Henderson Cautious Managed - proceeds with caution

Kate Marshall | Tue 07 February 2017

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• This fund invests in shares, bonds and cash and aims to produce positive returns with less volatility than the stock market
• A bias to the UK detracted from returns in 2016, given sterling’s strength against overseas currencies
• We continue to hold Chris Burvill in high regard and the fund retains its place on our Wealth 150+

Our view

Chris Burvill’s Henderson Cautious Managed Fund focuses on three key asset classes: shares, bonds and cash. The equity portion, which predominantly focuses on UK shares, should harness some of the long-term growth potential of the stock market, while exposure to bonds and cash could provide the portfolio with some shelter from broader market volatility.

Chris Burvill’s value-focused investment style and bias towards the UK has led to a short-term period of underperformance. However, he has added considerable value for investors over the long term and over the past ten years the fund has grown 57.9%* compared with 44.8% for the sector average. Please remember past performance is not a guide to future returns.

Past performance is not a guide to the future. Source: *Lipper IM to 31/01/2017

We view Chris Burvill as a highly-experienced manager with a sensible and straightforward investment process. The fund continues to offer investors diversified exposure to shares, bonds and cash and it retains its place on the Wealth 150+ list of our favourite funds across the major sectors.

Performance

The fund produced a positive return of 8.7% over the past year, although it underperformed the average fund in the sector by 4.8%. This is not a guide to how the fund will perform in future.

Chris Burvill’s preference for lowly-valued companies, which may have fallen out of favour with investors but where the manager sees improvement on the horizon, has held back performance in recent years. Instead many investors have favoured companies expected to deliver stable earnings growth. The share prices of many of these businesses have become too expensive in the manager’s view and he has avoided them as a result. In recent months the fund’s value bias has come back into favour, although there are no guarantees this will continue.

The fund’s bias to the UK also dragged on performance last year given sterling’s weakness against the world’s major currencies. Any future strength in the pound, or outperformance of the UK stock market against its overseas counterparts, should provide the fund’s performance with a tailwind compared with many of its internationally-exposed peers, although the reverse is also true.

Fund Positioning

Equities currently account for 55% of the portfolio and are focused on areas where the manager sees good value, such as financials. He has recently added to investments including Lloyds Banking Group. On the other hand, he has avoided overvalued areas of the market, such as consumer goods. Elsewhere he has reduced investments in leisure travel company Carnival and chemicals producer Elementis following a period of strong performance.

30% of the portfolio is currently invested in bonds, with a further 16% held in cash. In Chris Burvill’s view we are entering a period of higher inflation and potentially higher interest rates, both of which are bad for bonds. For example, as rates rise, bond prices often fall (and their yields rise) as the interest rates available on cash looks commensurably more attractive to savers.

The bond portion of the fund is therefore positioned fairly conservatively. 40% is invested in UK government bonds, most of which are index-linked and track movements in inflation. The manager has also tended to focus on shorter-dated bonds, which are less sensitive to rising interest rates. He continues to see some value in the higher-risk, high yield bond markets and 11% of the bond portfolio is invested here.

Source: Henderson Global Investors to 31/12/2016

Find out more about this fund including how to invest

Please read the key features/key investor information document in addition to the information above.