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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.

Kate Marshall - Senior Investment Analyst
9 January 2019

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 and Total Return sectors are different. Funds in these sectors use various strategies to try and minimise, or at least reduce, 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. At the more cautious end of the scale are funds in the Mixed Investment 0-35% Shares and 20-60% Shares sectors. Funds in the Flexible and 40-85% Shares sectors are more adventurous.

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, 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, Pyrford Global Total Return or Troy Trojan. 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 150

The flexibility of funds in these 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 31/12/2018

Most global stock markets have failed to make money for investors over the last year. Interest rates have been rising in the US adding to concerns over economic growth. Emerging Markets have been dented by the US-China trade war, and concerns about Britain’s exit from the EU have put a lot of people off investing in the UK.

The prospect of 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 and returns mixed. The performance of UK gilts and weakness of sterling against other currencies meant that for UK investors, most types of bonds did deliver a positive return for the last 12 months. The exception was UK Corporate bonds which lost just under 2%.

This highlights the benefits of having a diversified portfolio with most bond markets providing return for UK investors at a time when shares haven’t.

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.

The weak performance of shares meant that over the last year, the majority of Mixed and Targeted Absolute funds lost money. Generally, the ones with smaller amounts invested in shares provided investors with more shelter. Absolute return funds have by and large been defensive in recent years, investing less in shares. This has helped them hold up better than the majority of Mixed Return funds, with performance similar to those in the Mixed Investment 0-35% Shares sector.

Bonds performing better than shares is contrary to the more established pattern of shares being the stronger of the two. We think funds with more invested in shares should deliver stronger performance given a long enough time frame. Investing more in shares is likely to result in bigger ups and downs though. So you should consider how much of this volatility you’re prepared to accept when choosing how much you want invested in shares.

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

    +27.5%

  • IA Mixed Investment 0-35% Shares

    +16.0%

  • IA Mixed Investment 20-60% Shares

    +19.3%

  • IA Mixed Investment 40-85% Shares

    +25.5%

  • IA Targeted Absolute Return

    +7.1%

Data correct as at 31/12/18. 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 and Total Return 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 January 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

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 the long term, though past performance isn’t a guide to the future. The recent downturn in markets has impacted the fund’s short-term performance but it’s done better than the average fund in the sector. 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. 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 can increase 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. They’ve been thinking this way for a while. Stock markets have performed well for a number of years, so they took a conservative position a little early. But having large investments in cash and government bonds has provided shelter during the recent stock market declines. 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 can also hold more volatile high-yield bonds, as well as government and corporate bonds, and derivatives which can increase risk. Its performance has been similar to the average fund in its sector over the past year, but it’s done better over the longer term. We like that this fund offers exposure to a broad spread of assets at low cost.

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.

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. It could offer good diversification to a broader investment portfolio although does hold concentrated positions in individual investments which can increase risk. It’s held up better than the average Targeted Absolute fund recently. 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 50 list of our favourite funds in the major sectors. The fund’s able to invest in high-yield bonds which can add 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 managers can include riskier high-yield bonds in the fund.

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.

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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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