In today's environment of low interest rates and economic uncertainty, the search for growth, income and capital preservation is ever more difficult. Investors are increasingly forsaking the security of cash and turning to stock markets in search of higher returns albeit with more risk. With additional risk, it remains vital for investors to diversify their portfolios.
The Investec Cautious Managed Fund aims to dampen volatility and provide diversification by blending the shares of financially sound companies with high quality bonds. The fund's share element is selected using Alastair Mundy's contrarian investment style. He targets out-of-favour stocks and aims to invest when he feels people are acting emotionally or irrationally, primarily through greed or panic. Through this process, he purchases cheap companies who have been through a period of pain and whose value has fallen significantly. Rather than focusing on short-term performance, he concentrates on the long-term potential of these undervalued stocks.
One example is Avon Products, the international manufacturer and distributor of cosmetic products. The stock has made little progress for a number of years, but Alastair Mundy believes its fortunes could improve following the appointment of a new Chief Executive Officer earlier this year. In his view, the new management team are clear on the company's past failings and have taken the necessary actions to correct them.
At present, the fund's bond allocation is conservative, weighted to government bonds rather than corporate bonds. Alastair Mundy feels these are better able to reduce the volatility of the portfolio than corporate bonds. He favours Norwegian government bonds for their 'safe haven' status. He believes these bonds are inexpensive, providing exposure to a well-financed government and a strong currency. Currently, over 10% of the portfolio is invested in Norwegian government bonds. The fund also invests in index-linked bonds, issued by both the UK and US governments, representing 12% of the portfolio. These bonds are held as a hedge against the manager's concerns over inflation. Gold acts as a further diversifier within the portfolio. Exposure, representing 7% of the portfolio, is via gold mining companies.
In our view, Alastair Mundy is a talented fund manager with a good track record of investing in both equities and bonds. The fund does not currently feature on the Wealth 150 list of our favourite funds across the major sectors. However, over the past few years, the fund has shown an improvement following a period of poor performance. The fund has returned 26.7% over the past five years*, compared to 8.1% for the sector average although, past performance is not a guide to future returns. We would like to see performance sustained over a longer period before considering the fund for inclusion.
|% Growth 01/11/07 to 03/11/08||% Growth 03/11/08 to 02/11/09||% Growth 02/11/09 to 01/11/10||% Growth 01/11/10 to 01/11/11||% Growth 01/11/11 to 01/11/12|
|Investec Cautious Managed Fund||-21.0%||31.9%||9.9%||3.3%||7.1%|
|IMA Mixed Investment 20-60% Shares||-19.9%||16.0%||9.4%||-0.2%||6.6%|
Past performance is not a guide to future returns. Source: Lipper. *Figures to 01/11/2012