Interactive Investor

The income fund we have just bought

Saltydog analyst has moved to take advantage of a multi-asset fund’s strong run of form.

7th June 2021 14:11

Douglas Chadwick from ii contributor

Saltydog analyst has moved to take advantage of a multi-asset fund’s strong run of form

This content is provided by Saltydog Investor. It is a third-party supplier and not part of interactive investor. It is provided for information only and does not constitute a personal recommendation.

To control the overall volatility of our demonstration portfolios, we limit the amount that we can invest in funds from the sectors that have previously experienced the largest price fluctuations. To help do this, we have combined the sectors to create our own Saltydog groups which are:

  • Safe Haven – very low risk, but also very low returns.
  • Slow Ahead – normally a low risk level and often with adequate returns.
  • Steady as She Goes – generally medium risk, with potentially higher returns.
  • Full Steam Ahead – higher risk, with potentially the best returns. There are quite a few sectors that fall into this risk category and so we split them into developed markets and emerging markets.

The Specialist sector contains a range of funds that do not naturally sit within the other sectors and so we look at that separately, but treat the funds as if they have the same risk profile as funds in the ‘Full Steam Ahead’ group.

Over the last six months, the best-performing sector has been UK Smaller Companies and both our portfolios have been holding funds from this sector since last November. We have gradually increased the amount invested in these funds and it would be tempting to keep on adding to them until they make up 100% of the portfolio. However, that would break our strict group allocation rules.

In our most cautious portfolio, the Tugboat, the maximum that we can hold in funds from the ‘Steady as She Goes’ and ‘Full Steam Ahead’ groups is 30%. We currently have 27% invested in the ‘Steady as She Goes’ group – 16% in funds from the UK Smaller Companies sector and 11% in a UK All Companies fund.

The majority of our holdings are in funds from the ‘Slow Ahead’ group. This group contains funds from the following sectors.

  • Sterling Corporate Bonds
  • Sterling High Yield Bonds
  • Sterling Strategic Bonds
  • Mixed Investment 0-35% Shares
  • Mixed Investment 20-60% Shares
  • Mixed Investment 40-85% Shares
  • UK Equity and Bond Income
  • Targeted Absolute Returns

Over the last couple of years, there are three funds from the Mixed Investment 40-85% Shares sector that regularly featured at the top of our weekly data tables and have performed particularly well for us. They are the Janus Henderson Global Responsible Managed, Liontrust Sustainable Future Managed and Royal London Sustainable World funds.

We started going into them in February 2019 and held on to them until March 2020, when they were the last funds that we sold as markets started to slide. They were then the first funds that we bought in April 2020, when it looked as though we were through the worst of the financial storm. By October, these three funds accounted for around 50% of the total amount invested in the Tugboat portfolio.

Since then, we have reduced our holdings as they have become less dominant in the group, and other funds have started to compete with them. We sold the Royal London Sustainable World fund last month, and although we still hold the other two funds, they now make up only 20% of the portfolio.

Last week, the Tugboat invested in a different fund from the Mixed Investment 40-85% Shares sector, the EdenTree Higher Income fund.

In last week’s analysis, it was the best-performing fund in the ‘Slow Ahead’ group over four and 12 weeks, and near the top over 26 weeks.

Funds in this sector can invest all over the world. The Janus Henderson Institutional Global Responsible Managed and Liontrust Sustainable Future Managed funds have significant exposure to international equities, which make up more than 50% of their investments, with a strong bias towards the US (37%). This gave these funds an advantage last year when the American markets recovered quicker than others.

The EdenTree Higher Income fund has a very different geographical breakdown with 54% invested in the UK and 15% in the rest of developed Europe. Only 5% is in America. This has proved a good mix for this fund in recent months.

Hopefully as we emerge from lockdown, and the economy starts to recover, the UK will continue to be a lucrative place to invest.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.