Charles Stanley Multi Asset Funds - update

Chris Ainscough, co-manager of Charles Stanley’s range of multi asset funds, provides an update on recent activity and the team’s current outlook.

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  1. Chris Ainscough

Each of our four Multi Asset funds offers a diversified portfolio in one easy-to-buy investment designed to meet a broad risk profile – from cautious through to adventurous. The funds are actively managed by Charles Stanley's investment team, which means ongoing portfolio management is done for you. Investors do, however, need to be careful in selecting the fund(s) appropriate for their needs.

Successful investing involves diversification. Not having all your eggs in one basket helps reduce risk and means you are not reliant on specific investments or areas performing well. To this end we have been pleased with the way in which the funds have coped with the recent market volatility. Few areas have seen positive returns during the turmoil, and although the funds have fallen in value, the declines have generally been modest relative to broader markets and their respective peer groups.

Table: Year to date and discrete annual performance of the Charles Stanley Multi Asset Funds and respective peer group sectors

CS multi asset funds table

Past performance is not a reliable indicator of future returns. Figures are shown on a % total return basis, bid to bid price with net income reinvested; Source: FE Analytics, data for year to date: 31/12/2019 to 31/03/2020.

Portfolio activity

Across the fund range, we entered 2020 at the low end of our risk bands, and this has provided some protection from the rapid falls seen in markets in recent weeks. At the turn of the year, we felt market valuations were at a premium and that stock market returns through 2020 were unlikely to continue the exceptional run seen through 2019. We thought impressive corporate earnings growth would be required to see further gains, or else stocks would simply have to become even more expensive based on company earnings. Our base case for equity market returns before the COVID‐19 outbreak was, therefore, mid‐single digits in percentage terms and a “muddle through” economic environment.

We chose to make relatively few changes in the first couple of months of the year, other than tweaking bond exposure to benefit more from a falling inflation and interest rate environment. Besides this, there were a handful of fund substitutions. For instance, we removed Ashmore Emerging Markets Total Return in favour of Investec Emerging Markets Blended Debt and switched BlackRock Frontiers Investment Trust into JP Morgan Emerging Markets Trust.

What are we doing now?

It is now clear we are about to enter the most rapid and deep global recession seen since the Second World War. As a result of governments’ actions to prevent the spread of COVID‐19 large swathes of the global economy are in shut down mode and corporate revenues in many sectors have collapsed. We are only beginning to see data on economic activity, corporate profits and dividends reflect this, and the worst is likely to be several weeks, if not months, ahead of us. Against this background, it is too early to call an end to the financial market stress and volatility which we have witnessed.

As a result, we feel it is appropriate to be somewhat cautious in the near term. However, as we look further ahead, optimists would highlight that financial markets are adept at discounting the future. As a rule, equity markets tend to find a footing roughly one quarter before the end of a recession and we are working hard to gauge the length as well as the depth of this current economic downturn to give us the signal to buy, which will inevitably come.

One thing that we do not carry out at Charles Stanley is an automatic rebalancing of our portfolios. We believe in allowing our positions and asset allocation to drift to a degree, only rebalancing when we identify an opportunity or for portfolio construction and risk purposes. This is consistent with a ‘running your winners’ mentality and it minimises unnecessary portfolio turnover – and hence unnecessary transaction costs.

As a consequence, when equity markets fall and bond markets rise our asset allocation drifts to a more defensive position, which has been noticeable over the last month. While markets have bounced off their recent lows we have yet to take action to add risk back into the portfolios. This is an active decision. You may have read headlines about institutional month or quarter-end rebalancing driving flows towards the depressed equity markets. This could certainly be one component of the bounce from market lows we have witnessed. We are interested to see whether this momentum continues when data releases begin to cover periods impacted by government-enforced shutdowns.

Outlook

We remain comfortable with our current positioning. We do not think that the worst is behind us yet or that a sharp recovery can be called with a reasonable degree of certainty. From a humanitarian perspective, this pandemic is not yet at its peak, but since markets are discounting mechanisms our task is to decide when the economic impact of the government-imposed shutdowns is truly reflected in asset prices.

If evidence emerges that shows nations either need to prolong the restrictions or are unable to successfully remove them without a resurgence in infections then we would expect to see further weakness in risk asset prices. That might just be the catalyst we would need to pull the trigger on buying in to this correction.

Find out more about our Multi Asset Funds.

The annual charges on our Multi Asset Fund range were substantially reduced on 1st January 2020 from 0.75% a year to 0.30%.

Past performance is not a reliable guide to future returns. This website is not personal advice based on your circumstances. No news or research item is a personal recommendation to deal. Investment decisions in fund and other collective investments should only be made after reading the Key Investor Information Document or Key Information Document, Supplementary Information Document and Prospectus. If you are unsure of the suitability of your investment please seek professional advice.

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