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Mixed Investment / Total Return

Mixed Investment / Total Return

The flexibility afforded to funds in these sectors means performance will vary widely, even between funds in the same sector.

Tom Mills - Senior Investment Analyst
29 April 2021

The Mixed Investment sectors offer a wide variety of funds. They usually blend together shares and bonds and some also invest in other types of assets to provide more diversification. Portfolio mix aside, the funds can have very different aims. Some focus on growth while trying to provide some shelter from volatility. Others seek to protect your wealth in all market conditions. Between them they offer a wide range of approaches, from the cautious to the more adventurous, so you need to choose carefully to match your risk appetite.

There are several sectors within the Mixed Investment category:

  • Flexible Investment funds - can invest up to 100% in shares or invest more in bonds or cash. Generally the most adventurous mixed investment funds
  • Mixed Investment 40-85% Shares funds - must invest between 40% and 85% in shares. The rest can be in bonds or other assets
  • Mixed Investment 20-60% Shares funds - must invest between 20% and 60% in shares. They’re likely to have more invested in bonds than the two types of fund above
  • Mixed Investment 0-35% Shares funds - can only invest up to 35% in shares. They’re likely to hold the most in bonds, and are among the most cautious funds in the mixed investment sectors
  • Targeted Absolute Return - try to minimise the impact of falling markets. These funds can perform quite differently from more traditional mixed investment funds

HL view

Flexible and mixed investment

Funds in these sectors are a convenient way to diversify across different assets. They’re useful for investors looking for a more balanced approach than funds only investing in shares or bonds.

You can match how much volatility risk you’re comfortable with to how much a fund manager invests in the stock market. The Mixed Investment 0-35% Shares and 20-60% Shares sectors could make up the more cautious part of a portfolio. Funds in the Flexible and 40-85% Shares sectors tend to be used for seeking higher gains but come with more volatility risk.

It’s difficult to consistently perform well by regularly switching between different asset classes, such as shares and bonds. We prefer fund managers who take a long-term view, and either maintain a fairly consistent asset allocation or have successfully shifted the portfolio when the time is right. The Wealth Shortlist highlights those funds our analysts believe have the potential to outperform over the long term.

Targeted absolute return

This sector contains a varied mix of funds. It includes those focused on the UK, Europe and global stock 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 judged against its own aims and shouldn’t necessarily be compared directly with other funds in the same sector.

We tend to prefer ‘Total Return’ funds. They usually aim for positive returns over the medium-to-long-term. They seek out some growth when stock markets rise, as well as some shelter when they fall. They often invest in a combination of assets including shares, bonds, cash, commodities, and currencies.

Investment notes

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.

Wealth Shortlist funds in this sector

Funds chosen by our analysts for their long-term performance potential

See the Wealth Shortlist

Over the past five years* investors have been rewarded for having a high exposure to the stock market. Generally speaking, the more you had invested in shares and the less in bonds, the better the returns. That’s why the biggest gains were achieved by funds in the IA Flexible Investment and IA Mixed Investment 40-85% Shares sectors, as they generally invest the most in the stock market.

In a market that favoured adventurous investors, it’s perhaps no surprise that the lowest returners were funds in the generally cautious IA Targeted Absolute Return and IA Mixed Investment 0-35% Shares sectors, although both still made positive gains.

The performance of sectors over the past five years, however, doesn’t indicate how they’ll do over the next five. If stock markets took a prolonged tumble, we’d expect the more conservatively managed funds to do better, although neither what the market does nor how funds perform is certain.

Mixed Investment & Targeted Absolute Return sectors - five year performance

Past performance is not a guide to the future. Source: *Lipper IM to 31/03/2021.

Sector 5 year return
IA Flexible Investment 50.0%
IA Mixed Investment 0-35% Shares 22.2%
IA Mixed Investment 20-60% Shares 31.2%
IA Mixed Investment 40-85% Shares 45.1%
IA Targeted Absolute Return 11.9%

Please remember past performance is not a guide to future returns. Data correct as at 31/03/21.

The past 12 months were dominated by the effects of the coronavirus crisis, and lockdowns around the world that caused an estimated 3.5% contraction in the global economy in 2020. Following a prompt and coordinated response by governments and central banks to support economies, investor confidence quickly returned and shares bounced back from their March 2020 lows in a ‘v-shaped’ recovery.

With lockdowns and travel restrictions global trade fell sharply in the first quarter of 2020 but recovered to its December 2019 levels within months. Oil prices also recovered over the past year following a severe slump in early 2020. Meanwhile the price of gold, perceived by some as a ‘safe haven’ in times of financial distress, reached its all-time high in August, before returning to lower levels as markets calmed.

US shares delivered higher returns than the UK share market over the past year, and went on to post all-time highs. Meanwhile, UK shares have not yet recovered all of their losses from the first quarter of 2020. Concerns over Brexit and coronavirus, and the UK’s bias towards weaker-performing sectors, such as financials, and oil & gas, have held the UK back relative to the US share market.

The announcement of coronavirus vaccines in November 2020, in the same month as Joe Biden’s US presidential election win, provided a boost to share markets, particularly cyclical companies that had been most negatively affected by the pandemic.

The pandemic has somewhat grabbed attention from other ongoing issues such as the US-China trade war and Britain’s separation from the EU. Meanwhile, markets have been factoring in healthy global growth forecasts over the year ahead, combined with supportive monetary and fiscal policies, and pent-up demand and savings being released as economies re-open. This has led to expectations of higher inflation, causing losses for bonds in the first quarter of 2021. Bond values come under pressure when interest rates rise and bond markets have factored in a higher probability of interest rate hikes if inflation returns.

Mixed asset and targeted absolute return funds aim to provide some protection from volatility if things do turn sour. The more adventurous mixed and flexible investment funds initially struggled at the beginning of 2020 due to their larger weighting in shares. But they have seen a positive recovery since then and have performed better than more cautious mixed and flexible investment funds over the past 12 months – although this is of course a short time period to assess performance.

Whether via these types of funds or not, we think it’s sensible to have at least some different assets in your portfolio that could offer shelter from any future storms.

We regularly review all the main investment sectors. Here we provide comments on our Wealth Shortlist funds in the Mixed Investment sectors. They’re provided for your interest but not a guide to how you should invest. Comments are correct as at March 2021.

For more information, please refer to the Key Investor Information for each fund. Remember all investments can fall as well as rise in value so you could get back less than you invest.

Our Wealth Shortlist features a number of funds from this sector, selected by our analysts for their long-term performance potential. The Shortlist is designed to help investors build and maintain diversified portfolios. To use it you should be comfortable deciding if a fund fits your investment goals and your attitude to risk. If you aren't, we offer ready-made solutions which are aligned to broad investment objectives or you can ask us for financial advice to get a personal recommendation.

There is a tiered charge to hold funds with HL. It is a maximum of 0.45% a year - view our charges.

Wealth Shortlist fund reviews

This is a more adventurous option than many other funds in the Mixed 40-85% Shares sector. Iain McCombie and Steven Hay invest in typical Baillie Gifford style – seeking out companies for their growth prospects.

The managers are true long-term investors and are currently invested largely in the US, Europe and the UK. The managers also have the flexibility to invest in higher-risk emerging markets.

They change how much is invested in shares depending on their view of the world. Currently around three-quarters of the fund is invested in shares, with the remainder in bonds and cash to try to reduce volatility. The managers can also use derivatives to help them invest, which adds risk if used.

The fund’s adventurous approach has worked well over the long term. It’s normally done better than other mixed-asset funds when markets have been rising, but not so well when they’ve wobbled. That’s not an indication of future performance.

We admire the managers' approach and we’re confident they’ll stick with it through thick and thin. We think the fund’s low charges also make it excellent value.

Please note the fund currently has a holding in Hargreaves Lansdown plc shares.

This is a ‘fund of funds’ and Johanna Kyrklund and Remi Olu-Pitan primarily invest in funds run by other Schroders fund managers. Collectively those managers invest in a broad range of assets including global shares and bonds. They tend to favour shares in positive economic environments and bonds or cash in times of stress.

The aim of the fund is to deliver performance broadly in line with the IA Mixed Investment 40-85% shares sector.

We think the fund managers are experienced and dedicated to what they do. We like the fact they are supported by a strong and well-resourced investment team.

The managers have the freedom to invest in derivatives and high yield bonds, which adds risk if used.

This fund sits in the Flexible Investment sector, but is more conservatively run than many other funds in the sector.

The fund is run using a team-based approach rather than managed by an individual. The team at Pyrford invests in a mix of shares, government bonds and cash. The amount invested in each asset depends on the team’s view of the world.

Bonds currently make up close to two-thirds of the portfolio, reflecting the team’s cautious approach. The companies they invest in tend to be well-established ones from developed markets, but they also invest in some from higher-risk emerging markets.

The aim of the fund is to provide a modest long-term return while keeping volatility relatively low. On both counts the team has achieved this, but that’s no guarantee of future performance. The fund tends not to keep pace in a rising market, but it becomes more resilient during periods of poor market performance.

We think the Pyrford team is highly experienced and skilled, and view the fund as a good option for potentially adding some stability to a portfolio.

This is an offshore fund, so investors aren’t normally entitled to compensation through the Financial Services Compensation Scheme.

This fund lies within the Flexible Investment sector and looks to grow investors' money steadily over the long run, while limiting losses when markets fall.

The fund invests across a range of assets and tries to limit the ups and downs experienced in a portfolio that’s mainly invested in shares. Sebastian Lyon looks for established companies that can grow over the long term and endure difficult economic conditions. He also has the freedom to invest in higher-risk smaller companies.

The rest of the fund focuses towards investments that could offer some stability during more difficult market conditions such as bonds, gold and cash.

While the fund contains a diverse range of investments, it is concentrated. This approach means each investment can contribute significantly to overall returns, but it can increase risk.

We like that the aim of the fund is simple, to shelter investors’ capital during uncertain economic times and grow it over the long term. It also looks to achieve a return that is above the rate of inflation which it has managed to do since it launched in May 2001. That’s not an indication of future performance.

The team behind the fund are experienced and we view the fund as an option to potentially add some stability to a portfolio. The managers can use derivatives to help them invest, which adds risk if used.

The fund looks to dampen volatility and provide some shelter during market wobbles. It also aims to deliver 4% more than LIBOR (the interest rate at which major banks lend to each other) over five years. It could be a potential option for a defensive portfolio seeking steadier gains.

The fund is invested into a mix of assets that can be broadly described in two categories; long-term growth investments such as shares and corporate and emerging bonds, and investments that add stability to returns such as gold, government bonds and cash.

It has broadly performed in line with its LIBOR +4% benchmark but there’s no guarantee of future performance. The team place more emphasis on not losing money rather than making it and we therefore wouldn’t expect the fund to race ahead in rising markets.

The team behind the fund do have the flexibility to invest in emerging markets, derivatives and high yield bonds, which if used can add risk to the portfolio.

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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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