This next instalment of our Funds in Focus series will concentrate on Zurich Pathway funds. These are a series of actively managed multi-asset funds designed to generate long-term capital growth while targeting specific levels of volatility. We have discussed the importance of these types of “risk based” multi-assets funds in a previous blog which you can read here.
We have previously looked at other risk based funds with Davy Select, Standard Life and New Ireland. The general principles of the Pathway funds are the same in that they target specific levels of volatility and are rebalanced to make sure that funds don’t slide out of their allotted risk category.
How do Pathway Funds Work?
Similar to the other funds we have examined, each Pathway multi-asset fund is diversified and can include a range of different asset classes. The Pathway Funds have a global reach and they extend across global equities, bonds, property, cash and alternatives. Different asset classes will tend to deliver varying levels of performance at different stages of economic cycles. Many of these asset classes historically have lower correlations to movements in equity prices and, hence, can help to combat long-term volatility within each fund. For example, with Pathway 5, the addition of alternative assets, such as gold, helps to ensure diversification as Gold returns have a very low correlation with equity returns.
The Zurich investment team makes asset allocation decisions on a continuous basis, and these decisions will impact the allocation to each asset class within the funds. However, at all times they will focus on making sure that each fund stays within its volatility range as prescribed by the ESMA* scale.
So, what’s so different about the Pathway Funds? We feel there are a few key differences between Pathway and other similar funds in this category that will make them more attractive to certain investors.
Five Risk Targeted Solutions
Unlike other funds we have examined, Zurich offer a full range of multi-asset funds on the ESMA Volatility scale. These 5 risk targeted solutions range from ESMA 2 – 6 (There is no Pathway 1 or 7 as these would be invested 100% in Cash or Equities, so would not qualify as multi-asset funds). Although the Standard Life MyFolio range offers 5 different funds, they fall within ESMA 3 – 5. The Zurich Life Pathway 2 fund offers low risk investors a chance for better returns than cash while still keeping the primary focus on capital preservation. This type of fund may be appropriate for investors who have built up substantial funds and are approaching retirement age.
Strong Active Manager Track Record
At Metis Ireland we have a bias towards passive investment managers as they tend to be cheaper and historical data shows that there is little evidence that active fund managers provide a better return over the long-term. In this instance Zurich buck the trend. Over the last 25 years they have consistently outperformed the other managers in the Irish market per the below graph.
Source: MoneyMate, August 2015. Graph shows the performance of Zurich Life’s Balanced Fund versus the best performing fund from each competitor in the Managed Balanced & Managed Aggressive sectors. Figures quoted (01/08/90 to 01/08/15) are gross of Annual Management Charges. Returns are based on offer to offer performance and do not represent the return achieved by individual policies linked to the fund.
Zurich’s philosophy is that “market inefficiencies justify an active management approach” to all levels of the investment process including asset allocation, geographical bias, sector preference and stock selection. They use a ‘top-down’ or ‘big picture’ investment approach to identify the best investment opportunities. Although we don’t always agree with this approach at Metis Ireland, we do have to appreciate that Zurich’s proven track record over such a long period of time adds a lot of credence to their philosophy.
As we have seen with some other providers, they can often have an additional fund charge as they employ external fund managers to implement different strategies within the fund. There is no additional charge for investing the Pathway Funds. As Zurich manages their investment process “in-house” they are able to achieve significant economies of scale and consistently provide lower charges than their competitors.
*ESMA = European Securities and Market Authority
Metis Ireland Ltd t/a Metis Ireland is regulated by the Central Bank of Ireland. All content provided in these blog posts is intended for information purposes only and should not be interpreted as financial advice. You should always engage the services of a fully qualified independent financial adviser before entering any financial contract. Metis Ireland Ltd t/a Metis Ireland will not be held responsible for any actions taken as a result of reading these blog posts.