HEAD-TO-HEAD: Columbia Threadneedle vs Fidelity

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The two funds differ in their objective and the investment approach.

The Threadneedle fund aims to deliver income and growth, according to its fact sheet, although Ng said the fund’s focus was on equity-like returns with reduced volatility.

The fund’s stated benchmark is the US Consumer Price Index, but the fund does not have a specified target return above the level of inflation.

The fund invests directly in bonds and listed equities. However, it can also use derivatives and managed strategies. On 31 March, the fund held 41.9% in equities, 12.6% in bonds, 8.8% in commodities and as much as 36.7% in cash or money market instruments. The commodity allocation consisted of a single position in the Threadneedle Enhanced Commodities Fund.

The fund held between 20% and 40% of its assets in cash for most of the past three years. Cash is considered an asset class, Ng noted. The fund’s manager has the leeway to hold it in the fund for a variety of purposes, such as preserving capital, safeguarding against extreme volatility or when they cannot identify other suitable investment opportunities.

A cash holding can also be an active bet on a foreign currency, or a cover for a derivative position, Ng noted. While the currency breakdown for the fund’s cash position is not available, overall the fund has as much as 31.5% exposure to currencies other than the US dollar.

Such large cash positions, however, are not common. A quick search of mixed asset funds with large cash or money market allocations has revealed that less than 10 funds out of 136 in the category had 10% or more assets in cash.

While holding a large allocation to cash reduces the fund’s volatility, it negatively affects its returns when equity markets rally, as they did in 2017.

The Fidelity fund also aims to deliver income as well as moderate capital growth, through asset class allocation and asset selection. The decisions on asset class allocation are based on analysis of macroeconomic scenarios. The allocation is then implemented using other Fidelity strategies, making this essentially a fund-of-funds.

The fund is benchmarked to a combination of the Bloomberg Barclays Global Aggregate Bond Index and the MSCI AC World Index, in equal weights. On 31 March, 60% of the fund’s assets were invested in bond strategies, 39% in equities and the remaining 1% in commodities and cash.

Historical data shows that the manager has been underweight equities recently, gradually reducing the equity allocation from 54% in April 2015 to 34% in December 2017, but adding to it in early 2018.

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