Where are the top-rated asset allocators putting investors’ cash? Examining the portfolios of the top-rated fund of funds we can see a bias towards UK-listed income stocks, American stock pickers and even a small allocation towards gold.
Using the Morningstar Portfolio tool we created a list of some of the top fund of funds; F&C Navigator Progressive, Fidelity Multi Asset Income Fund, Jupiter Merlin Balanced Portfolio, Jupiter Merlin Income Portfolio, Old Mutual Managed and Schroder Multi-Manager Diversity.
We then X-Rayed these funds to see what was under the hood – and whether there was any overlap between the portfolios. Each of the following three funds is held by at least two of the fund of funds.
Evenlode Income
This five-star fund has outperformed many peers in the highly competitive UK equity income space. It has comfortably beaten the category average since inception and has outperformed the FTSE All Share 2.5% year to date, and 8.3% in 2016.
Fund manager Hugh Yarrow prefers to invest in companies with strong balance sheets – with cash to spare – and attractive yields. Leveraged companies are a big no-no.
“We always focus on strong balance sheets and high free cash flow generation, businesses that can self-fund their own organic investment,” he told Morningstar in February. “But I think we're particularly conscious of that in the current market. Debt is very cheap, borrowing has crept up at the market level, and I think it's partly a function of the low-growth economic environment.
“Businesses are tempted to use debt to buy back shares or make acquisitions to offset low growth. But clearly, that does come with some risk.”
Fundsmith Equity
This Gold Rated fund has recently been upgraded by Morningstar fund analysts. Analyst Pete Brunt describes it as one of the strongest options for investors seeking exposure to high quality global equities.
“Manager Terry Smith's investment philosophy is to buy and hold, ideally forever, high-quality businesses that will continually compound in value,” says Brunt. “High-quality companies are defined as having little need for leverage, an above-average cash return on operating capital employed, and an ability to sustainably grow at this rate of return. Investors should be aware that this is a very high-conviction and long-term approach.”
Findlay Park American
This five-star fund is a rarity – an actively managed fund which can compete with the most transparent investible universe in the world, the US stock market. While it does well in rising markets, it come into its own in markets where the benchmark index Russell 3000 slides. For example, in 2013 the benchmark fell 3.3% but Findlay managers James Findlay and Anthony Kingsley made a whopping 27.8%. Year to date the benchmark is up 2.4% and the fund has returned 6.4%. With much being made of inflated valuations in the US stock market, this fund may be one to watch for the medium term.
