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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.

Richard Wood - Investment Analyst
24 May 2019

Funds in the Mixed Investment sectors blend together shares and bonds. Some also hold alternative investments to try to boost returns or offer some shelter when markets fall. There are a wide range of strategies, from the cautious to the more adventurous, depending on investors’ risk appetite.

  • 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.

HL view

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 50 highlights our current favourites.

Absolute Return - this sector contains a 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 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.

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.

Our favourite funds in this sector

First-class performance potential and low management charges

View the Wealth 50

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 30/04/2019

There’s been some ups and down in global stock markets over the last year. The escalation of trade tariffs between China and the US combined with concerns that the US Federal Reserve would raise interest rates too far, too fast caused sharp stock market falls in the last quarter of 2018.

The Fed have since taken a softer stance and despite wobbles in the last few weeks, Xi Jinping, China’s premier, and President Trump appeared to be making progress on a trade deal. In the UK, the chances of a softer Brexit seemed to increase, though Britain’s departure date from the EU was ultimately pushed back until October. These factors all contributed to a strong recovery for many global stock markets.

The US market was the standout performer posting attractive returns over the 12 month period ending 30 April. Despite volatility, the UK, European and emerging stock markets made positive returns while the Japanese market made a small loss for UK based investors.

All bonds markets we track made positive gains for UK based investors over the last year. Higher risk emerging market bonds posted the strongest returns, aided by a weakening of the US dollar.

Gilts, loans to the UK government which are often considered a safe-haven, delivered modest returns. Inflation-linked gilts saw big moves up and down as investors adjusted their expectations of economic growth and inflation.

We think government bonds are still useful to diversify a portfolio. But yields are at all-time lows so we think there are other assets that could deliver better returns. In our opinion, corporate bonds, including higher-risk high-yield bonds, just about offer acceptable yields for the risks being taken. 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.

The IA Mixed 40-85% Shares and IA Flexible Investment sectors provided the best returns over the last year because of their bigger allocation to shares. We think funds with more invested in shares should deliver stronger performance given a long enough time frame. They’re likely to result in bigger ups and downs though and this proved to be the case in the last 12 months. It highlights the importance of considering how much volatility you’re prepared to accept when choosing how much you want to invest in shares. All investments fall and rise in value so you may not get back what you have invested.

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.

Five year performance

  • IA Flexible Investment

    +40.5%

  • IA Mixed Investment 0-35% Shares

    +19.8%

  • IA Mixed Investment 20-60% Shares

    +26.3%

  • IA Mixed Investment 40-85% Shares

    +37.4%

  • IA Targeted Absolute Return

    +8.8%

Data correct as at 30/04/19. Please remember past performance is not a guide to future returns.

Our favourite funds in the sector

We regularly review all the main investment sectors. Here we provide comments on a selection of funds in the Mixed Investment sectors. They’re provided for your interest but not a guide to how you should invest. If you're unsure if an investment is right for you, seek personal advice. Comments are correct as at May 2019.

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.

To view a full list of our favourite funds within the sector, visit the Wealth 50. There is a tiered charge to hold funds with HL. There’s a tiered charge to hold funds with HL up to a maximum of 0.45% p.a. View our charges here.

Other funds in the sector

Here we look at some funds of interest following our most recent sector review. Please note this review period may be over a short period and past performance is not a guide to the future.

To view a full list of our favourite funds within the sector, visit the Wealth 50.

Source for performance figures: Financial Express

Flexible Investment. Sebastian Lyon invests in shares, bonds, cash and gold. He varies the amount invested in each asset depending on his outlook for the global economy.

The fund's performance has been impressive over the long term, though past performance isn’t a guide to the future. Sebastian Lyon’s current investments have been made to provide some shelter if markets experience difficulties. This means less invested in shares with bigger allocations to inflation linked government bonds, gold and cash. Most of the fund is invested in either the UK or US. The fund can invest in higher risk smaller companies and at times will invest in a relatively limited number of companies. This allows each to make a greater contribution to returns but is a higher risk approach.

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. They’ve been thinking this way for a while. They took a conservative position a little early but we think they’ve made astute adjustments to their investments during recent market turbulence. Over the long-term the fund’s delivered attractive returns though past performance is not a guide to the future. 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, providing access to some 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 market shares, as well as government and corporate bonds. The fund made a positive return over the last year but didn’t do quite as well as others in the sector.

Johanna Kyrklund has outperformed the broader sector since being appointed as the fund’s manager in 2011. 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. 80% of the fund is invested in shares with most of the exposure achieved through passive tracker funds.

The managers use low cost Vanguard tracker funds to access the stock markets they think will provide the most attractive returns. They always have 80% of the fund invested in shares and 20% in bonds. They’ve invested more in the US at the moment which has helped recent performance. Because the fund will always have a large amount invested in shares, we expect it to do well over the long-term. However, it’s also likely to experience bigger ups and downs than other mixed asset funds where managers dial down their equity investments during turbulent times. The fund has the flexibility to invest in derivatives, which adds risk.

Mixed Investment 0-35% Shares. This fund is more conservative than many other mixed-asset funds. It can only invest up to 35% in shares and is mainly focused on UK companies.

The fund has typically invested more in shares than many of its peers in the same sector. This has helped performance over the longer term, but a focus on the UK has held back recent performance. We think Alastair Gunn and Rhys Petheram are capable fund managers and view the fund as a sensible option in the IA Mixed Investment 0-35% Sector. But they have a shorter track record than our favoured multi-asset investors. So we’d like to monitor their performance for a longer period before considering it for the Wealth 50. We also prefer the greater flexibility of some other funds that also take a conservative approach to investing. The managers are able to invest in high-yield bonds which adds risk.

Latest research updates

Baillie Gifford Managed - seizing diverse opportunities

Baillie Gifford Managed - seizing diverse opportunities

Fri 28 June 2019

Steven Hay and Iain McCombie are more adventurous than many other mixed asset fund managers. Find out what makes them that way and whether it’s worked.

Newton Real Return - charting a course through choppy waters

Newton Real Return - charting a course through choppy waters

Fri 31 May 2019

The fund can hold different types of assets and invest around the globe, giving the managers lots of flexibility to express their views.

Artemis Strategic Assets - doing something different

Artemis Strategic Assets - doing something different

Thu 09 May 2019

Shares, bonds, currencies and commodities. This fund's got a bit of everything. In this update, we find out where the managers see opportunities and how they've invested the fund to benefit.

Franklin UK Mid Cap - stock picking and box ticking

Franklin UK Mid Cap - stock picking and box ticking

Tue 12 March 2019

Find out what’s been happening in the fund and what Paul Spencer’s waiting for before increasing the number of companies he invests in.

Janus Henderson Cautious Managed - there's lots of value in the UK

Janus Henderson Cautious Managed - there's lots of value in the UK

Mon 11 March 2019

Stephen Payne is more cautious now than when we met him a year ago. Find out why, and how he's invested the fund to reflect this view.

Investment notes

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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