CERNO SELECT FUND: Designed to allow its investors to ‘sleep soundly’

Cerno Select is designed to put its investors to sleep at night,” said Fergus Shaw, who has co-managed the £139m fund since 2017.

It invests in assets and sectors 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 today’s difficult market conditions.

“We think one of the biggest dangers for investors is to throw in the towel when the going gets tough,” Shaw said. “We help them stay invested by making it less painful to look at those financial statements.”

The fund has turned an investment of £1,000 into £1,160 in three years, although it has fallen 10.4 per cent in the past year.

It aims for a return on income and capital of three percentage points above inflation. With an inflation rate of 9.9 percent, that is quite ambitious. But Shaw believes inflation should return to normal in the medium to long term. Cerno Select invests in everything from Japanese companies to gold and healthcare, either directly or through an actively managed fund, investment trust, or even a passive fund that simply tracks an index.

“We’re using the best vehicle for the type of investment we’re looking for,” Shaw says. “If we think we can find an actively managed fund that can deliver strong returns and justify the fees, we’ll do it. Otherwise we will go for a cheaper, passive option.’

Shaw and the team don’t believe there is a fund investing in Japan that fits their approach. So they stuck with the cheap iShares Core MSCI Japan fund. Likewise, they want to hold a wide range of undervalued companies from around the world, so they invest in the cheap iShares Edge MSCI World Value.

But when it comes to healthcare, they value expertise. As a result, they invest in Bellevue Healthcare Trust, which is overseen by fund managers with expertise in both healthcare and investing.

The fund invests directly in Nestle, electric vehicle technology company Aptiv and bicycle parts manufacturer Shimano. These share the same characteristics of doing slightly better than their competitors and having the power to raise prices when their costs are hit by inflation.

For direct interests expertise, the fund uses the advice of its stablemate Cerno Global Leaders Equity Strategy.

Inflation protection is crucial, especially in turbulent times like these. The holding companies thus include a number of infrastructure funds that generate a reliable income from rental income. These include HICL Infrastructure and LXI Real Estate Investment Trusts, which own buildings and charge their tenants rent (adjusted for inflation each year). To further diversify, Cerno Select has a small stake in a passive gold fund, which tracks price and is backed by physical gold in vaults.

The fund offers an income of approximately two percent. Shaw says returns aren’t higher because the emphasis is on stocks, which are chosen for their ability to increase in value rather than generate income.

Shaw believes the fund could be a core holding for investors as it holds a balance of investments. However, investors will have to pay for this mix as ongoing charges are 1.32 percent, which is on the high side.

“We invest in both funds and companies directly, which increases costs,” Shaw says. “However, we believe this multi-asset approach offers good value and pays off in the long run.” The trust’s exchange identifier is BCZXTP5.