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Funds to surf in choppy waters By Fiona Hamilton
The current bull market has been so long, strong and widespread that many believe it is due a major correction. This is music to the ears of the optimists, who argue that prices are at their most vulnerable when a positive outlook is more universally This is because balanced managed funds must never have more than 85% in equities, but can have considerably less. They are therefore better placed to take defensive action than most equity-oriented funds, which get into trouble if they have less than 80% in shares. To add to the safeguards, balanced managed funds must have at least half their portfolio in the UK or Europe rather than in more exotic locations, but at least 10% must be in non-UK equities, so as to provide some diversification. As the restrictions on equity holdings are a disadvantage in a bull market, it is no surprise that the average balanced managed fund has lagged the FT All Share index in recent years, although some have outperformed despite the limitations. The funds in this article have all been well up on the sector over the last five years, but some have been more resilient in downturns. Points to note include the flexibility of their mandates, the skills at their disposal, their view of prospects, and their willingness to take defensive action. Europe: the place to invest CF Ruffer's European fund has been outstanding, partly because this has been a very rewarding period for Europe, and partly because it has been good at share selection and protecting itself against setbacks. Its narrow focus could be less advantageous if European markets and the euro go off the boil, but manager Tim Youngman makes a point of tracking down companies which should do well regardless of economic conditions. He and his colleagues are very wary about market prospects, so he has edged up his cash holdings and reduced his exposure to smaller companies. His UK exposure is down to just 5%, as he thinks many European companies are streets ahead of their UK counterparts in terms of their ability to capitalise on global opportunities. He has around 75 holdings. The AXA Framlington Managed Balanced fund is much more traditional. It too invests directly in equities, but has twice as many holdings and a more diversified approach, with around 50% in UK equities, and 35% in a mix of overseas shares. Manager Richard Pierson is responsible for asset allocation and the UK portfolio and has done well on both fronts, while his specialist colleagues look after the overseas sectors. Cash and bonds are usually close to the 15% minimum, but might rise to 25% if he was very cautious, which he is not at the present. He does not use put options. Neptune's Balanced fund is very dependent on the skills of Robin Geffen, the highly regarded founder and boss of Neptune Asset Management. He thinks the market will drift sideways through the summer, underpinned by mergers and acquisitions, before strengthening towards the year end. He favours a concentrated portfolio of around 50 shares and makes bold decisions on asset allocation, such as a big move into emerging markets around three years ago. He usually has between 40% and 50% in UK equities, where he looks for a good yield. Otherwise, he currently has around 16% in Chinese oriented and Russian shares and around 14% in a well-diversified European portfolio. Market exposure Those three funds invest mainly in other funds, but whereas Old Mutual Managed Select concentrates mostly on in-house funds, the New Star duo select from across the market and make a point of including funds which are not readily available to most UK investors. They also use exchange traded funds to obtain exposure to different markets or sectors, including commodities, which makes them exceptionally flexible. The New Star funds believe any setback will be short-lived. They expect world growth to remain strong, with commodity and mining stocks among the major beneficiaries. The Managed fund is the more cautiously managed of the two. Old Mutual depends on its stable of fund managers maintaining their fine form, but then so does the AXA Framlington fund. Manager Tracey Lander would consider reducing the equity exposure to around 60% if she was particularly bearish, but has so far been happy to swap a little of her property exposure for bonds.
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