Finding a Covid core

The arrival of Omicron and its impact on investment markets have been significant. No sooner had I published the research article "Fear & Greed: Investing like Buffett" then the S&P 500's 14-day RSI hit 30, signifying oversold conditions. While it may suggest that the market is due a bounce, it is not to say that the market can't continue to fall, especially if Omicron turns out to fulfil everyone's worst fears. In the short term, the direction of investment markets will be influenced by what science discovers about Omicron.

Even if the fears of Omicron turn out to be overblown, the possibility of discovering a new more serious Covid variant is likely to be with us for years. What Omicron has shown is that the legs can be kicked away from investment markets overnight, now and in the future. Those assets that were outperforming can suddenly be propping up the investment performance tables. In 2021 we've seen equity markets rotate back and forth all year, wrestling with inflation expectations and economic growth prospects. Both of these are legacies of the pandemic, a pandemic that is far from over. For all we know, we could be on the verge of a February/March 2020 market capitulation, but then again we might be about to embark on the next leg higher in an ongoing equity bull market, given its oversold condition.

It all of course makes investing in such an environment difficult. In a difficult market, one route is to have a core holding in your portfolio for stability, with satellite holdings around the outside that aim to boost returns and take advantage of market trends. This got me thinking about which funds might be good core holdings for a portfolio in the midst of a pandemic. A good Covid core holding should have navigated the ups and downs and rotations we've seen across asset classes over the last two years.

Covid core methodology

Diversification in this environment will obviously be key to the success of any potential core holding so the question becomes what have been the best multi-asset funds across the pandemic?  More than three years ago I produced an 80-20 Investor research article titled "How to find a diversified multi-asset fund to buy and hold". It is well worth reading the article if you have not already done so. However, I plan to take this research in a different direction and illustrate one way of finding multi-asset funds that have navigated the pandemic well.

In doing so, I obviously encountered the same initial problem as I did back when the aforementioned research article was written. That problem is how to identify multi-asset funds in the first place, given that they don't have their own sector? A good starting point for sourcing multi-asset funds are the following sectors as multi-asset funds almost exclusively reside in them:

• Flexible Investment
• Mixed Investment 0-35% Shares
• Mixed Investment 40-85% Shares
• Mixed Investment 20-60% Shares
• Targetted Absolute Return

The Targeted Absolute Return sector was not included in the original piece of research as there are limited options and limited data on the assets these types of funds hold. However, I have included them for the purposes of this research piece.

The above sectors contain a total of 770 funds. I then analysed the asset mix of each fund, in the same way as previously, to determine what percentage of the fund is held in each of the following asset classes

• Alternative Assets
• Commodities
• Equities (but split by how much is in American Emerging Equities, North American Equities, Asia Pacific Equities, Asia Pacific Emerging Equities, Japanese Equities, European Equities, European Emerging Equities, UK Equities, International Equities, and Global Emerging Market Equities)
• Fixed Interest (split by American Emerging Fixed Interest, Asia Pacific Emerging Fixed Interest, European Emerging Fixed Interest, UK Fixed Interest, UK Corporate Fixed Interest, UK Gilts, UK Index-Linked, and Global Fixed Interest)
• Property

In order for a fund to meet my definition of multi-asset it had to invest in 3 or more of these asset classes. That left 349 funds, which is less than half of my original universe of 770.

To determine a shortlist of funds I ranked them by their performance over the last two years (i.e. across the entire pandemic) as well as their sharpe ratio and volatility. Just as a reminder, the sharpe ratio is not a widely available statistic yet it indicates how much extra return a fund manager has achieved for the increased risk they have taken. There is nothing wrong with fund managers taking calculated investment risks if they result in additional returns for investors. So the higher a fund’s sharpe ratio the better. By ranking the multi-asset funds across these criteria I was looking for those funds that had performed strongly and consistently throughout the pandemic without taking unnecessary/excess risk. Emphasis was placed on the shape ratio, then volatility and then performance.

Shortlist

The shortlist below consists of the 25 funds that combined all three metrics. They won't necessarily be the top-performing funds across the last two years but they are among the top performers across the multi-asset universe, and have outperformed the average of their peers within their respective sectors. The table at the bottom of the page also shows each fund's score on each of the aforementioned metrics along with the asset classes they invest in. It is interesting to see a number of familiar names, two of which are currently in my own £50k portfolio. Indeed I have held Premier Miton Diversified Growth across the entire pandemic.

The list is obviously not exhaustive and illustrates one way of looking at the problem of identifying core holdings. Also the methodology I've used does not guarantee future outperformance whatever route the pandemic takes.

For reference, the table below gives you the equivalent 2 year performance of the average fund within each of the analysed sectors.

Name	2 year performance %
Flexible Investment	19.31
Mixed Investment 0-35% Shares	6.8
Mixed Investment 20-60% Shares	10.2
UT Mixed Investment 40-85% Shares	16.92
Targeted Absolute Return	5.54

 

Covid core candidates

If you can't view the table below you can view/download a pdf version.

Name	Sector	ISIN Code	2 year return %	Pandemic Volatility	Sharpe	Equities?	Bonds?	Alternatives?	Property?	Commodities?	Different asset classes
JPM Global Macro Opportunities	Targeted Absolute Return	GB00B563VJ35	19.01	3.79	1.48						3
LF Ruffer Total Return	Mixed Investment 20-60% Shares	GB00B80L7V87	26.04	7.22	1.22						4
Activus Wealth Ltd MI Activus Investment	Targeted Absolute Return	GB00BYPKW627	32.42	9.73	1.19						5
LF Ruffer Absolute Return	Targeted Absolute Return	GB00BJ5JM750	24.77	7.03	1.17						4
Ruffer LLP Charity Assets Trust	Flexible Investment	GB00B740TC99	26.66	7.82	1.16						4
Troy Asset Management Ltd Trojan Ethical	Flexible Investment	GB00BJP0XZ31	21.39	5.77	1.16						3
TM Cerno Select	Flexible Investment	GB00BCZXTM29	30.4	9.57	1.12						5
Margetts Sentinel Growth Portfolio	Mixed Investment 40-85% Shares	GB00BZ0P5600	27.56	8.79	1.07						3
Premier Miton Diversified Dynamic Growth	Flexible Investment	GB00BHNWH995	40.4	14.75	1.02						3
Troy Asset Management Ltd Trojan	Flexible Investment	GB00B01BP952	19.52	6.07	0.96						3
LF Waverton Portfolio	Mixed Investment 40-85% Shares	GB00B1RDGP55	27.74	10.04	0.95						3
Premier Miton Diversified Growth	Mixed Investment 40-85% Shares	GB00B8BJV423	35.11	13.86	0.92						4
COIF Charities Investment	Mixed Investment 40-85% Shares	GB0001877652	29.46	11.89	0.86						3
Premier Miton Worldwide Opportunities	Flexible Investment	GB0031831133	41.14	18.23	0.84						4
LF Ruffer Equity & General	Flexible Investment	GB00B7VZQV57	26.73	11.16	0.81						4
Brown SVS Brown Shipley Growth	Mixed Investment 40-85% Shares	GB00B3NNSP77	30.26	14.18	0.75						3
Close Managed Growth	Flexible Investment	GB00B815Z375	29.64	13.75	0.75						3
Wise Funds Limited TB Wise Multi-Asset Growth	Flexible Investment	GB0034272533	36.94	18.16	0.74						3
MI Hawksmoor Global Opportunities	Flexible Investment	GB00BG382281	35.23	17.76	0.72						4
BlackRock Armed Forces Charities Growth & Income	Mixed Investment 40-85% Shares	GB00BFK3M748	25.32	12.12	0.7						4
Quilter Cheviot Climate Assets	Mixed Investment 40-85% Shares	GB00B3K3HX15	22.51	10.26	0.7						3
Sarasin Climate Active Endowment	Mixed Investment 40-85% Shares	GB00BFX4MP26	22.91	10.8	0.68						4
Premier Miton Diversified Cautious Growth	Mixed Investment 20-60% Shares	GB00BHNZ2P92	22.49	10.6	0.68						4