Citywire Wealth Manager’s cover stars have picked some little-known funds over the months and unearthed some real gems. Now we put some of those funds under the microscope for closer inspection.
While many of the picks are familiar, with funds run by M&G’s Richard Woolnough and Tom Dobell and Invesco Perpetual’s Neil Woodford featuring prominently, many are less well known to investors.
Here, Citywire Wealth Manager looks at a selection of the more obscure funds for closer inspection.
Among Turcan Connell investment director Haig Bathgate’s picks was Tiberius Commodity Alpha, a long-only euro-denominated fund domiciled in Luxembourg.
Bathgate’s extensive screening process picked the fund as having low levels of risk combined with a well diversified exposure to both hard and soft commodities.
Bathgate says Tiberius was a directional pick made around March 2009, which he has continued to hold as commodity prices started to surge again.
He told Citywire: ‘We wanted exposure to both hard and soft commodities, because we were a bit worried about the potential for rising inflation. This fund has very good levels of risk management and was more diversified than many of its peers. It also came out best on a risk-adjusted basis.’
The fund invests primarily in commodity futures based on the selection of single-commodity futures. The quant-driven process aims to generate alpha against passive commodity index investments.
It has returned 11.4% in the year to date, compared with its benchmark return of 2.4% to the end of August.
At that point, it was underweight energy and industrial metals, and had a 4.5% overweight to precious metals compared with the DJ UBS Commodities Index.
Bathgate added: ‘Through our due diligence process, which included visiting the company’s offices in Germany and Switzerland, we satisfied ourselves that Tiberius was a very focused outfit and that the numbers had been generated over time through sound judgement and a disciplined research process, all within a tight risk control framework.’
The Private Office’s Robert Morse chose the IFDS Frontier MAP Balanced fund as one of his five picks.
The fund invests across eight asset classes: global equities, global fixed income, emerging equities, emerging bonds, real estate, commodities, hedge funds, and managed futures.
Morse admits it was the worst performer of his five funds, losing around 17% in 2008.
Within the asset basket, managed futures was the best-performing asset on a 16% return and emerging equities the worst, losing 53%. It finished the year ahead of the IMA Global Cautious Managed benchmark, but just behind the Apcims Cautious Managed index, trailing Morse’s top performing pick, AA-rated Martin Gray’s Miton Balanced Managed fund, which gained 17.88% in 2008 against the benchmark’s 6.12%.
Morse is unperturbed by the short-term underperformance of the Frontier fund, which he has picked for clients over the past four years because it offers exposure to managed futures and hedge funds at a relatively low cost.
He said: ‘The index nature of the fund and its search for very low-cost passive means of replicating the asset classes means there is very little cost drag from trading within the fund.
‘The fund was a solid core holding, where the manager automatically rebalanced based on the asset allocation strategy of some of the largest and most successful not-for-profit endowment funds in the world,’ he added.
‘For most investors, you simply don’t have enough money to achieve a proper spread over all eight asset classes. And while some investors will have hedge exposure, their experience is, at best, mixed and very few have managed futures exposure.
‘It is a very good balance to some of the more successful active strategies we use. Sadly, 2008 was a bad year for passive strategies, but over time there are very few active managers who have beaten the index,’ Morse said.
Chamberlain de Broe’s James Higgins picked Mulvaney Capital Management’s Global Diversified Programme, a commodity trading account (CTA) for wealthy investors who can stomach high levels of volatility.
Chamberlain de Broe investment consultant Michael Bakowski said Mulvaney’s momentum-driven quant screening process rode trends through to their natural conclusion, capturing all of the upside and whatever downside followed.
The fund produced a positive return of 108% in 2008, after losing 23% the previous year. In the year to the end of August, the fund is down almost 6%, although it made a gain of nearly 11% in August alone. This was partly on the back of its long-only exposure to sugar trading on a 28-year high owing to a relatively light monsoon season.
Since launch in May 1999, the fund has returned 214.9% with just two down years.
Bakowski said the Bermuda-domiciled fund was suitable for wealthier clients, as it was a fund investors needed to ‘understand well’.
‘The fund has a much wider remit than some of the other CTAs, because it is smaller. It began as a pure commodity play, but has widened its remit to trade in equity markets, currencies and interest rate swaps.’
Its quant screen was designed by founder Paul Mulvaney, who Bakowski said identified themes very early. ‘He believes that overall returns are better if you milk a theme to the end. AHL or Winton would get out earlier. It is at the top of the risk pyramid and incredibly volatile, so it could be likened to being on a roller coaster on drugs.’
Bakowski added: ‘Those who can stick $100 million in it could double their money, but they have to understand its volatility.’
Mulvaney described his process on the company's website: ‘Because we trade a broadly diversified portfolio, the strategy is not cyclical and could be performing well at any point. For example, if there’s nothing happening in the financials, oil and soybeans might still be trending.’
He added: ‘In the context of an individual commodity, we tend to make money when there are major dislocations; for example, the euro moving from 0.90-1.15, so long as it doesn’t happen in a single day.'
‘Ideally, we want smooth trending conditions, with the market trading at a typical level of volatility. Hyper-volatility is not good, and neither are “dead-in-the-water” sideways markets.’