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Hold or fold? F&C Multi Manager Distribution

What Citywire says:

Dean Cheeseman has been turning around performance of this £274 million fund since taking over from Richard Philbin in May last year.

Over three years and five years the fund sits near the bottom of the IMA Cautious Managed sector, with respective returns of 3.9% and
-19.6% in August placing it 46/50 and 82/84.

Over one year, relative performance improves slightly with a loss of 8.8%, placing it 117 of 137 in the sector. But the three-month and one-month returns of 10.2% and 5.6% produce a bigger move up the sector, to 35/148 and 20/151.

Cheeseman has introduced more flexibility to the asset allocation rules. The previous neutral benchmark of 50% fixed interest, 30% equities and 20% property had hurt performance. He reduced the property allocation to just under 10%. A rule change also means the allocation for property can now be placed in alternative assets.

This has allowed him to take up positions in Gartmore European Absolute Return and in Barclays’ multi-asset absolute return retail fund Radar (research analysis driven absolute return strategy), which has boosted performance.

Cheeseman has also reduced the fund’s mid-cap bias. He removed AXA Framlington’s George Luckraft from the portfolio in early 2008, although he is now moving back in.

Performance suffered from exposure to corporate bond funds and too much subordinated debt. He sold out of Aegon’s Strategic Bond fund in March.

What the advisers say:

Rick Eling

Investment Solutions Manager, Buckles

If ‘distribution’ implies that the fund will pay an attractive and growing yield, then Dean Cheeseman has achieved the aim. Annual pence distributions have been 2.25p, 2.72p, 2.94p and 3.00p in 2005 to 2008, from a relatively low unit price.

The asset mix of the fund is consistently around 40% equity, 40% fixed interest, with the balance in property or cash. Funds that can be relied upon to stick to their underlying strategy are always attractive. 

This is one of those funds that helps to reveal the weaknesses in using peer groups as a measure of quality. 

Cheeseman’s interquartile volatility is high, oscillating between first and fourth in the IMA Cautious Sector on an annual basis.

The 2009 year to date places the fund in the first quartile, but the fundamental job the manager is doing has not changed since late 2008, when the fund was ranked very low on the same basis. 

As usual, the best thing to do is put the IMA sector to one side and ask: ‘Is this long-term asset mix right for my client?’

There are plenty of funds with similar assets but this one is well priced at only 1.78% TER. It is suitable for a client looking to balance income and capital growth from a well-managed portfolio of underlying funds.

verdict HOLD

Nick McBreen

IFA, Worldwide Financial Planning

Funds operating in the cautious managed space have a difficult job when the markets are in good shape, let alone what we have experienced recently.

This F&C fund has done nothing remarkable over the last five years, with 15.1% growth to 30/09/2009 compared with the sector return of 14.2%.

The problem with this and other comparable funds is the breadth of the job they are trying to do – deliver an attractive target yield (now running at 4.3%) at the same time as aiming to grow the capital value.

The fund manager has to rely on the skill of the managers he has opted to hold within the fund. Inclusion of the likes of Causer and Read at Invesco and Alex Breese at Neptune looks a smart call but in the final analysis the fund still is not outperforming.

A closer look of the asset mix reveals a hefty 38.4% in fixed interest, which is not surprising when the fund needs to generate income. However, the remainder is split primarily between UK equities, property and European equities.

The relatively low exposure of 5.80% to international equities may be the future weakness if the much-vaunted global recovery proves to have legs.

verdict FOLD

Twist

For a multi-manager fund in the Cautious Managed sector, Citywire A-rated John Chatfeild-Roberts’ Jupiter Merlin Income Portfolio is a good bet.

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