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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.

Jonathon Curtis - Investment Analyst
18 December 2019

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 ones

HL view

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.

You can match how much 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 and 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.

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 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 30/11/2019

There’s been a lot of change on the global stage over the past few months. The US Federal Reserve cut interest rates. The US-China trade spat goes back and forth. And while the UK was due to leave the EU in October, things are still unresolved.

For most of 2019, government bonds performed better than the stock market. Bonds are generally considered less risky investments than shares, and so many investors nervous about potential stock market wobbles switched into them. There was also a spike in the gold price, as gold is perceived by some as a ‘safe haven’ in times of financial distress.

Both government bonds and gold have come off the boil since the US interest rate cuts though. Lower interest rates are generally seen as a good thing by investors, and helped stock markets recover and overtake the bond markets. While the price of gold has come down a long way from its 2019 high in September, it’s still risen more than the global stock market. Remember past performance is not a guide to future returns, and all investments can fall as well as rise in value so you could get back less than you invest.

Mixed asset and targeted absolute return funds aim to provide some protection from volatility if things do turn sour. They’ve therefore been a popular choice among many investors recently. 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 potentially offer shelter from any future storms.

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

    +37.94%

  • IA Mixed Investment 0-35% Shares

    +19.62%

  • IA Mixed Investment 20-60% Shares

    +25.87%

  • IA Mixed Investment 40-85% Shares

    +36.52%

  • IA Targeted Absolute Return

    +7.78%

Data correct as at 30/11/19. Please remember past performance is not a guide to future returns.

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 November 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.

Our Wealth Shortlist features a number of funds from this sector, selected by our analysts for their long-term potential. There is a tiered charge to hold funds with HL. It is a maximum of 0.45% a year - view our charges.

Wealth Shortlist funds reviews

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.

Source for performance figures: Financial Express

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. On average they stay invested in companies for around a decade. Most of those are from developed countries like the US and UK, but they also invest in higher-risk emerging markets.

They’ll 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 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 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 around 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 an inflation-beating long-term return while keeping volatility relatively low. On both counts the team has achieved this, but that’s no guarantee of future performance.

We think the Pyrford team are 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.

The managers can go anywhere to invest– shares, bonds, commodities, currencies and cash. The fund sits within the Flexible Investment sector but we think it should be viewed as a Total Return fund.

William Littlewood and Kartik Kumar assess where they think global markets are headed and then invest according to their views. Sometimes they’ll invest using derivatives to potentially benefit if markets fall. The use of derivatives increases risk.

The managers aim to provide some growth when markets are rising and protect investors’ capital when they’re falling. Their best performance has been achieved during market wobbles, although that’s not an indication of future performance.

Littlewood and Kumar currently invest differently than many other managers, with relatively high levels of cash and commodities, and investments in unloved companies. That’s hurt recent performance though, and so the fund’s fallen behind its benchmark. They also have the flexibility to invest in smaller companies, emerging markets and high-yield bonds, which are all higher-risk areas.

With around 80% in shares, this Mixed 40-85% Shares sector fund is one of the more adventurous options.

Jamie Hooper likes to keep things simple. He invests in companies he thinks are high quality, and combines them with some government bonds and cash. He likes companies that can keep steadily growing over time, and thinks government bonds are a good diversifier, more so than corporate bonds.

Having a high exposure to ‘quality-growth’ companies has been a benefit to the fund’s performance. That’s why the fund has done better than the peer group average recently. That’s not an indication of future returns.

The manager normally invests in shares and bonds from developed countries like the UK, US and Japan. He can invest in higher-risk emerging markets and has the flexibility to use derivatives to help him invest, which also adds risk.

Hooper took over the fund in March 2017 and so far he’s done a good job. We’d like to see him in the role for longer though before we can fully judge his skill managing this fund.

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