Investors Chronicle has often criticised 'funds of funds' because management fees are typically higher than those on traditional investment funds - you are effectively paying two sets of fees - one to the underlying funds in the portfolio and one to the manager. But we think the Troy Spectrum fund, a fund of funds run by the team at Troy Asset Management, is a class above the rest - and much cheaper too.
- Low TER
- Diversification via quality funds
- Good performance
- Low turnover
- Lacks US large cap fund
- Risk averse stance may not appeal
- Sees risks in investment trusts
Spectrum invests on a global basis predominantly in funds - which may account for up to 100 per cent of its assets. However, it may also invest in bond, equities, cash and other investments from time to time. Crucially, it doesn't invest in the UK, making it a good diversifier if you hold a portfolio of UK equities.
While in the fund of funds arena, high total expense ratios (TERs) of 2.5 per cent are not unusual, Spectrum's TER is 1.47 per cent - lower than many actively managed funds that invest in portfolios of stocks and shares.
Like other Troy funds, it is conservatively managed, aiming to produce long-term capital growth, while preserving capital and reducing volatility. In terms of asset allocation, this is not a full blooded global equity portfolio, currently holding a lot of cash.
It holds risk averse, lower volatility managers too. For example, Timothy Youngman of CF Ruffer European, Spectrum's largest holding, draws the analogy of European policy makers driving a mini down a ski jump - there is a high probability that things will go very wrong but to pretend that you can forecast the exact scenario which will unfold is foolhardy. He also holds a significant cash balance in expectation of being able to take advantage of any opportunities that arise when the equity market vehicle finally reaches the bottom of the slope.
While fund of funds have a reputation for high turnovers, moving money around aggressively, the Troy team prefers to pick the right managers and stick with them - the top 10 holdings from 12 months ago are still held today.
While Troy prefers investment trusts to open-ended funds, because they have lower turnover, better managers and are often run by the same manager from 15-20 years, the team believes investment trusts are at risk from a discount widening period. Therefore the portfolio is positioned largely in open-ended funds.
The benefit here is that Spectrum holds some popular funds that have now closed to new investors, for example, Findlay Park American.
The portfolio is lacking a US large cap fund but Troy takes the view that it won't fill the gap just because it would 'look nice' - they have to find a good manager.
Troy prefers fund managers who have large portions of personal wealth in their funds so are personally committed. It also values experience - the Spectrum portfolio holds no fund managers under 40. The maximum holding will be 25 funds - at present it has 22.
Although Spectrum has been running just over three years, it has already delivered consistently good performance. The fund is up 34 per cent since launch in February 2008 to 31 October 2011, compared to 14 per cent from the MSCI World Index (£) and 9 per cent from the FTSE All-Share Index.
Preserving capital and reducing volatility may not be for everyone, but for investors who want an instantly diversified global portfolio of quality funds, Spectrum is a good option. Buy.
Troy Spectrum Fund O Shares (GB00B2990B27) | |||
| PRICE | 133.54p | 1-YEAR PERFORMANCE | 1.92% |
| IMA SECTOR | IMA Active Managed | 3-YEAR PERFORMANCE | 49.59% |
| FUND TYPE | Oeic | 5-YEAR PERFORMANCE | na |
| FUND SIZE | £59 million | TOTAL EXPENSE RATIO | 1.47% |
| No OF HOLDINGS | 22 January 2000 | YIELD | 0.00% |
| SET UP DATE | 29 February 2008 | MINIMUM INVESTMENT | £1,000 |
| MANAGER START DATE | 29 February 2008 | MORE DETAILS | wwww.taml.co.uk |
| 3-YR Std Deviation | 10.84% | ||
| Top 10 holdings | Percentage (%) |
| CF Ruffer European | 7.60 |
| Findlay Park American | 6.60 |
| Polar Capital - Insurance | 6.20 |
| First State Asia Pacific Leaders | 6.10 |
| Jupiter Absolute Return | 5.90 |
| Gold Bullion Securities | 5.80 |
| CF Morant Wright Japan B | 5.80 |
| BlackRock Gold & General (inc) | 5.50 |
| ETFS Physical Swiss Gold | 4.30 |
| RIT Capital | 4.00 |
As at 31 October 2011
| Geographical breakdown | Percentage (%) |
| USA Equities | 6.00 |
| Euro Equities | 12.00 |
| Japanese Equities | 9.00 |
| SE Asia Equities | 9.00 |
| Global Equities | 6.00 |
| Emerging Markets | 2.00 |
| Global Index-Linked | 5.00 |
| Gold & Gold Fund | 16.00 |
| Cash | 8.00 |
| Absolute Returns & Alternatives | 14.00 |
| Financials | 6.00 |
| Singapore T-Bills | 7.00 |
As at 31 October 2011
