CERNO SELECT FUND: Designed to allow its investors to ‘sleep soundly at night’ with a truly diversified portfolio
Cerno Select is designed to allow its investors to ‘sleep soundly at night’, says Fergus Shaw who has co-managed the £139million fund since 2017.
It invests in assets and sectors all around the world, to produce a truly diversified portfolio. The hope is to reduce volatility and make investing a less hair-raising ride, even in the current difficult market conditions.
‘We think that one of the biggest dangers for investors is throwing the towel in when things get tough,’ says Shaw. ‘We help them to stay invested by making it less painful to look at those annual account statements.’
The fund has turned a £1,000 investment into £1,160 over three years, although it is down 10.4 per cent in the past year.
It aims to produce a return from income and capital of three percentage points above inflation. With inflation at 9.9 per cent, this is quite ambitious. But Shaw believes inflation should return to a more normal position over the medium to long term. Cerno Select invests in everything from Japanese companies to gold and healthcare, either directly or via an actively managed fund, investment trust or even a passive fund that simply follows an index.
‘We use the best vehicle for the type of investment we’re looking for,’ says Shaw. ‘If we think we can find an actively managed fund that can produce strong returns and justify the fees, we’ll do it. Otherwise, we will go for a cheaper, passive option.’
Shaw and the team do not believe there is a fund that invests in Japan that suits their approach. So they have stuck with the low-cost iShares Core MSCI Japan fund. Similarly, they want to hold a wide range of undervalued companies from around the world, so they invest in the low-cost iShares Edge MSCI World Value.
However, when it comes to healthcare, they believe expertise is worth paying for. As a result, they invest in Bellevue Healthcare Trust, which is overseen by fund managers who are knowledgeable about both healthcare and investing.
The fund invests directly in Nestle, electric vehicle technology company Aptiv and bicycle component manufacturer Shimano. These share similar attributes of doing something better than their competitors and having the power to put up prices when their costs are hit by inflation.
For expertise on direct holdings, the fund draws on the advice of its stablemate Cerno Global Leaders Equity Strategy.
Inflation protection is crucial, especially in turbulent times such as these. So, the holdings include a number of infrastructure funds that gain a reliable income from rental returns. These include HICL Infrastructure and LXI Real Estate Investment Trusts, which own buildings and charge their tenants rent (adjusted for inflation every year). To diversify further, Cerno Select has a small holding in a passive gold fund, which tracks the price and is backed by physical gold in vaults.
The fund offers an income of around two per cent. Shaw says the yield is not higher because the emphasis is on equities, which are picked for their ability to increase in value rather than produce an income.
Shaw believes the fund could be a core holding for investors, as it contains a balance of investments. However, investors will need to pay for this mix as the ongoing cost is 1.32 per cent, which is on the higher side.
‘We invest in funds as well as companies directly, which adds to the fees,’ says Shaw. ‘However, we believe that this multi-asset approach offers good value and pays off in the long term.’ The trust’s stock market identification code is BCZXTP5.