Leading flexible funds

BENEFIT: THEY DON’T HAVE TO STAY WITHIN MINIMUM OR MAXIMUM LIMITS

Funds in this category are able to invest anywhere – property, across equity, bonds.

In the current low-return environment, many investors are realising the benefits of diversification. Being exposed to a number of different sources of return gives them the best opportunity to grow their wealth.

Giving your asset manager the freedom to invest across geographies and asset classes is therefore an appealing option. This is exactly what worldwide multiasset flexible funds offer.

Funds in this category are able to invest anywhere in the world, across equity, bonds, listed property and money markets. They do not have to stay within any minimum or maximum limits.

In other words, they give asset managers complete flexibility to allocate to whichever assets they believe are most appropriate. This allows for aggressive diversification.

These funds have become increasingly popular, with the number of unit trusts in this category having doubled over the last three years. There were 54 worldwide multiasset flexible funds at the end of June 2015, and there are now 108.

The top seven worldwide multiasset flexible funds, which includes the likes of Old Mutual Maximum Return FoF A and Coronation Optimum Growth Fund A, all outperformed the JSE but underperformed the MSCI World Index. As these aren’t global funds, most do retain exposure to South African assets, so it makes sense that their performance would fall somewhere between the two. Their strategy should be to benefit from growth in global assets when local returns are weaker, but at the same time be able to capture the performance from the JSE during periods when the local market outperforms.

The Flagship IP Worldwide Flexible Fund of Funds has been the top performer over this period. It is an interesting portfolio for two reasons. The first is that it mostly uses index tracking funds to gain exposure to targeted markets and sectors. The second is that it has taken some significant sector-specific positions rather than using broad market indices.

In particular, it is heavily exposed to US oil and gas exploration, technology, and healthcare.

One question investors might ask is why the fund carries such high charges when it is using mostly low-cost index funds in its portfolio. Its total investment charge is more than double the two cheapest funds on this list.

On the other end of the scale, the Imalivest and Anchor portfolios offer the lowest fees. They are also two of the most exposed to global equities at 93% and 83% respectively.

Investors should appreciate that funds in this category can follow divergent strategies, and it is therefore vital to understand the manager’s philosophy and how they execute their mandate.

They give asset managers complete flexibility