How are the Growth funds doing?
A Wrap client who invested £10,000 in our medium risk growth portfolio a year ago would now have a portfolio worth £11,800, an increase of 18% over the last 12 months. The close monitoring of our fund selection has made it possible for continuing growth despite market turbulence from the effects of the Japan nuclear disaster in March and sharp falls in commodities in early May.
We recommended a switch out of Invesco Pacific and into First State Asia Pacific Leaders shortly after the tsunami in Japan due to the Invesco fund’s large holdings in Japanese equity. In the three months since then, the fund we switched out of has lost 4% and the fund we recommended instead has gained 3.5% (3 month performance figures courtesy of Money Management June 2011).
The best performer for the year was Investec UK Smaller companies with a 1 year return of 37.7% compared to the FTSE Small Cap index of only 14.8% (performance figures from Money Management June 2011).
Regardless of the recurring bailouts in Europe, our two funds in that region, Blackrock European Dynamic and SWIP European Real Estate have both returned over 26% over the last year compared to their indices producing only 16.9% & 8.4% respectively.
The low-risk, inflation protected funds we introduced in January to replace Corporate bonds serve to balance the portfolios, and have produced steady returns in excess of their peers. The Standard Life Global Index Linked bond for instance has achieved 5.8% over the year versus the global bonds sector of just 2%.
We monitor the markets on a daily basis, and now include some of the commodities indices on our watch list such as silver, gold and oil.
We are very pleased with the performance of all of our growth funds, and as such make no recommendations for change on the Growth portfolios this quarter.
Falling income yields
Three of the Wrap UK Equity funds, (Aviva UK Equity Income, Blackrock UK income and Schroder Income) have seen their income yields fall below 4% per annum since your plans went onto Wrap. In addition, our “fund watch” system has picked up on Schroder Income Maximiser capital growth failing to beat the FTSE All Share benchmark for two consecutive quarters.
This means the level of income produced by the income plans has declined and we recommend the following switches to redress the balance:
|
Existing fund |
Yield |
Recommended fund |
Yield |
|
Blackrock UK Income |
3.37% |
Investec Emerging Market Debt |
6.88% |
|
Aviva UK Equity Income |
3.30% |
Threadneedle Monthly Extra Income |
4% |
|
Schroder Income |
3.16% |
Split across Newton Asian Income and Threadneedle Monthly Extra Income |
5.6% and 4% |
|
Schroder Income Maximiser |
Target 7% |
Newton Asian Income |
5.6% |
|
Any excess cash over 3% in the ISA, or over 4% in the OEIC |
No income |
Invesco Perpetual Distribution |
5.96% |
Risk and exposure to Asset Classes
Our criteria for recommending replacement funds includes ensuring that investors remain in the same spread of assets to maintain their attitude to risk.
The recommendation of an Emerging Market Debt fund to replace a UK Equity fund reduces risk within the portfolio. Using a Cautious Managed fund instead of the surplus cash above 3% increases this risk.
Our recommendation of an Asian Equity fund instead of Schroder Income Maximiser will introduce much needed diversity into the income portfolios, reducing the reliance on UK equities.