Funds in the Mixed Investment sectors blend shares and bonds. Some also hold alternative investments to try to boost returns or offer some shelter when markets fall. They use a wide range of strategies, from the cautious to the more adventurous.
- Flexible investment funds - can invest up to 100% in shares or invest more in bonds or cash.
- Mixed investment 40-85% shares funds - invest in bonds and shares, but the allocation to shares must be between 40% and 85%.
- Mixed Investment 20-60% Shares funds - are likely to have more invested in bonds than the two types of fund above. Shares make up 20% to 60%.
- Mixed Investment 0-35% Shares funds - can only invest up to 35% in shares, so are likely to hold the most in bonds.
The Targeted Absolute Return sector is different. These funds use various strategies to try and minimise the impact of falling stock markets. They can perform quite differently from more traditional funds.
Mixed Investment – funds in these sectors are useful for investors who know roughly how much stock market risk they’re willing to take and prefer a balanced, diversified portfolio looked after by a professional fund manager. More cautious investors tend to prefer the Mixed Investment 0-35% Shares and 20-60% Shares sectors. Funds in the Flexible and 40-85% Shares sectors tend to attract more adventurous investors.
It’s difficult to consistently perform well by switching between different asset classes, such as shares and bonds, on a regular basis. We prefer fund managers who take a long-term view, and have been successful in changing the exposure to different assets, industries and companies when the time is right. The Wealth 150+ highlights our current favourites
Absolute Return - this sector contains a mix of funds. It includes those focused on the UK, Europe, global markets, bonds and alternative assets. Many try to make positive returns in a variety of market conditions, but do this in different ways and returns aren’t guaranteed. Each fund should be considered based on its own aims and shouldn’t necessarily be compared directly with other funds in the same sector.
We usually prefer ‘Total Return’ funds, such as Newton Real Return or Pyrford Global Total Return. They tend to try to make positive returns over the medium-to-long-term and provide some growth when stock markets rise, as well as some shelter in falling markets. They often invest in a combination of assets including shares, bonds, cash, commodities, and currencies.
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 of 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 share and bond markets have performed well. Funds investing in these areas have also generally delivered good returns. Those that have invested more in shares and taken on more risk have tended to perform better, though this isn’t a guide to how they’ll perform in future.
Mixed investment & targeted absolute return sectors - five year performance
Past performance is not a guide to the future. Source: Lipper IM to 31/08/2018
Most global stock markets have been volatile over the past year. Concerns about Britain’s exit from the EU put a lot of people off investing in the UK. And the escalating trade war between the US and China put pressure on Asian and emerging stock markets.
It was a different story in the US. Its stock market made strong returns, helped by some of the country’s largest technology companies. More recently a strong dollar against sterling also boosted returns for UK-based investors.
Concerns over rising interest rates, and the potential for governments around the globe to withdraw policies that have helped keep bond prices high, meant global bond markets were also volatile. Most bond markets made a small gain by the end of the year. But emerging market debt made a small loss.
Most mixed-asset funds made a positive return. Those with more invested in shares tended to do better. Especially those focused more on US companies. Targeted Absolute Return funds fell slightly. But they were much less volatile and generally did a good job of sheltering investors when markets fell or were more volatile.
We think government bonds are still useful to diversify a portfolio. But yields are low so we think there are other assets that could deliver better returns. Corporate bonds, including higher-risk high-yield bonds, offer acceptable yields for the risks being taken in our view. They’re also useful for investors who want a regular income or don’t want to only invest in shares. Yields are variable, not guaranteed and not a reliable indicator of future income.
We think stock markets should deliver good returns for investors able to take a long-term view.
Our favourite funds in the sector
For more information on the risks, please refer to the Key Investor Information Document for each fund. Remember all investments can fall as well as rise in value so you could get back less than you invest. Past performance isn’t a guide to the future.
Other funds in the sector
To view a full list of our favourite funds within the sector, visit the Wealth 150+.
Source for performance figures: Financial Express
Mixed Investment 40-85% Shares. Around three-quarters of this fund is usually invested in shares from across the globe including higher-risk emerging markets. The rest is invested in bonds and cash.
The fund's performance has been impressive over both the short and long term, though past performance isn’t a guide to the future. The managers mainly invest in businesses expected to grow faster, or at a steadier rate, than others. This investment style has worked well in recent years. In particular investments in US companies and technology companies has helped. But there will be times when other styles work better and this could impact the fund's performance. Over the longer term we still think investors will benefit from investing with such a robust team and a longstanding process. The managers have the ability to use derivatives which increases risk.
This fund has a holding in Hargreaves Lansdown plc shares.
Targeted Absolute Return. A flexible fund managed by an experienced team who invest across shares, bonds, cash, and some other alternative assets. It aims to beat the return on cash, and shelter your investment during difficult periods.
The team at Newton believe now is the time to be cautious. Stock markets have performed well for a number of years, and they don’t think current share prices offer enough potential reward for the amount of risk investors take. So the fund is currently invested in a conservative way. It invests in some shares, but also has a large portion in cash and government bonds. This held back performance for a couple of years but it’s worked well more recently. Past performance isn’t a guide to future returns though. The fund has the flexibility to invest in high yield bonds, emerging markets, and derivatives, which can increase risk.
Mixed Investment 40-85% Shares. This fund mainly invests in shares, bonds and cash by holding some individual Schroders funds. So it provides access to a number of the group's highly-rated fund managers.
The management team at Schroders decides how much of the fund should be invested in different asset classes, based on their economic views. Then they invest in a range of the group’s own funds. The fund is currently focused on developed markets, such as the UK. It also invests in higher-risk emerging markets shares, as well as government and corporate bonds. It’s performed the same as the average fund in its sector over the past year, but performed better over the longer term. We like that this fund offers exposure to a broad spread of assets at low cost. The fund has the flexibility to invest in derivatives and high-yield bonds which adds risk.
Mixed Investment 40-85% Shares. This fund aims to generate an attractive and sustainable income by investing across global financial markets, including higher-risk emerging markets, but with a focus on shares.
Investing in out-of-favour companies and holding them for the long term has worked well for Robin Hepworth. His long-term performance is excellent, though past performance isn’t a guide to future returns. In recent years the manager’s investment style has lost its shine and many investors have preferred companies they think have higher-growth potential. This hasn’t helped performance but investment styles go in and out of fashion, and we believe the tide will turn back in Robin Hepworth’s favour again. We think this is an excellent income-focused fund.
Targeted Absolute Return. James Clunie invests in companies with the potential to perform well. He also enters ‘short positions’ that could make money if share prices fall. This involves using derivatives, which can increase risk.
Short positions in some US technology companies recently held back returns because their share prices performed well. That said, we rate the manager’s knowledge and experience. He sees the world in a different way to many other fund managers, so his fund is also invested quite differently. This means it could offer good diversification to a broader investment portfolio. But the fund’s performance has been inconsistent over the past few years. We’d like to see this improve before considering it for the Wealth 150+ list of our favourite funds in the major sectors. The fund is a concentrated portfolio and the manager is also able to invest in high-yield bonds, both of which add risk.
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Please note the research updates are not personal recommendations to trade. If you are unsure of the suitability of an investment for your circumstances please seek advice. Remember all investments can fall as well as rise in value so investors could get back less than they invest.
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