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.
Our view on the Mixed Investment / Absolute Return sectors
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 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 achieve greater returns than their peers 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 markets, 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 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 growth while also seeking to offer some shelter in falling markets. Many aim to achieve their objective by investing 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 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.
Sector performance over 5 years
Past performance is not a guide to the future. Source: Lipper IM to 28/02/2018
Over the past year, global politics brought high levels of uncertainty. Despite the tension, most global stock markets delivered impressive performance.
Asian and emerging countries were home to some of the world's best-performing stock markets. Against an improving global economic backdrop, investor sentiment towards the region saw a resurgence to the benefit of share prices. With Brexit negotiations on the horizon, many investors dismissed the UK stock market, which delivered a weaker, but still positive, return.
Global bond markets had a more difficult year as concerns over rising interest rates and inflation intensified. UK corporate bonds delivered a small positive return, but UK government bonds and other global bonds fell in value.
In this environment, most mixed-asset funds delivered positive returns, but experienced periods of volatility. Those with greater exposure to shares tended to deliver greater gains, particularly those with a greater focus on overseas, rather than UK, shares. Returns from funds in the targeted absolute return sector were more muted given the more conservative nature of these funds, although they generally did a good job of sheltering investors during periods of heightened stock market volatility.
Looking ahead, we believe government bonds offer diversification benefits, but with yields still low 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, not guaranteed and not a reliable indicator of future income.
We continue to believe 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 associated with each fund, please refer to the Key Investor Information Document for the specific fund. Remember all investments can fall as well as rise in value so investors could get back less than they invest. Past performance should not be seen as guide to future returns.
Other funds in the sector
To view a full list of our favourite funds within the sector, visit the Wealth 150+.
The funds below can invest in higher-risk, high yield bonds, which can increase risk. Charges can be taken from capital, which can increase the yield but reduces the potential for capital growth.
Source for performance figures: Financial Express
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.
The fund performed in line with its peers over the past year. It can invest in companies across the globe, including higher-risk emerging markets, but it's biased towards UK businesses, which often pay higher dividends than companies located elsewhere in the world. However, the UK stock market underperformed most other major global markets over the past 12 months. We are encouraged by the manager's longer-term performance and his excellent record of growing the fund's income, although this is not a guide to the fund's future performance or income. We view Robin Hepworth as an experienced investor with a sensible investment approach, and remain positive about the fund's future prospects.
Please note charges can be taken from capital, which can increase the yield but reduces the potential for capital growth.
Flexible Investment. Aims for long term-growth with less volatility than stock markets by investing globally in shares, government bonds and cash.
The managers are naturally conservative in the way they run this fund. It mainly invests in developed markets, although they have the flexibility to invest in higher-risk emerging markets. In recent years both shares and bonds have performed well, so the team views both as overvalued and the fund has been invested cautiously as a result. The fund's returns are likely to remain modest while stock markets are buoyant, but we believe it could offer some shelter if they fall. As and when this happens we expect the team to take advantage of any setback by investing in shares at more attractive prices in order to deliver long-term growth.
Please note as this is an offshore fund you are not normally entitled to compensation through the UK Financial Services Compensation Scheme.
Flexible Investment. This fund aims to perform well when stock markets rise and offer some shelter when they fall by investing in a diversified portfolio of shares, bonds, cash, commodities and currencies.
The portion of the fund invested in shares has generally performed well since launch in 2009. It has the ability to invest in emerging markets, smaller companies, and high yield bonds, as well as use derivatives, which can increase risk. The managers also have the ability to make investments that benefit from falling share or bond prices – known as shorting. Short positions in shares haven't worked over the past year as most global stock markets made strong gains. However, short positions in government bonds have benefited recent performance as global bond markets fell in value. We like the diversification this fund could bring to a wider portfolio and believe it could offer some resilience during periods of market turbulence.
Flexible Investment. Crispin Odey is a contrarian investor which means this fund tends to be invested quite differently to its peers. In addition to global shares, the fund invests in bonds, commodities, and cash.
In recent years Crispin Odey has held a cautious view of the world and believes the current economic cycle, as well as stock market growth, is reaching a peak. The fund has been positioned to reflect this view – while a reasonable portion is invested in shares, the fund holds a greater level of cash and gold than its peers. As global stock markets have continued to grow strongly, this view has proven incorrect and held back the fund’s returns. The manager has been early in repositioning this fund based on his wider economic views in the past. However, given time his views have typically come to fruition and investors have been rewarded for their patience. The fund invests in a concentrated number of investments, including emerging markets and smaller companies, and can use derivatives, which increases risk.
Please note charges can be taken from capital which can increase the yield but reduces the potential for capital growth.
Mixed Investment 20-60% Shares. A balanced portfolio of shares, bonds and cash. We view it as a traditional and relatively cautious mixed-asset fund.
Chris Burvill stepped down as co-manager of this fund in February 2018. Stephen Payne, who was appointed co-manager in July 2016, continues to manage the fund and we believe it still has the potential to deliver good returns. However, for the Wealth 150+ we seek managers with long, successful track records and the potential to outperform their respective benchmark or peer group over the long run. We originally supported this fund because of the experience and track record of Chris Burvill. We don't believe Stephen Payne currently has a long or strong enough track record in his own right.
Mixed Investment 20-60% Shares. Aims to generate a monthly income through a portfolio primarily consisting of UK shares and bonds.
The fund performed in line with the average fund in the sector over the past year. The fund has less invested in shares than many of its peers and this held back performance during a year when global stock markets generally performed well. Investments in the utilities and tobacco sectors also didn't help. The bond portion is relatively conservative and invests in a number of short-dated and government bonds, which can be sold quickly in order to raise the cash to invest in more attractive opportunities when they arise. 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. They have the ability to use derivatives, which can increase risk.
Latest research updates
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.
Our expert research team provide regular updates on a wide range of funds.