Fund briefing: Mixed asset funds

It’s a stance championed by Mike Brooks, head of diversified multi-asset strategies at Aberdeen Asset Management, who points out that everyone was wrong-footed by major political events such as the Brexit vote during 2016.

“Trying to make macro calls on what is likely to happen has been very challenging this year,” he says. “Our approach is to be diversified across a range of different asset classes so that we’re more resilient to whatever happens.”

However, adopting this philosophy isn’t always easy for retail investors, which is why the (investment association) IA mixed investment fund sectors are a useful starting point, because they let you know exactly how much equity risk (the higher risk attached to investing in company shares) is being taken.

These fund sectors were launched a few years ago to replace the cautious managed, balanced managed and active managed sectors, and give investors a clearer idea of how much exposure they have to shares. For example, an investor that bought a fund in the old cautious managed sector may not have realised that the fund could hold up to 60% of its portfolio in shares, which many would consider to be a highly risky stance.

Similarly, funds that lived in IMA balanced managed were allowed to have up to 85% in shares, despite the sector name giving the impression that it was only one small step up from cautiously managed.

Under the new regime, investors know their maximum allocation to equities, while remaining assets can be invested in other assets such as bonds and cash. The manager of the fund will make these investment calls.

Investors can choose from four mixed sectors, each with a different risk perspective: IA mixed investment 0-35% shares; IA mixed investment 20-60% shares; IA mixed investment 40-85% shares; and IA flexible investment.

Which sectors you choose will depend on how much exposure you want to shares, as these are riskier investments than bonds.

Bonds issuers promise to return the face value of the security to the holder at maturity; shares offer no such promise. Most bonds pay investors a fixed rate of interest income that is also backed by a promise from the issuer. Shares sometimes pay dividends, but firms have no obligation to make these payments to shareholders.


Funds in IA mixed investment 0-35% shares, for example, are required to have a range of different investments. Up to 35% of the fund can be invested in shares, but at least 45% must be in fixed income and/or cash investments.

As its name suggests, the IA mixed investment 20-60% shares sector is for funds with between 20% and 60% in equities and at least 30% in fixed income and/or cash investments.
Funds in IA mixed investment 40-85% shares can have a higher portion in equities, while there are no limits for equity exposure in the IA flexible investment sector, as managers enjoy much greater freedoms.

Adrian Lowcock, investment director at multi-manager Architas, says: “For beginner investors or those with no interest in making asset allocation calls themselves, the mixed investment sector funds can be very good one-stop shops. They may suit people that don’t necessarily want to engage in the investment process themselves.”


But the funds can also play a role for more savvy investors. “They can act as good core holdings around which you can build a broader portfolio,” he explains.

As always, there are pros and cons. The benefits include diversification, knowing the limit of your equity exposure, having input from an experienced fund manager and getting access to funds more cheaply, through being with a powerful investment house.

A negative, however, is that funds in these sectors don’t necessarily have the same aims and objectives. This means it’s not always possible to compare like with like, so a more detailed analysis of their approach will be required.

Illustrating the point, the average fund in IA flexible investment returned 10.3% in the year to 1 December 2016. However, performances varied among funds over that period, with the best up 36% and the worst slipping into negative territory.

It is also worth remembering that although diversified asset allocation spreads the risk, this comes at a price in certain environments. For example, mixed investment funds may not rise as much as pure equity portfolios when the stock market soars. On the flip side, though, the inclusion of bonds can limit falls during tougher times.

So how should you choose? Well, once you’ve decided how much equity exposure you want from your fund, it is time to take a close look at the different portfolios in that sector to gauge their objectives – and how they are run.

It may be advisable to opt for a fund that embraces diversification within asset classes – such as shares in companies from different stock markets around the world alongside fixed income products.


Fund to watch: Henderson Cautious Managed

Chris Burvill, the experienced manager of the Henderson Cautious Managed fund, joined the investment house five years ago as director of UK equities. Previously, he held the role of head of UK equity income at Gartmore.

For more than two decades he has been mixing equities, bonds and cash as part of an overall investment strategy that aims to take advantage of market movements while avoiding excessive risk.

The aim of his fund is to provide income and long-term capital growth by investing in a combination of shares and a range of bonds in any country. No more than 60% of the fund’s value will be invested in equities.

At present the fund has 53.4% of its assets in equities and 30.5% in bonds. Overall, it has 175 holdings and exposure to a wide array of sectors, including financials, consumer services, industrials, healthcare, and oil and gas.

Analysts at investment platform Hargreaves Lansdown have been fulsome in their praise for both the portfolio and its manager. “Chris Burvill is a high-quality fund manager with a commendable track record, and his straightforward investment approach has stood this fund in good stead over the long term,” they say.

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