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How much exposure do you want to equities? It’s a question that’s sensible to consider at any time – but particularly so during times of heightened volatility.
The past couple of years have illustrated the challenges faced by global stock markets with the Covid-19 pandemic having rapidly spread around the world. More recently, investors have faced inflationary environments, global supply chain issues, and the fall-out from Russia’s shocking invasion of Ukraine.
Of course, there are no guaranteed routes to riches when it comes to investing. The sheer number of variables within countries, sectors and industries makes that impossible. As has been illustrated only too well, international markets will always be at the whim of geopolitical conflicts, central bank decisions – and the unknown!
However, you can influence your investments by choosing funds with greater flexibility. When times are challenging, it’s ideal for a manager to have as many potential solutions as possible.
A crucial part of this process is diversification. This is best described as the ability to embrace various asset classes, sectors, industries and companies.
Here we take a look at three investment funds whose managers enjoy a greater degree of flexibility when it comes to positioning their portfolios in different environments.
We have chosen one fund each from three sectors: IA Mixed Investment 20%-60% Shares; the IA Mixed Investment 40%-85% shares; and IA Flexible Investment.
This fund aims to deliver income and capital growth over the long term (at least five years) by investing in global equities, bonds and cash. It also uses the company’s ‘Sustainable Future process’ that identifies the key structural growth trends that will shape the global economy – and the companies likely to capitalise.
This approach process seeks to generate strong returns, while also identifying stocks exposed to powerful trends that can have a positive impact on society. This portfolio is in the IA Mixed Investment 40%-85% Shares sector and can hold 60-85% in equities, up to 40% in bonds, and a maximum of 10% in cash. It currently has 160 holdings. It is managed by Peter Michaelis and Simon Clements. They have a combined industry experience of more than 34 years.
All investments have to meet four criteria: thematic drivers, sustainable credentials, good fundamentals and attractive valuation. According to a thematic breakdown at the end of last year, the fund had 36% in greater safety and resilience, 33% in improved health, and 27% in better resource efficiency. These were also broken down further into areas such as enhancing digital security, ensuring a sustainable economy, building better cities, and making transport more efficient or safer.
Firstly, let’s explain the multi-manager approach. Instead of buying individual assets, such as shares in a company, these portfolios buy other investment funds. This enables them to diversify the portfolio considerably, which is an approach that many investors favour in uncertain times. It also has the effect of reducing any single company risk.
The Jupiter Merlin Growth Portfolio aims to provide a return, net of fees, that’s higher than the IA Flexible Investment sector over the long-term, defined as at least five years. While at least 70% of its assets will be invested in funds, up to 30% can be in cash or used to buy other assets, such as the shares of companies.
Run by the respected Jupiter Independent funds team, the philosophy of the portfolio is to invest for the future and back convictions with enough money to make a difference. According to the most recent fund factsheet, 39% of the fund is in global equities, 27.8% is in UK equities, and 22.6% is in US equities*. There is also more moderate exposure to Japanese equities of 8.3%, as well as just under 2% in WisdomTree Core Physical Gold, which is an exchange traded commodity, and some cash*.
This fund also takes a multi-manager approach. It aims to achieve income with capital growth by investing mainly in actively managed funds and exchange traded funds. Managed by Matthew Stanesby and James Davies, the portfolio can be found within the IA Mixed Investment 20%-60% Shares sector. Therefore, it sits more on the conservative side of the spectrum.
According to the most recent factsheet, just under half of the fund’s assets under management are in equities, with around 34% in fixed interest, 15% in alternatives, and less than 2% in cash*. UK equities has the largest share of the equity proportion with 20.42%, followed by 9.93% in US equities, and 5.19% in Europe ex UK equity*. The other equity sectors embraced are Asia ex-Japan equities, Japanese equities, emerging markets equities, and global equities.
Meanwhile, the 10 largest holdings in the fund are headed by Elite Rated JPM US Equity Income, with around 5% of the portfolio*. Illustrating its diverse nature, this list also includes Schroder Income and Matthews Asia ex-Japan Dividend*.
*Source: fund factsheet, 31 January 2022