2015 Fund Awards: Mixed asset

Best lower-risk fund

Premier Multi-Asset Monthly Income

Premier has scored a double victory in this category, with two of its multi-manager, multi-asset funds gaining the winner's trophy and highly commended award. Funds considered for these prizes are those in the Investment Association's mixed investment 0-35% and 20-60% shares sectors. Both of our award winners are in the latter sector.

The main difference between the two funds is that Premier Multi-Asset Monthly Income is designed to pay a higher starting income and does not place so much emphasis on growing the income paid over time, whereas Premier Multi-Asset Distribution aims to pay a quarterly income that grows over time.

In fact Premier Multi-Asset Distribution was slightly ahead of Monthly Income on pure performance over the three-year period we looked at. However, it was pipped at the winning post by Monthly Income, which has a slightly better Sharpe ratio.

Premier's multi-manager team has been led by David Hambidge since 1995. He explains how the funds are run: "The investment process starts with a top-down look at the world where we assess macro-economic conditions. From this we set a fund's target investment positions and consider valuations within different asset classes."

The balance of assets in the funds changes over time. Hambidge points out: "Our style could also be described as contrarian, as one of our main methods of adding value is to take profits from investments that have performed strongly and reallocate the proceeds to investment areas that have been underperforming with the aim of capturing better future returns."

When choosing the underlying funds, Hambidge and his team emphasise that everyone has to contribute towards their fund's income objective. The team typically conducts over 350 fund manager research meetings a year, which he believes are vital in constructing the portfolios and ultimately adding value.

"We look for fund managers who can demonstrate long-term outperformance using a well-defined and repeatable investment process," Hambidge says. Investment trusts as well as open-ended investment funds can be incorporated in the portfolio.

He emphasises that choosing the right spread of funds is also important. He says: "While we believe that any fund selected has the potential to produce good long-term income, as well as typically offering potential for long-term capital growth, it is equally important that any new holding blends well with other holdings in the portfolio.

"The aim is to have a portfolio of investments that are not too closely correlated, so clients get the benefit of diversification." The fund currently holds nearly 50 managers' funds.

Hambidge is particularly proud that over the past three years he increased his funds' exposure to UK commercial property funds in the summer of 2013, following a period of significant weakness in the market. He says: "The subsequent recovery in commercial recovery also provided some attractive capital growth."

The 'A' share class was monitored for this award, with a three-year return of 41.74%. On Interactive Investor the fund's 'B' share class is available, which returned 43.33%.

Highly commended

Premier Multi-Asset Distribution

In the highly commended position is Premier's other income-oriented multi-asset, multi-manager fund. Premier Multi-Asset Distribution is the oldest fund in the group's range and aims to pay a quarterly, growing income. It has been managed since inception in 1995 by Hambidge.

Hambidge and his team seek to invest the fund in other funds and trusts run by high-quality managers, whom they select via a combination of quantitative analysis and qualitative research.

Key criteria when choosing equity funds are that the managers should not hug a stock market index in their portfolios and that the funds should not be too large. Where possible, Hambidge prefers managers prepared to invest their own money in their funds.

He also looks for managers who share his views on yield. He typically buys funds for Premier Multi-Asset Distribution where they have a progressive dividend policy rather than focusing on total return. Paying out natural income is an important part of Premier's process.

The asset allocation within Premier Multi-Asset Distribution depends on the managers' views on the global outlook. As required by the sector limits, between 20 and 60% of the portfolio is invested in equities, which encompasses all geographic regions.

Hambidge targets a minimum of 50% of the equity exposure to be invested in large and mid-cap funds and between 10 and 60% of the total portfolio in UK equities. The maximum target overseas equity allocation is 20%. Bonds, property and alternative investments make up the remainder.

The 'A' share class was monitored for this award, with a three-year return of 43.04%. On Interactive Investor, the fund's 'C' share class is available, which returned 46.01%.

Best higher-risk fund

CIS Sustainable World

For the higher-risk mixed-asset awards we looked to funds in the Investment Association's mixed investment 40-85% shares and flexible investment sectors. They are deemed higher risk because of their potentially higher exposure to shares.

In fact there is no maximum limit on how much flexible investment sector funds can hold in shares, although they are expected to invest in a range of different assets.

However, our winner, CIS Sustainable World, is from the mixed investment 40-85% shares sector. It has also won our best ethical mixed asset fund award this year for the second time. Although it is now part of the Royal London Group, CIS Sustainable World is still managed by Mike Fox, as it has been since its 2009 inception.

Fox acknowledges that one of the reasons it has performed well in recent years is that he has kept its equity content high at 80% or more. He explains the fund's rationale: "The core idea of Sustainable World is to invest in growing, innovative companies having a positive impact on society. This is supplemented by companies showing leadership in environmental, social and governance management."

He believes this approach makes the fund more secure. "By investing in growing, innovative companies with talented management teams, we believe the risks inherent in the fund are reduced."

The economic environment has only a marginal influence on his choice of shares. "We are primarily interested in innovation and structural growth rather than evolving the fund to reflect shorter-term economic conditions," he explains. "That said, economic cycles do provide us with opportunities to purchase investments at attractive prices, so to that extent we are aware of where we are in the cycle."

Although the fund can invest globally, given the nature of the companies Fox is looking for, most of it tends to be concentrated in regions where innovation and companies with strong environmental, social and governance management are most prevalent. "Over time this has led to a bias towards the US and developed markets," he concedes.

Looking back over the past three years, he feels his most successful investment decisions relate to his holdings in the healthcare and technology sectors, where the pace of innovation has increased markedly over recent years.

He says: "Areas in healthcare such as immuno-oncology, and in technology cloud computing and mobile devices, have already to some extent fundamentally changed society in a positive way, and that will continue. That the fund has been invested in these areas has been key to its success."

Fox thinks achieving consistent returns in future may be more challenging. He points out that valuations of most asset classes have recovered from their financial crisis lows and it will be more important for investors to differentiate in the future, especially as economic growth is no better than average.

The 'C' share class was monitored for this award, with a three-year return of 56.57%.

Highy commended

TB Wise Income

Consistency of performance is the key element in the Money Observer awards. However, where two funds have very similar Sharpe ratios but one has achieved a higher return, then the latter can trump the former.

This is the reason that Wise Income, though it has a marginally better Sharpe ratio, has been given highly commended status in this category. But it has still produced a very good return.

Wise Income is managed by Tony Yarrow, chairman of wealth manager Wise Investment. His other claim to fame is that he has been running Money Observer's hypothetical income growth portfolio for the last few years.

He thinks of the fund as a strategic income fund, which allows him to look for attractive income-paying assets across the widest spectrum, including fixed interest, commercial property, shares, and alternatives such as private equity and infrastructure, anywhere in the world.

He says the fund has three aims: to provide an attractive level of income, and over time to grow investors' income and capital in line with inflation, or better.

To achieve its objective, TB Wise Income invests in a combination of funds, investment trusts, individual shares and fixed income securities. Yarrow sees it as a "one-stop shop" for investors looking for an attractive level of income from a wide variety of assets. His focus is on high-quality assets in out-of-favour areas and he likes to keep the portfolio turnover low. Income is paid quarterly.

The 'A' share class was monitored for this award, with a three-year return of 48.99%. On Interactive Investor, the fund's 'B' share class is available, which returned 51.88%.