While many fund managers claim they can make money whatever the climate, very few actually do. Jenny Lowe tracks down one star performer whose performance claims deserve to be listened to.

Any investor worth his or her salt knows that if something sounds too good to be true, it usually is. However, in the case of the M&G Cautious Multi-Asset portfolio, which sells itself on the basis that it can perform in all market conditions, you need to suspend your natural sense of scepticism – because there is substance to its claims.
 
Three years of outperformance
The fund, managed by David Jane, has consistently outperformed its benchmark since its launch back in 2007, and while the average multi-asset fund saw its value fall by around 16 per cent last year, Jane’s fund only fell by 4 per cent.

Like most funds in its sector, M&G identifies its portfolio on the basis of astute risk assessment and active stockpicking, rather than value or other predictive models.

Says Jane, ‘Cautious managed funds are often not truly diversified because they omit key asset classes such as commercial property. In addition, there are usually restrictions on how much managers can allocate to one asset class, so the best they can do is tilt the portfolio by a small amount in favour of, or against, owning certain asset classes. As a result, these funds don’t have the flexibility to back the manager’s convictions.’ His fund does.

With any traditional cautious multi-asset product, the volatility comes from the equity exposure, and Jane points out that ‘Once you start to add things like property, you can start to manage the client’s risk profile. Those funds last year that ran an equity and corporate bond strategy were down typically 20 per cent.’

Totally about total return
The fund’s objective is to maximise total return through investing in a diversified range of assets, and as the market starts its uphill struggle Jane is watching the macroeconomic conditions with interest, and caution.

‘When the bear market sank its teeth into most investors, the fund did what it had set out to do – offered investors [the protection of] a diversified portfolio in a wide range of assets,’ explains Jane. ‘There was a time last year when we looked at the state of play and quickly made some very profound changes to become heavy on government bonds. Now, as the volatility has calmed down a bit, we have started to move back into the market.’

The portfolio is currently positioned with 57.3 per cent in equities and 28.3 per cent in fixed income, with the rest invested in property, commodities and cash.

‘The key to successful multi-asset investing lies in constructing a diversified portfolio of high-return assets in order to maximise reward, while taking on a level of risk that is appropriate for the individual investor’s present circumstances,’ says Jane.

With markets around the globe continuing to rally, fuelled by liquidity and improving economic data, Jane is confident that he is well equipped to take advantage of any growth opportunities.

Government spending spree
‘In both developed and developing worlds, governments are playing a far larger role in determining economic activity. They don’t buy plasma TVs or iPods, but they do spend money on infrastructure, so I am keeping an eye on those areas that are exposed to this type of activity.

‘At the same time, as the balance of global growth tilts more towards nations such as China, India and Brazil, demand for basic resources and commodities as a proportion of global growth will rise, making them attractive over the medium to long term.’

Corporate bonds, according to Jane, no longer present the kind of value that was seen earlier this year, when they were priced for an extreme level of defaults. ‘While opportunities still exist in this area, I am now focusing more on high-yield corporate bonds,’ he says.

It is important, Jane suggests, that as the effects of quantitative easing take hold, the fund reduces its currency risk. ‘These things can move very quickly,’ he explains. ‘It is inevitable that we are going to see volatility in currencies, so I’m taking a step back.’

But Jane is adamant that equities is where the most substantial returns will be found going forwards: ‘We have had the terror of the market collapse and the fear that the financial world would come to an end. But it’s over. Buildings are still being built, people still have jobs and they are still spending money.

‘We are now moving into a new market, and this is the time when stockpickers come to the fore.’

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