Funds in the Investment Management’s Association’s Mixed Investment sectors have been the proverbial hot cakes in recent months with both advisers and investors continuing to plough millions into these typically one-stop-shop portfolios.
Mixed Investment 20-60 per cent shares has been particularly popular. In June, according to IMA numbers, the sector enjoyed net retail sales of some £271m, way ahead of its monthly average for the previous 12 months of £185m. Again in July it smashed this run with £397m worth of sales to small investors notched up. The latest data from the trade body shows the former cautious managed sector has managed a hat-trick, as it is once again the top selling sector, albeit with smaller numbers, with retail sales of £273m during August.
Advisers say the recent dominance of the Mixed Investment 20-60 per cent Shares sector is bring driven by a combination of themes.
One theory is that the introduction of the RDR has had a significant impact as advisers may have picked some funds which investors are likely to hold for the long term which gives them more protection over any ongoing trail commission.
However, this is not an over-riding factor in the continued popularity of these funds. Chase de Vere head of communications Patrick Connolly says a lot of the popularity has come from retail investors.
He says: “We are almost experiencing a perfect storm for these funds as many investors have understandably become more cautious in response to the volatile market conditions we have witnessed going all the way back to the technology boom at the end of the previous millennium.”
Plan Money director Peter Chadborn adds that demand is also coming from the other way with some investors chosing to take on more investment risk.
Chadborn says: “Many DIY investors are accepting that they need equity exposure to keep ahead of inflation in the absence of decent deposit-based returns. But in doing so they are instinctively erring on the side of caution and find themselves investing in this sector, perhaps more by accident than design.”
Advisers say there has is now a real understanding that investment portfolios usually need to consist of more than just equities, and this sector allows investors that diversification in order to spread risks.
Connelly says: “The most popular funds in the sector are fund-of-funds, which for many provide an all-in-one solution where investors can benefit from an investment expert giving access to some of the top underlying fund managers.”
But Informed Choice managing director Martin Bamford, is surprised by their continuing popularity. “We do not tend to recommend them given you have no control over asset allocation. But post-RDR there will be many investors looking to go it alone and one-stop shop styled funds will appeal. Many advisers may be defaulting to them too, as a result of being unsure of what to recommend.”
Such a situation is perhaps understandable for many advice practitioners and solo investors, given the ease of administration of having effectively a whole portfolio under the roof of a single investment fund.
“It is beneficial for those who want a ‘buy and hold’ solution, those with smaller portfolios who want immediate diversification and for advisers who do not have the time or expertise to research and select underlying funds themselves,” adds Connolly.
In terms of performance, given the recent market rally, the returns cannot, and to be fair do not, compete with their pure equity counterparts. They remain in the stable category and year-to-date the average portfolio has achieved 6.12 per cent. Over the same period the average global equity fund has delivered 16.16 per cent.
The funds will naturally offer a buffer against extreme volatility and over the past three and five years, the typical Mixed Investment 20-60 per cent share fund has achieved respective returns of 16.37 per cent and 34.02 per cent. Over the same time frames the average IMA Global Equity fund has delivered 26.95 per cent and 51.82 per cent.
But their have been a number of stand-outs within the sector. For example, the Invesco Perpetual Distribution fund has delivered 67.18 per cent to its investors over the past five years, while the Kames Ethical Cautious Managed portfolio has achieved 65.42 per cent.
Chadborn says: “There is this continued strive from advisers and investors alike for investment stability and a greater understanding of risk in relation to returns. Perhaps more advisers are recognising the value in delivering consistent returns of say, inflation plus 3 per cent, rather than chasing double-digit returns and getting caught out buy market downturns. These funds maybe filling a gap in this respect.”
Until relatively recently, strong bond performance meant that many active ‘cautious managed’ fund managers with relatively high fixed interest exposure could arguably deliver returns as good as ‘balanced managed’ funds whilst seemingly taking less risk in doing so.
But this is no longer the case given the prolonged bond bull market is seemingly coming to a close.
“However, many investors are heavily influenced by passed performance, and it looks like a compelling story,” notes Chadborn.
Of course, the big hurdle for all investors within this sector is that many of the fund-of-funds on offer carry high charges and many portfolio’s are not delivering the returns to justify their premium price.
The key therefore is to pick funds that offer not just sufficient diversification and consistent performance but a competitive charging structure.
For Connolly, the funds worthy of consideration include Cazenove Multi-Manager Diversity, M&G Episode Balanced and Fidelity Multi Asset Strategic.
Chadborn rates the F&C Navigator Distribution managed by Robert Burdett and Gary Potter. He says: “This is a fund run with conviction and proper active management. It has a robust track record and respected managers who instil confidence. Henderson Cautious Managed has been impressive in its consistently reliable performance. I also like 7IM Balanced Managed, for a complementary, contrasting style. It uses active allocation of a largely passive strategy.”
|Top 5 Mixed Investment 20-60% Shares to 10/10/13|
|Fund||1 year||3 years|
|Invesco Perpetual Distribution||13.88||32.89|
|Kames Ethical Cautious Managed||15.18||31.26|
|T. Bailey Fund Discovery Balanced||11.06||29.91|
|Premier Multi Asset Monthly Income||15.13||29.37|
|Premier Multi Asset Distribution||15.53||28.61|