian, top‐down stance, often making large sector bets - no mining, oils and banks, for example."
"What sets this apart from the competition is Woodford's ability to unearth and invest into unquoted businesses. This has been a key driver of performance since launch and will remain so over the long term."
The fund has a clean ongoing charges figure (OCF) of 0.75 per cent and has a current yield of 4 per cent.
Next Simon Evan‐Cook, senior investment manager at Premier, tips this fixed income portfolio that is co‐managed by David Keetley and Stephen McCormick, who focus on an alternative part of the bond market.
Convertible bonds tend to be overlooked by many investors, says Evan Cook. This may be in part due to a lack of knowledge of what they are and what they do: they are issued as debt - like regular bonds - but can be 'converted' into equity at certain points in their life by the bondholder.
"Those who are bullish prefer straight equities, while those who are bearish are likely to opt for government bonds," Evan‐Cook said.
"But for those who are honest enough to admit they can't forecast what the next 12 months will bring, convertibles make a decent each‐way bet: if equities rally, they will capture some of that upside, but if they fall the bond floors of these securities offer an extra level of protection.
"The fact that they are not a popular asset class means they are less well‐researched and therefore form a less efficient market. This gives excellent active managers, such as the team at Polar, the opportunity to add extra returns through intelligent stock selection."
So far this year the fund, which sits in the IA Specialist sector, has beaten the average return of every other fixed income sector as well as the FTSE All Share.
Performance of fund, sectors and index in 2015Source: FE Analytics
Ben Conway, fund manager at Hawksmoor, is also opting for this fund believing next year will be a strong one for the convertible bond market.
"We are firm believers in investing in convertible bond funds. The asset class is a terrific diversifier and, in the words of the text books, an investment in convertible bonds pushes a portfolio closer towards the 'efficient frontier' between risk and return," Conway said.
"Convertible bonds offer downside protection via their bond floors and equity market upside via the embedded options. The Polar fund invests primarily in the 'balanced' space of the asset class - that is, bonds with the greatest degree of 'convexity' - i.e. where the balance between upside and downside in the price of the convertible bond relatively to the underlying equity is at its most advantageous."
"Further, the fund managers hedge other risks (duration, credit, currency) to improve the risk‐return profile of the fund. The lead manager has 28 years' experience investing in this fairly niche asset class and the fund has delivered excellent returns since its launch at the end of 2013."
The fund has a clean OCF of 1.14 per cent.
Meera Hearnden, senior investment manager at Parmenion, is avoiding bond funds altogether believing they may struggle in a rising rate environment.
RIT Capital Partners plc issued this content on 2015-12-22 and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on 2016-01-04 12:29:57 UTC
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