Mixed asset funds update – how well have they held up?

Mixed asset funds combine shares, bonds and other types of investments with the aim of providing more balanced returns than all-equity funds. They’re generally favoured by investors who focus more on sheltering their money but still want some growth, or who favour less volatile returns. So with all the market volatility happening right now, let’s look at how well they’ve been doing their job.

Down but not out

The past month has seen some of the worst market falls in a generation. Stock markets around the world have plummeted and many other asset classes have suffered too. Since 20 February only one Investment Association (IA) sector – UK Gilts – delivered a positive return. All other sectors fell, and only global bonds, index-linked Gilts and corporate bonds limited losses to single figures. Gold made positive gains, but it normally doesn’t make up much of most mixed asset portfolios.

With so few safe harbours it’s been a tough time for all.

Since the market volatility began on 20 February the global stock market has fallen by over a quarter*. Mixed asset funds’ more balanced approach than all-equity ones mean they haven’t fared as badly. But with very few asset classes escaping the turmoil, they’ve still experienced drops.

With generally the most conservative approach, Targeted Absolute Return funds have held up best, followed by Mixed Investment 0-35% Shares. These sectors generally invest the most in bonds and the least in shares, which has lessened the blow.

The Flexible Investment and Mixed Investment 40-85% Shares sectors fell more than the other mixed asset sectors, as they mostly have the lowest exposure to bonds and the highest to shares, but they still did better than the global stock market.

Mixed asset sector performance since 20 February

Past performance is not a guide to the future. *Source: Lipper IM to 23/3/2020

A month is an extremely short period of time over which to judge investment performance, and of course past performance doesn’t indicate future returns. But it does show how investing in a mix of different asset classes could provide some shelter during market volatility, although nothing is guaranteed. Investments will rise and fall in value, so you could get back less than you invest.

Let’s look at how two Wealth 50 funds that aim to shelter investors’ wealth in all market conditions have fared recently and over the long-term.

Troy Trojan

Sebastian Lyon’s a conservative investor at heart. He invests in a relatively small number of investments that cover many of the classic assets – shares, government bonds, gold and cash. Having a fund invested in a small number of investments means each holding can make a big difference to returns – it increases performance potential but also adds risk.

His approach has served investors in his fund well over the long term. Since it launched in May 2001 it’s returned 235.9%* compared with 89.1% for the IA Flexible Investment sector, but this doesn’t indicate future performance.

How much Lyon invests in each asset class depends on his view of the world at the time. Coming into 2020 the fund had among its lowest ever levels of shares. Combined with relatively high levels of government bonds, cash and gold, that’s helped the fund amid the recent market turmoil. Since the volatility began, it’s been one of the best performers in the IA Flexible Investment sector, but it still fell in value and this is over a very short period of time.

Lyon has been taking advantage of the recent steep share price drops by bringing the equity portion of the portfolio from around a third to 40%. If stock markets keep falling he may look to add more.

Past performance is not a guide to the future. Source: *Lipper IM to 28/02/2020

Find out more about Troy Trojan including charges

Troy Trojan Key Investor Information

Pyrford Global Total Return

Tony Cousins and his team aim to shelter investors’ wealth during periods of short-term volatility and grow it over the long term. The portfolio is made up of UK and overseas bonds and shares, including in higher-risk emerging markets, and cash. They’re prepared to invest against the crowd, so will usually reduce the equity portion of the fund when stock markets are rising, and wait patiently to invest when they fall.

Given the scale of the stock market tumbles over the past month or so, Cousins has taken the equity portion of the portfolio up to 45%. That’s higher than it’s been in over two decades. And he could take it up further if markets keep falling. In keeping with his against-the-trend approach, he’s been buying shares in oil & gas companies, which have been some of the worst hit recently.

The fund has held up better than nearly all its IA Flexible Investment sector peers, but it has still fallen in value since the start of the volatility. Over the longer term Cousins and the team target a return greater than the UK Retail Price Index (RPI). Up until recently they’ve achieved that, but have fallen behind since the recent turbulence. We expect the fund to deliver on its aim over the long term, though there are no guarantees, and past performance doesn’t indicate future returns.

Remember, as this is an offshore fund you’re not usually entitled to compensation through the UK Financial Services Compensation Scheme.

Past performance is not a guide to the future. Source: Lipper IM to 28/02/2020

Find out more about Pyrford Global Total Return including charges

Pyrford Global Total Return Key Investor Information

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