ISA Portfolios Review - 6 Months On
In this article James Davies (Investment Manager) reviews the performance of the Chartwell Direct ISA Portfolios since their launch in April 2009.
Backdrop
It's historically very rare for fixed income investments to deliver double digit returns over a year, yet since 6 April 2009 (just a little over 6 months) all bar one of the fixed income funds selected for our model ISA portfolios has returned over 10%. Some corporate bond managers have described the last 6 months as a ‘once in a generation' occurrence. Equity stock markets have also done very well. The FTSE 100 Index's low point in March 2009 was 3512.09, whereas on 19 October it reached 5281.54 (a gain of 50.4%).
Higher Income Portfolio
All the funds have posted a positive return since the 6 April (up to 23 October) with only the Allianz PIMCO Gilt Yield delivering single digit returns. The performance of the Allianz Gilt fund was 3.3%, which was superior to the FTSE British Government All Stocks Index of 2.7%. All other funds posted very strong returns. The Cazenove UK Corporate Bond returned 14.5%, which while slightly lagging some of the competitor funds in the sector we are comfortable with the liquidity of the fund, whereas we have some concerns over some other UK corporate bond funds, which have seen their assets under management more than quadruple during 2009.
The diversified fixed income approach of the M&G Optimal Income and Fidelity Extra Income has worked well, with both funds returning over 20% since April this year. Both have benefited from being globally diversified. Equity investment has clearly paid off, however, in the case of the Schroder Income Maximiser, which has delivered 36.0%. The market clearly viewed many UK stocks to have been over-sold during the spring and the rally in stock markets since has partly been a reflection of this.
Income & Growth Portfolio
Probably the UK's most referred to investor is INVESCO Perpetual's Neil Woodford, who manages the High Income Fund (amongst others). He is notoriously defensive and so has lagged the market during 2009. However, he has a habit of being right in the long run and the fund's 18.1% return since April should not be criticised in our view. Our policy of diversifying the equity income exposure with investment into global equities has paid off. The Newton Global Higher Income has delivered a gain of 23.6% and the Ignis Argonaut European Income 30.0% over the reporting period. It has been particularly pleasing to see the Ignis fund's returns, despite Europe as a sector being under appreciated by UK investors in our view.
The M&G Optimal Income and Cazenove UK Corporate Bond Funds are covered above.
Growth Portfolio
The weakest performance from the equity funds across our ISA portfolios came from the Artemis Global Growth and the Martine Currie North American. In relation to the Artemis fund, the computer driven ‘quantitative' strategy adopted by the fund performs poorly during times of market inflection and has therefore suffered. Over the long term, however, the unemotional decision making of the model as been shown to work and we remain positive on the fund as a ‘buy and hold' (it has delivered 20.1% since 6 April). The Martin Currie Fund meanwhile has returned 17.1%, having been too defensively positioned when the market rallied in the spring.
Our ‘core' UK equity holding is the Neptune UK Equity, which has delivered broadly what the FTSE 100 Index has, but with lower volatility - it has posted returns of 31.1% and we are happy with its performance. The First State Asia Pacific Leaders meanwhile has been our Asia fund of choice for many years and it has continues to deliver steady return relative to Asian equities and has risen 32.2% since 6 April.
Our strongest performer in the Growth portfolio has been the Gartmore European Select Opportunities (36.2% gain), which has benefited from the strong Euro as well as good stock selection.
Adventurous Portfolio
Having done well for the first part of the market rally the GLG Japan CoreAlpha (formerly SG Japan CoreAlpha), has suffered having adopted a more defensive position during the summer. It has returned 13.2%.
The Neptune Global Equity Fund has been exposed as much to emerging markets as it has developed economies, with Russia, China and Brazil being key areas of focus and it has retuned 31.2% since April. Another fund that taps into emerging market themes, although not always directly, is the M&G Global Basics Fund that has delivered 37.9% and taps into a growing global demand for consumer goods from the emerging economies.
Finally, the best performer out of the holdings with our ISA portfolios has been the M&G Recovery Fund (42.7% gain), where the fund managers long term investment approach and belief in investing into good companies at attractive valuations has paid off.
The First State Asia Pacific Leaders Fund is covered above.
[Source: All fund performance data is for the period 6 April 2009 to 23 October 2009 and sources from Financial Express Analytics]
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