by Jake Moeller.
The Volatility Managed sector was launched by the Investment Association (IA) in April 2017. This was undertaken to reflect the increasing popularity of “outcomes”, “solutions”, and “time-horizon” based products.
Generally, these types of funds are multi-asset vehicles which target a specific volatility or risk measure. It is, therefore, a sector which has potentially more vagaries of comparing like-with-like than a more homogeneous classification—even within the standard mixed-asset classifications.
Whilst a fledgling classification, its constituent funds (some 124 or so) were largely pre-existing funds in other IA classifications. The variation in performance outcomes in this sector due to differing asset allocation profiles is potentially considerable. For example, the top performing fund over the three-year period has returned 46.5%, whilst the poorest performing fund over the same time has returned 4.1%.
Lipper classifications are highly granular, and for this broad-church IA sector, using Lipper Leaders metrics can assist investors in making relevant like-for-like comparisons. In this single IA classification, there are funds drawn from eight of the Lipper Global Classifications including Mixed Asset GBP Aggressive, Mixed Asset GBP Conservative, Absolute Return GBP Aggressive, and Mixed Asset GBP Flexible, to name a few.
Exhibit One. Top performing IA Volatility Managed funds ranked over 3-years (with 5-year history)
Each of the Lipper Leaders metrics are compiled based on comparisons of funds within their Lipper classifications rather than the IA classification. This effectively applies an additional layer of analysis for investors or analysts who require a high-level appreciation of a fund in this IA sector.
In this month’s table, we see very high Lipper Leaders scores across all the funds and metrics. The clear exception is for the Preservation metric, where all the funds score poorly.
This should point investors immediately to a high equities content. Indeed, all but one of the funds in this month’s analysis sit in the Lipper Mixed Asset GBP Aggressive classification, where the equities component must be greater than 65% of the portfolio.
This means that the “winners” currently topping the charts in this IA classification are at the riskier end of the investment spectrum where investors could be exposed to considerable drawdowns.
The IA Managed Volatility classification has been created in specific response to an evolving trend in product development – and one which reflects reasonable complexity. Within this IA classification, investors should be especially wary of presuming any broad-based performance characteristics.
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This material is provided for as market commentary and for educational purposes only and does not constitute investment research or advice. Refinitiv cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice. Past performance is no indicator of future performance.
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