Funds in the Mixed Investment sectors blend shares and bonds, while some also hold alternative investments with the aim to boost returns or offer a degree of shelter when markets fall. They encompass a wide variety of strategies from the cautious to the more adventurous.
Funds in the Flexible Investment sector can invest up to 100% in shares or invest a large proportion in bonds or cash. Funds in the Mixed Investment 40-85% Shares sector invest in bonds and shares, but the allocation to shares must be between 40% and 85%. In the Mixed Investment 20-60% Shares sector funds are likely to have a higher allocation to corporate bonds than the two sectors mentioned previously, and the shares element can be between 20% and 60%. The Mixed Investment 0-35% Shares sector is home to funds that can only hold up to 35% in shares, and are therefore likely to hold the largest weighting in bonds.
The Targeted Absolute Return sector differs in that funds actively use strategies to try and minimise the impact of falling stock markets. This means they can perform quite differently from more traditional funds.
Source: Lipper IM to 31/01/2017. Past performance is not a guide to future returns.
|Annual percentage growth|
| Jan 12 -
| Jan 13 -
| Jan 14 -
| Jan 15 -
| Jan 16 -
|IA Flexible Investment||12.3%||6.6%||9.7%||-4.3%||20.8%|
|IA Mixed Investment 0-35% Shares||6.8%||2.0%||7.4%||-2.8%||9.7%|
|IA Mixed Investment 20-60% Shares||9.2%||4.6%||8.2%||-3.3%||13.6%|
|IA Mixed Investment 40-85% Shares||11.6%||7.2%||9.2%||-3.6%||18.3%|
|IA Targeted Absolute Return||4.4%||5.2%||3.8%||0.3%||2.3%|
Past performance is not a guide to future returns.
Source: *Lipper IM to 31/01/2017
Mixed Investment – funds in these sectors are useful for investors who know roughly how much stock market risk they are willing to take and who prefer a balanced, diversified portfolio looked after by a professional fund manager. More cautious investors tend to be drawn to the Mixed Investment 0-35% Shares and 20-60% Shares sectors, while funds in the Flexible and 40-85% Shares sectors tend to attract more adventurous investors.
It is notoriously difficult to consistently perform well by aggressively shifting a portfolio around and switching between different asset classes on a regular basis. We therefore prefer fund managers who take a long-term view, but have demonstrated an ability to add value by varying exposure to different assets, industries and companies when the time is right. Few have done so over the long term and the Wealth 150 highlights those we regard highly.
Absolute Return - this sector contains a mix of funds, including those focused on the UK, Europe, global equities, bonds and alternative assets. Many share similar objectives, such as the aim to achieve positive returns in a variety of market conditions, but they go about achieving this in very different ways. Each fund in the sector needs to be considered on its individual merits and comparisons between funds are not always valid.
We tend to prefer ‘Total Return’ funds over Absolute Return funds. Total Return funds (such as Newton Real Return or Pyrford Global Total Return) tend to seek, but don’t guarantee, positive returns over the medium-to-long-term, and aim to capture some stock market upside while also seeking to offer some relative downside shelter. Many aim to achieve their objective by investing in a combination of assets including shares; bonds; cash; commodities; and currencies.
The value of all investments can fall as well as rise so you could get back less than you invest. Funds in these sectors have the ability to invest in emerging markets, smaller companies and high yield bonds. Some will make use of derivatives, while others maintain a concentrated portfolio of investments. These factors could have a greater impact on performance, but increase risk. Please read the key investor information documents for further details.
Please remember past performance is not a guide to future returns. Where no data is shown, figures are not available. This information is provided to help you choose your own investments, remember they can fall as well as rise in value so you may not get back the original amount invested.
The flexibility afforded to funds in the mixed investment and absolute return sectors means performance will vary widely, even between funds in the same sector.
Over the past five years both equity and bond markets have performed well overall, and investments in these sectors have achieved respectable returns. Funds with higher exposure to shares and those where the managers have been prepared to take on more risk have been rewarded on the whole, although this is not a guide to how they will perform in future.
Past performance is not a guide to the future. Source: Lipper IM to 31/01/2017
Over the past 12 months Asian and emerging markets performed strongly, although they stumbled following Donald Trump’s election as US President in November amid fears his protectionist policies could hurt the region’s exporters. Across the board, sterling’s weakness against the world’s major currencies significantly boosted the returns from overseas assets for UK-based investors. While positive, returns from the UK market were weaker, particularly from domestically-focused medium-sized companies, given investor concerns over the potential implications of the UK’s exit from the EU.
In terms of broad investment styles, managers who focus on undervalued and out-of-favour businesses struggled for several years, as investors preferred the perceived safety of companies capable of stable growth and with more certainty over their earnings. However, since mid-2016 this trend has reversed.
Global and UK bond markets performed well in the first half of the year as investors continued to appreciate the income on offer in a low interest rate world. Bond prices have weakened (and yields risen) more recently, however, amid growing fears interest rates and inflation are on the rise.
Looking ahead, we believe government bonds offer diversification benefits, but with yields still at historic lows we believe there are opportunities to deliver better returns elsewhere. Corporate bonds, including higher-risk high-yield bonds, offer acceptable yields for the risks being taken, in our view, and remain useful for income-seeking investors and those who don’t want 100% exposure to shares. Yields are variable and not guaranteed.
We continue to believe stock markets will deliver good returns for investors able to take a long-term view. Asian and emerging markets look good value, according to our analysis, although they are higher risk. European markets also look attractively-valued, while other developed stock markets look reasonable value with the arguable exception of the US, which we believe looks overvalued following a strong recovery from the global financial crisis.
To view a full list of our favourite funds within the sector, visit the Wealth 150.
Source for performance figures: Financial Express
Mixed Investment 20-60% Shares. A balanced portfolio of shares, bonds and cash, with a highly-experienced manager at the helm. We view it as a traditional and relatively cautious mixed-asset fund.
The fund has delivered a positive return over the past year, although it has lagged the sector average. Chris Burvill’s preference for lowly-valued, out-of-favour companies held back performance in the first part of the year, while a bias to the UK also dragged on performance over the year given sterling’s weakness against the world’s major currencies. The manager has added considerable value for investors over the long term, however. We view Chris Burvill as a highly-experienced manager with a sensible and straightforward investment process.
Mixed Investment 40-85% Shares. This fund aims to generate an attractive and sustainable income by investing across global financial markets, but with a bias towards shares.
Following a difficult 2015 for the fund, performance rebounded and was strong over the past year. As a contrarian investor, Robin Hepworth focuses on out-of-favour areas, and aims to identify companies undervalued by other investors. More recently this style has worked in the fund’s favour. The fund is generally biased to UK companies, which often pay higher dividends than those located elsewhere although diversification is achieved via exposure to Europe, Japan and the US. In addition to more traditional corporate bonds, the bond portion of the portfolio also invests in preference shares, which entitle the holder to a fixed dividend, payment of which is prioritised over ordinary shares. The fund can also invest in higher-risk high yield bonds.
Flexible Investment. This 'total return' fund aims to perform well when stock markets rise and offer some shelter when they fall by investing in a highly diversified portfolio which includes shares, bonds, cash, commodities and currencies.
The equity portion of the fund has generally performed well since the fund’s launch in 2009. However a large short position, which aims to benefit from falling prices, on government bonds proved a strain on performance as bond prices have generally continued to rise (and yields fall). William Littlewood has held this position as he believes the large amount of debt created by developed-world governments via quantitative easing will lead to high inflation and more recently it has paid off. Exposure to overseas investments and currencies has also helped given the strength of global currencies against sterling.
Flexible Investment. Aims for long term-growth with less volatility than stock markets by investing globally in shares, government bonds and cash.
The fund has performed well over the past year. Sterling’s weakness against most major global currencies proved a significant tailwind and boosted returns from the fund’s overseas investments. The management team felt stock markets offered greater value in early 2016 and increased exposure to shares. Global stock markets subsequently rebounded and the team took the opportunity to take profits from this portion of the portfolio in mid-2016. This is in keeping with their process of rotating from investments which have performed well into those which have lagged and look better value, and vice versa. The fixed interest portion of the fund is focused on short-dated government bonds, which are less sensitive to rising interest rates.
Mixed Investment 40-85% Shares. This fund typically invests around 80% in shares, with the remainder invested in bonds and cash.
Jamie Hooper will assume overall management of the fund when current co-manager Richard Peirson retires in March 2017. He currently manages the UK equity portion of the fund; he will continue to do so and also decide how much of the rest of the portfolio to allocate to AXA Framlington’s other regional equity and bond specialists. The manager has worked alongside Richard Peirson for three years and his approach is similar so we do not anticipate any significant changes to how the fund is managed. That said, we would like to monitor how the fund adapts to the change in management before considering the fund for the Wealth 150. This fund has the flexibility to invest in emerging markets and smaller companies, which are higher risk.
Mixed Investment 20-60% Shares. Aims to generate a monthly income through a portfolio primarily consisting of UK shares and bonds.
The fund’s performance has recently been held back by a lack of exposure to the shares of oil and mining companies, which have performed well. The bond portion remains cautiously positioned and is focused on short-dated bonds, which the managers feel can be sold quickly in order to raise the cash to exploit new opportunities when they arise. In our view, the team have the ability to navigate difficult market conditions. We have high conviction in Paul Read and Paul Causer to manage the bond portion of the fund, but we currently prefer to access their expertise through other funds they manage. We believe this is a solid option for flexible exposure to shares, bonds and cash, although we currently favour other funds in the sector.