5 Mixed-Asset Funds Delivering Top Returns

Don't want to run your own investment portfolio? Outsource asset allocation to the professionals - all you need to decide is your appetitie for risk

Karen Kwok 6 September, 2016 | 12:10PM
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This article is part of Morningstar’s Back to School Guide to Investing. Join us every day this week to set yourself on the right path to investment success.

Nervous investors are abandoning risky funds in favour of more cautiously managed ones as worries about economic headwinds and potential market volatility mount.

Since the start of the year, the economic slowdown in China and the divergence in central banks’ monetary policy have raised concerns about global growth – topped by the UK’s surprise vote to leave the European Union on June 24.

As a result, multi-asset funds investors are investing in more conservative portfolios despite the fact that more aggressively run funds have delivered better returns so far this year, data from Morningstar Direct showed.

Outsourcing Investing to the Professionals

Under the Investment Association sector definitions, there are three mixed investment sectors providing investors exposure to different levels of risks. These funds are designed as one-stop-shops for investors who do not have the time or inclination to tackle portfolio construction themselves.

The three sectors are mixed investment 0-35% shares, mixed investment 20-60% shares and mixed investments 40-85% shares. The higher the percentage of the fund in shares, the risker the portfolios are. These sectors used to be called Cautious Managed, Balanced and Aggressive and some funds in the sectors still bear these names.

The mixed investment 0-35% shares sector, which provides lower exposure to risk assets, has become the most popular mixed investments fund sector this year, with £45 million inflows from January to July 2016. Other mixed investment sectors are suffering from outflows over the same period of time: mixed investment 40-85% shares recorded £743 million outflows while mixed investment 20-60% shares saw £1.3 billion outflows.

However, when looking into these sectors’ average returns, portfolios consisting of more equities investments are performing better than those with less equities investments year to date.

The average year to date returns of mixed investment 0-35% shares is 6.9%. However mixed investment 40-85% shares have an average 9.9% return while mixed investment 20-60% shares have an average 7.5% returns. These data suggest that investors are taking a cautious approach in times of market instability, disregarding funds’ performances.

Within the mixed investment 0-35% shares sector, the Bronze Rated Jupiter Merlin Conservative Portfolio was the best performer, gaining 8.31% year to date.

Another Bronze Rated Jupiter Distribution fund also gains 6.49% year to date. Its positive performance led to its popularity among investors, as the fund sees £101 million inflows from January to July 2016.

Investors Dump Funds with Gains

However, not all positive fund performances are in line with their popularity among investors. Some funds are delivering positive returns year to date, but investors are still selling out – worried about the longer term risks.

CF Miton Defensive Multi Asset, a Bronze Rated fund under the mixed investment 0-35% shares sector, was one of the least popular funds with investors dumping £10 million assets of the fund year to date. This fund, however, gains 5.8% year to date.

Morningstar analyst Randal Goldsmith believes this fund is a strong choice for investors seeking real returns and capital preservation.

Investec Cautious Managed, a Silver Rated fund that is one of the contributors to outflows under the mixed investment 20-60% sector, recorded £239 million outflows year to date. However the fund gains 11.1% year to date, performing better than its category peers by 4.6%. This fund’s rolling five-year returns have been consistently positive, confirming the manager’s success in preserving capital over the long term, Goldsmith added.

Newton Multi-Asset Balanced, a Bronze Rated fund under the mixed investment 40-85% shares, is the best performer of the sector with 12.6% gains year to date. Yet it is the most sold fund within the sector with £158 million outflows from January to July 2016.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Karen Kwok

Karen Kwok  is a Reporter for Morningstar.co.uk

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