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Patrizia Libotte, Director of Multi Asset Funds at Friends First recently spoke to the Sunday Times about the Friends First Magnet Stable fund. The fund is one of the largest funds in the Friends First multi asset range in terms of assets under management and is available through Friends First’s pension and investment suite of products.
“In simple terms our approach aims to gain exposure to a globally diverse mix of asset classes, styles and managers helping to spread risk and reduce exposure to any one particular asset or risk.”
Fundamental to Friends First philosophy is the belief that there is no all-weather asset class: no one asset class will consistently yield a positive return. Different asset classes behave differently depending on the economic and market environment. By holding a variety of investments which do not experience positive and negative returns at the same time the aim is to maximise return for a target risk level: “Diversification, putting together assets that don’t experience their ups and downs at the same time, is the only free-lunch’ in investments, we believe this to be the most reliable way to reduce the extent of variation in returns whilst maintaining returns”.
The Magnet Stable fund aims to achieve medium to long-term capital growth with relative stability of capital. The specific objective of the fund is to maximise returns whilst keeping the fund’s five year annualised volatility within a range of 5% to 10% per annum. The fund is designed for investors who value capital preservation, but are comfortable accepting a degree of risk and volatility to seek some degree of appreciation of capital. Since inception in 2010 the fund has returned 5% per year net of annual management charges.
The Magnet Stable fund is invested across a diversified range of growth and defensive assets such as sovereign and corporate bonds, equities, commercial property, commodities and other alternative strategies. The strategic asset allocation for the fund is based on key factors affecting asset classes: returns, volatility and correlations. Friends First uses an optimisation model that evaluates thousands of potential portfolio combinations to derive the optimum expected asset mix for a specific volatility range; the underlying investment mix is periodically restored to an allocation consistent with maximising return with the fund’s target level of risk.
“Strategic asset allocation is at the core of our portfolio construction approach; we do not engage in tactical asset allocation, because we do not believe in the ability to successfully and consistently time markets, i.e. to switch from equities to defensive asset and vice-versa in anticipation of major stock market moves. Also, over the long term, the cost of switching investments will invariably lead to higher transaction costs and lower returns.”
As of the end of December 36% of the fund was invested in equities, 20% in Fixed Income funds and 10% in property. Alternative assets and strategies including commodities, currencies and long/short equity funds represented 34% of the Magnet Stable fund. “This clearly highlights our focus on managing downside risk by including assets and strategies that are less dependent on positive stock and bond markets performance”.
As we begin the New Year plenty of experts, economists and investment managers will disseminate confident opinions as to where markets are going in 2018. Patrizia said Friends First does not make predictions on the direction of markets, or estimate the likelihood of an event and position the fund accordingly: “Our approach is anchored in long-term asset allocation objectives and a disciplined investment process that balances the risks, returns and correlations of various types of investments. Investors can benefit from the efficiency of being able to gain exposure to a diverse range of assets, styles and managers through a single target-risk fund. Magnet Stable is designed to capture market upside, while reducing the impact of poorly performing asset classes during market downturns”
“A decade on from the financial crisis we have become accustomed to consistently positive investment returns at risk of being complacent, and while we cannot predict when the tide might turn, what we can say with a certain degree of confidence is that if markets do experience more volatility in 2018, a diversified portfolio will be more important than ever.”
For more information about Magnet Stable please talk to your Account Manager or visit the Portfolio page on our website.
This article is for Financial Broker use only.
Warning: If you invest in this product, you may lose some or all of the money you invest.
Warning: Past performance is not a reliable guide to future performance.
Warning: The value of your investment can go down as well as up.
Warning: Funds may be affected by changes in currency exchange rates.
The funds referred to on this page may be linked to an insurance-based investment product and the Key Information Document (KID) for this product is available at www.friendsfirst.ie/kids. The Risk Ratings of the funds referred to in this document differ from the corresponding Summary Risk Indicators shown in the KID. An explanation of the differences between the Risk Rating and the Summary Risk Indicator is available at the location above.