Last Word
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strategy directly from the fund managers themselves.
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research and market views together with an explanation of the
The fund is designed to provide broad exposure to a range of real asset investments, good levels of inflation protection and returns that are lowly correlated with traditional investments. It has delivered below 3% volatility since launch and a risk-adjusted return of 4.5%.
Axis analyses the fund from four perspectives to bring you insight,
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Review By Nicola Brittain
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The Architas Diversified Real Assets Fund aims to provide investors with protection from market volatility. It invests in real assets meaning it has a low correlation to equities and bonds. Over 85% of funds chosen by the managers have inflation protection, providing another layer of defence.
Scroll down to read more...
LOCATION_ London
“The fund provides several modes of diversification. It is uncorrelated with bonds and equities, and offers a good spread across the asset class and managers”
YEARS IN INDUSTRY_ 17
JOB TITLE_ Investment Writer
at Last Word
COMPANY_ Last Word
NI_
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NICOLA BRITTAIN_
NICOLA BRITTAIN
Attractive income plus a low correlation to equities and bonds
COMPANY_ Square Mile Investment
To view Square Mile Investment Consulting and Research Ltd's disclosure on their involvement on this site, please click here.
JOB TITLE_ Head of risk-based solutions research
A_
“A fund that offers the potential of an attractive income as well as a low correlation to equities and bonds.”
The fund provides a diversified exposure to assets that cannot be accessed via more traditional means. However, as with any investment, there is always a caveat emptor and, in the case of real assets in general, there are a number of considerations to bear in mind.
Scroll down to read more...
YEARS IN INDUSTRY_ 18
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ALEX FARLOW_
ALEX FARLOW
Last Word
Perspective
In an environment when volatility and inflation are edging higher and concerns about geopolitical risks are heightened, a real-assets product such as the Diversified Real Assets Fund from Architas could be a good addition to a standard equities and bonds portfolio. The fund has several features that distinguish it from a more general absolute return fund. First, it invests in real assets meaning it has low correlation to equities and bonds, and, second, over 85% of the portfolio is invested in inflation-sensitive assets, which adds another layer of defence. The fund currently has over £230m AUM and invests in 33 underlying funds comprising specialist assets such as aircraft leasing and renewable infrastructure. The top three holdings by asset class are specialist property (11.3%), followed by social trusts (9.3%) and leveraged loans (8.8%). According to co-manager of the fund Mayank Markanday, this provides access to complex assets that are not easily accessed elsewhere. “A lot of our peers won’t have infrastructure, property and asset-backed securities as major asset classes, but this fund offers that,” he says.
The fund managers allocate strategically and tactically. The strategic allocation is determined by their view of how stable or predictable returns for any particular asset class are.
If the asset class is particularly volatile, such as commodities or catastrophe insurance, there would be much lower allocation compared with a more stable product such as renewable energy. Year to year there is less variation in cashflow or return on investments on this type of asset.
On a shorter-term tactical basis, each asset class is assessed for the level of income being generated at that point in time. The team also looks at recent correlation with equities, potential tail risks in the political and regulatory sphere, valuation as well as how volatile the asset class itself has been in recent times.
How well the asset class screens across these measures will determine how much the team tactically allocates.
The Architas investment team comprises 17 professionals, with the real assets fund co-managed by senior investment manager Solomon Nevins and investment manager Mayank Markanday who also receive research analyst support from other members of the team.
Fund delivers consistent returns amid volatile backdrop
AUTHOR_ NICOLA BRITTAIN
Protect and diversifyAnother significant feature of the fund is that it provides several different modes of diversification. There is the already mentioned lack of correlation with bonds and equities but it also offers diversification across the alternatives asset class, as well as a spread across managers, since it is a fund of funds. All could be useful during a downturn like that experienced recently. That the fund aims to provide protection from market volatility means investors may receive more reliable returns, coming from both income and capital growth. The management team chooses funds that have an established and defined way of distributing income.
Riding out volatilityThe fund has been running for four years, a period peppered with equity and bond market volatility. Against that backdrop, the fund delivered volatility below 3% and a risk-adjusted return of 4.5%. The majority of that return, around 3%, came from income.
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Kames Global Diversified Income Fund
Fund
Vincent McEntegart has been managing the Kames Global Diversified Income Fund for six years and is well-versed to the changeable financial climate. Curabitur blandit tempus porttitor. Aenean lacinia bibendum nulla sed consectetur.
Manager
Vincent McEntegart
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The fund managers are acutely aware of the liquidity profile of some of the underlying investments. Indeed, some of the fund’s holdings deal only on a weekly or even monthly basis. As a consequence of this illiquidity, the managers tend to have a higher exposure to cash or cash-like securities than managers of other portfolios.
Team practiceThe investment team at Architas is relatively large and its members work together to generate ideas. Named co-managers on this fund, Solomon Nevins and Mayank Markanday, have a reasonable amount of investment experience since both have been in the industry for over 10 years.
The team has been investing in real assets for Architas for a number of years and their expertise in this area predates the fund’s launch in 2014. There is a focus on risk and governance, with several layers of scrutiny for each investment and the overall portfolio.
As well as the research undertaken by the investment team, who attempt to identify attractively valued opportunities, every investment is subject to additional due diligence to ensure the underlying fund structure has a clean bill of health. A separate team within Architas is responsible for this work.
The scale of resources within the firm provide a level of comfort with regard to the overall checks and balances that occur prior to investing in any fund, as well as with regard to overall risk management.
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AUTHOR_ ALEX FARLOW
“The strategy is structured as a fund of funds, meaning that instead of investing directly into real assets it invests into other funds. This approach brings the advantage of outsourcing to experts in their respective fields, as well as providing a high level of diversification.”
This strategy seeks to provide a return from investments linked to catastrophe re-insurance risks, meaning the fund will receive an income from premiums paid to cover certain catastrophes, including natural disasters. However, should we see a repeat of a severe hurricane season, like the one experienced in 2017, then the capital value of the fund is likely to fall.
This was the case for Catco Reinsurance Opportunities, held in the fund, and which fell by 50% last year. Similarly, many infrastructure assets are seen as relatively stable investments, particularly if they are government-backed, but these assets can also be subject to bouts of volatility.
However, after a difficult spell investors have re-focused on the attractive long-term investment characteristics on offer from infrastructure and the sector has partly recovered.
Like most investments, real assets are only worth what somebody else is willing to pay. However, valuations of real assets can be more subjective than traditional equities and bonds. This, and the fact that most investments are structured in closed-ended form, where funds trade based on price and not the net asset value of the supporting assets, means they can be subject to a greater level of volatility than open-ended investments. It should be noted that this practice can also bring opportunities as fund discounts can sometimes move to a premium.
The Architas Diversified Real Assets Fund has three clear outcomes: income, capital growth and inflation protection. It aims to achieve these by providing diversification away from traditional equities and bonds, generating a moderate to high level of income (the expected yield is around 3.5%) and by providing growth that is at least ahead of inflation. Since launch, it has consistently met its income objective and has, on the whole, also met its capital growth objective, despite being behind this target for the most recent period. However, while the fund has generally exhibited a low correlation with bonds, since launch it has had a positive correlation with developed market equities since launch.
The fund has many attributes that would complement an existing portfolio of equities and bonds. It also provides a diversified exposure to assets that cannot be accessed via more traditional means, resulting in a diversified income stream. However, as with any investment there is a caveat emptor and, in the case of real assets in general, there are a number of considerations to bear in mind.
The strategy is structured as a fund of funds, meaning that instead of investing directly into real assets it invests into other funds. This approach brings the advantage of outsourcing to experts in their respective fields, as well as providing a high level of diversification. However, utilising a third party also incurs an additional layer of costs, which means there is a higher ongoing charge figure (OCF). Having said that, the current OCF on the A-share class seems reasonable, at 1.05%, being at the lower end of the cost scale for fund of funds.
Broad strokesThe fund invests in a broad spread of real assets, seeking to offer a truly diversified asset class exposure. This may include asset-backed securities, infrastructure, renewable energy, commodities or specialist insurance. While these assets can be uncorrelated to equities and bonds, investors should be wary of regarding them as low-risk assets.
A fund that aims for income, capital growth and inflation protection
Alex Farlow, Head of risk-based solutions research, Square Mile Investment
Square Mile
Perspective
Fund buyers' perspective
Fund buyers explain how the fund has delivered consistent returns.
Fund buyers tell us about the benefits of holding a diversified real asset fund and how the fund fared when faced with recent volatility.
Market Reaction
Next
Jonathan Woo_ investment research_ Santander Asset Management
×
“There has been considerable structural reform in giant markets like India, China and the Pacific Tiger economies. It’s a time of change from investment in infrastructure to innovation. Baillie Gifford looks for superior growth, meaning its style is suited to this change. They make some debatable valuations but are valiant investors and can spot businesses with great fundamentals early. They are picking the sort of businesses that have the potential to steam ahead and accrue multiple years of earnings growth for investors.”
Scott Spencer_ Investment Manager_ F&C Multi-manager solutions, BMO Global Asset Management
“The key rationale behind Income Maximiser is the delivery of a 7% yield. The use of derivatives in the portfolio means the upside is therefore limited but we find the fund is a lower beta way of getting equity exposure as well as some downside protection.”
“The fund managers of Schroder Income [Nick Kirrage and Kevin Murphy] pick the stocks, and the derivatives for Income Maximiser are then written accordingly. We like the fact that derivatives provide a diversification element and we have a great deal of confidence that the derivatives are run by a separate team. It is a very different skill set and is a USP of theirs.”
Richard Philbin_ CIO_ Wellian Investment Solutions
Mona Shah_ head of collectives_ Rathbones
“After years of lacklustre performance, Asia and the emerging world experienced a resurgence last year, driven by rising commodity prices and a fundamental shift in favour of more cyclical sectors like financials, energy and materials. But many of the fortunes of Asia and emerging markets are driven by sentiment from the West, which was negatively affected by the US election in November. While markets have regained their initial losses, we’ve had no more clarity on what Donald Trump’s policies will mean with regards to global trade and protectionism. For this reason, we believe that diversification should offer benefits in a period where markets are likely to be volatile. In addition, the economies in Asia-Pacific are showing increasing dependence on domestic demand, and we believe funds exposed to growing demand from consumers in China, for example, may be better placed to withstand headwinds from the US.”
Robert Shepherd_ Director_ Bright & Co.
We were on the lookout for something different and, let’s face it, 4% or lower is the norm in this environment. So this is attractive”
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Achievable, sustainable, reliable
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Fund
Manager
Perspective
Fund Buyer
Perspective
This demo version has been optimised for desktop, laptop and tablet. Smartphones, iPhones will be supported in the next version.
to bring you insight, research and market views
together with an explanation of the strategy
directly from the fund managers themselves.
Axis analyses the fund from four perspectives
-
Income
target_
Size of
fund in £_
m
Launch date_25/02/2014
Performance
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Number of
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%
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Kames Diversified Monthly Income Fund
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Total return
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Click for sound
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The fund is co-managed by senior investment manager Solomon Nevins and investment manager Mayank Markanday. Solomon joined Architas in 2008; Mayank joined in November 2017. Both have more than 10 years of investment experience.
Solomon Nevins
Investment Manager, Architas Diversified Real Assets Fund
Senior Investment Manager, Architas Diversified Real Assets Fund
Focusing on returns with a low correlation to traditional assets
’The fund is designed to provide broad exposure to a range of real asset investments, good levels of inflation protection and returns that are lowly correlated with traditional investments’ Solomon Nevins.
Mayank Markanday
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JOB TITLE_ Head of risk-based
solutions research
The fund provides a diversified exposure to assets that cannot be accessed via more traditional means. However, as with any investment, there is always a caveat emptor and, in the case of real assets in general, there are a number of considerations to bear in mind.Scroll down to read more...
The fund managers are acutely aware of the liquidity profile of some of the underlying investments. Indeed, some of the fund’s holdings deal only on a weekly or even monthly basis. As a consequence of this illiquidity, the managers tend to have a higher exposure to cash or cash-like securities than managers of other portfolios.
Team practiceThe investment team at Architas is relatively large and its members work together to generate ideas. Named co-managers on this fund, Solomon Nevins and Mayank Markanday, have a reasonable amount of investment experience since both have been in the industry for over 10 years.
The team has been investing in real assets for Architas for a number of years and their expertise in this area predates the fund’s launch in 2014. There is a focus on risk and governance, with several layers of scrutiny for each investment and the overall portfolio.
As well as the research undertaken by the investment team, who attempt to identify attractively valued opportunities, every investment is subject to additional due diligence to ensure the underlying fund structure has a clean bill of health. A separate team within Architas is responsible for this work.
The scale of resources within the firm provide a level of comfort with regard to the overall checks and balances that occur prior to investing in any fund, as well as with regard to overall risk management.
This strategy seeks to provide a return from investments linked to catastrophe re-insurance risks, meaning the fund will receive an income from premiums paid to cover certain catastrophes, including natural disasters. However, should we see a repeat of a severe hurricane season, like the one experienced in 2017, then the capital value of the fund is likely to fall.
This was the case for Catco Reinsurance Opportunities, held in the fund, and which fell by 50% last year. Similarly, many infrastructure assets are seen as relatively stable investments, particularly if they are government-backed, but these assets can also be subject to bouts of volatility.
However, after a difficult spell investors have re-focused on the attractive long-term investment characteristics on offer from infrastructure and the sector has partly recovered.
Like most investments, real assets are only worth what somebody else is willing to pay. However, valuations of real assets can be more subjective than traditional equities and bonds. This, and the fact that most investments are structured in closed-ended form, where funds trade based on price and not the net asset value of the supporting assets, means they can be subject to a greater level of volatility than open-ended investments. It should be noted that this practice can also bring opportunities as fund discounts can sometimes move to a premium.
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Subtitle of introduction panel
Fund buyers explain how the fund has delivered consistent returns.
Fund buyers tell us about the benefits of holding a diversified real asset fund and how the fund fared when faced with recent volatility.
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market viewpoints, together with the
to bring you incisive analysis, research and
Fund Manager’s own investment strategy.
Axis interrogates the fund from four perspectives
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The Architas Diversified Real Assets Fund aims to provide investors with protection from market volatility. It invests in real assets meaning it has a low correlation to equities and bonds. Over 85% of funds chosen by the managers have inflation protection, providing another layer of defence.
Review By Nicola Brittain at Last Word
Click for sound
and returns that are lowly correlated with traditional investments’ Solomon Nevins. Mayank Markanday, Investment Manager, Architas Diversified Real Assets Fund The fund is co-managed by senior investment manager Solomon Nevins and investment manager Mayank Markanday. Solomon joined Architas in 2008; Mayank joined in November 2017. Both have more than 10 years of investment experience.
Solomon Nevins, Senior Investment Manager, Architas Diversified Real Assets Fund Focusing on returns with a low correlation to traditional assets. ’The fund is designed to provide broad exposure to a range of real asset investments, good levels of inflation protection
The fund provides a diversified exposure to assets that cannot be accessed via more traditional means. However, as with any investment, there is always a caveat emptor and, in the case of real assets in general, there are a number of considerations to bear in mind. Disclaimer »
"The strategy is structured as a fund of funds, meaning that instead of investing directly into real assets it invests into other funds. This approach brings the advantage of outsourcing to experts in their respective fields, as well as providing a high level of diversification."
Alex Farlow, Head of risk-based solutions research,
Square Mile Investment
“At the time of writing, the Architas Global Diversified Real Assets Fund is one of only two funds that hasn’t gone down with the recent stock market slump, which is exactly what a diversified fund like this is for. I started investing in the fund when it launched, and it is up 10% since then. I use it as a satellite fund in a standard portfolio and will maintain my position. ”
Tim Forster_ specialist financial consultant_ Medical and Financial
Ben Yearsley_ director_ Shore Financial Planning
“Some portfolios need anchoring with funds that are consistent steady performers. Many people have used absolute returns over the past 15 years, and have been disappointed since the funds have failed to deliver what they are supposed to. From that point of view, I’ve always wanted to find something with that kind of profile but not in the absolute return mindset. The fund is an excellent ballast that provides protection in volatile markets. ”
Steven Rooke_ portfolio director_ Cazenove Capital
“We hold the Architas Diversified Real Assets Fund within our model portfolio service in order to access a wide range of alternative asset classes and sectors, notably specialist property, infrastructure and renewable energy. The fund sits within our alternatives allocation, providing diversification benefits versus more traditional asset classes, with the managers monitoring overall volatility and correlation of the underlying investments. ”
Architas Diversified Real Assets Fund
and market views together
Axis analyses the fund
strategy directly from the
from four perspectives to
bring you insight, research
fund managers themselves.
with an explanation of the
Click for sound
Solomon Nevins, Senior Investment Manager, Architas Diversified Real Assets Fund Focusing on returns with a low correlation to traditional assets. ’The fund is designed to provide broad exposure to a range of real asset investments, good levels of inflation protection and returns that are lowly correlated with traditional investments’ Solomon Nevins.
Mayank Markanday, Investment Manager, Architas Diversified Real Assets Fund The fund is co-managed by senior investment manager Solomon Nevins and investment manager Mayank Markanday. Solomon joined Architas in 2008; Mayank joined in November 2017. Both have more than 10 years of investment experience.
The fund provides a diversified exposure to assets that cannot be accessed via more traditional means. However, as with any investment, there is always a caveat emptor and, in the case of real assets in general, there are a number of considerations to bear in mind. Disclaimer »
Tim Forster_ specialist financial consultant_
Medical and Financial
Steven Rooke_ portfolio director_ Cazenove Capital
JOB TITLE_ Head of risk-based
solutions research
Scroll down to see what the Fund Managers have to say...
Scroll down to see what the Fund Buyers have to say...
Fund size
(AUM)_
A-Share
class OCF_
Rated
by_
Source: Architas
accurate as of 30 Sep '18
Launch
date_
Yield_
Return since
launch_
1
2
3
4
5
6
7
8
9
0
£
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SPENCER
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Source: Morningstar
as at 30 Sep ’18.
Past performance is not a guide to future performance. Performance since inception of Architas Diversified Real Assets Fund 5 Aug ’14. Competitors are largest multi-strategy absolute return funds from the IA targeted absolute returns sector and are not an official peer group. Data anonomised for competitor funds
Architas Diversified Real Assets Fund Risk vs Return
-2
Architas Diversified Real Assets A Acc
Standard deviation (%)
9
12
0
3
4
6
Total return (%)
Competitor funds
15
ICE Libor 3-month GBP
2
Architas Diversified Real Assets Fund
Risk vs Return
Timber equity 1.73
Specialist
property
11.33
Asset leasing
3.86
3.32
4.99
Cash 1.97
4.57
6.58
Energy infrastructure
5.94
3.4
Project
finance
5.77
Social trusts
9.29
Leveraged loans
8.82
Global equity
infrastructure
Inflation-linked
bonds
Direct
property
Property debt
Catastrophe re-insurance
Global
Reits
5.82
4.66
Gold 2.64
Metals/
energy/grain
3.51
Renewable infrastructure
Architas Diversified Real Assets Fund Asset Allocation %
Source: Architas, as at 30 Sep '18