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David Kempton: the best cautious funds

Our columnist and travelling investor David Kempton offers his advice on reliable, cautiously managed funds.

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by David Kempton on Mar 14, 2012 at 05:01

Having shared his pick of exotic investments, David Kempton turns his attention to the core of solid holdings that every portfolio needs.

A counterweight to riskier holdings

If you’re going to hold the racier, more esoteric investments which I enjoy (I’ve written previously of my holdings in resources, oil, potash and palm oil), it's important to maintain a sense of order and have a core holding in some good, cautiously managed funds.

The international blue chips may well be part of that core, but my biggest holdings stay in funds, where I know the manager watches the portfolio every hour of every day.

You pay a price for this, but it’s surely worthwhile to subcontract the worry and to sleep easy, secure in the knowledge of being in safe hands.

Multi-asset strength

Performance is simple to monitor now, and I have always believed in following the manager who shows form over time, a policy that has worked very well for me through the decades, even if he or she moves to a new and unknown house.

I particularly like the multi-asset approach with active management, taking advantage of volatile economic and market conditions.

I'm also particularly keen that the management should be heavily invested in the fund themselves, a philosophy that has also stood the test of time.

My fund picks

I hold all the following funds, all of which fit those criteria:

Phoenix Hawksmoor Vanbrugh is my biggest holding, which has fully justified my faith in the management by being second out of 125 funds in its sector with a 62% return over three years, with significantly less volatility than the only fund in the sector to beat that performance.

I've long held RIT Investment Trust , the Rothschild family quoted vehicle, with Lord Rothschild holding 8%. The fund has achieved respectable three-year growth of 41%.

I hold the Ruffer Investment Company , which has a similar cautious management style to Vanbrugh. The principal, Jonathan Ruffer, has a substantial stake, and the fund has achieved three-year growth of 37%.

In the North Atlantic Smaller Companies investment trust the manager has a stake worth £34 million, which must concentrate the mind. This fund has achieved three-year growth of 91%. This could never be considered a cautious managed fund, but it's an interesting investment now with a 29% discount, and I expect to buy more.

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7 comments so far. Why not have your say?

It would be nice to think they are watching every hour of the day. The reality is that they choose shares, dont stop loss them but sit on them long term. When the market tanks, the fund tanks.If they really monitored things they would be in and out as the market falls and climbs, and making us big money.

I am inclined to think only the fund firms make any money in this game?

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Spot on Banjofred.

"Cautious Managed" is a ridiculous term. I have seen some who take it to a whole new level like...."Cautiously optimistically adventurous balanced fund". It's all marketing bullis*** either way. Like the first comment says, they are really just long-only mugs who run a spreadsheet of funds / shares and have no idea how to manage risk or cut positions when they're losing.

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I believe the FSA is looking to remove words such as 'cautious' and 'balanced' in funds names by the end of 2012/start of 2013 time. They are misleading to the average investor and yes i've seen some actively managed cautious funds tank...ironic really.

Huge fan of the fixed interest team @ M&G. Richard Woolnough is in my opinion brilliant!

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A fund may call itself "balanced" with a 50-60% weighting in equities but if you look at how this equates to risk, it is anything but balanced as 80-90% of your risk will be in equities....not very balanced I think you'll agree.

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These are IT's if I have read right [other than bond funds], a very different beast to OIEC funds. True that many have seriously underperformed but that is certainly not the case for Ruffer. One thing this last few years has provided is an opportunity to watch how funds and shares perform over the whole range of market moves - I hold Ruffer and several of their OIEC's and M&G and have been very impressed over the time span since before the crash unlike many of my 'blue chip' shares

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RIT has no idea how to manage risk or cut positions...?...... I doubt it Anonymous 1

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Anonymous 1 needed this 'off the record'

Mar 18, 2012 at 22:35

Hmm Sooz Blooz, looks to me like about a 6-7% return (tops) over 5 years with a drawdown of around 30% in 2008. They're better than most of the other rubbish that's punted out in the UK but still not a great risk / return trade off if you ask me

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Phoenix Hawksmoor Vanbrugh A Inc

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M&G Optimal Income A Inc

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M&G UK Inflation Linked Corporate Bond A Acc

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Look up the investment trusts

RIT Capital Partners (Ordinary Share)

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Ruffer Investment Company (Ordinary Share)

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North Atlantic Smaller Cos (Ordinary Share)

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Caledonia Investments (Ordinary Share)

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