Interactive Investor

Fund briefing: how to invest in the mixed-assets sector

2nd January 2019 11:19

Rob Griffin from interactive investor


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If you want to shield yourself from financial shocks, investing in mixed-asset funds could be the answer. Just make sure you find the right ones for you

Everyone knows that diversification can help investors sleep at night. Having exposure to a range of asset classes means you are less vulnerable to sudden shocks. Should equities take a tumble, for example, the hope is that bonds will be less affected.

However, building a portfolio that includes the optimal combination of asset classes can be a challenge. This is why UK investors have ploughed billions of pounds into mixed-asset funds and handed the responsibility to professional fund managers.

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Multi-asset funds provide this diversification and are managed by experts who are responsible for monitoring underlying assets and making changes to improve performance, according to Patrick Connolly, a chartered financial planner with Chase de Vere.

“The ease of administration of having a whole portfolio in one fund benefits those wanting a ‘buy and hold’ solution,” he says. “They are also very useful for those with smaller amounts to invest as they can achieve a high level of diversification through just one fund.”

The four Investment Association sectors that offer multi-asset exposure could also benefit those lacking the confidence or inclination to make their own investment decisions, according to Adrian Lowcock, head of personal investing at Willis Owen.

Investors in the UK have ploughed billions into mixed-asset funds

“Some of these funds are great starting points for investors as they offer diversification and an experienced manager implementing the fund,” he says. “They can act as a core portfolio from which investors can build satellite funds.”

The four sectors are IA multi-asset 0-35% shares, IA multi-asset 20-60% shares, IA multi-asset 40-85% shares, and a flexible sector. Which one will best suit your needs depends on your investment goals and attitude to risk.

“Each sector covers a broad range of different strategies and funds, from some that offer a simple shares and bonds split right through to ranges of multi-asset portfolios which are targeting specific levels or risks or outcomes for investors,” explains Mr Lowcock.

Quick guide: Is this approach right for me?

Consider investing in future trends if…

  • You are looking for a one-stop shop investment
  • You don’t want to make asset allocation calls
  • You have smaller pots of money to invest

However, while they can help investors narrow down the universe, there is still the need to do some extra research. “Funds aren’t built with your individual needs in mind, so portfolios are unlikely to match an individual’s specific requirements,” he adds.

Their names dictate the level of equity exposure. For example, funds in IA multi-asset 0-35% shares have up to 35% of the fund invested in equities, with at least 45% in fixed income investments, such as corporate and government bonds, and/or cash.

IA multi-asset 20%-60% shares, meanwhile, have between 20% and 60% invested in company equities, while at least 30% must be in fixed income investments and/or cash investments. It follows that funds in IA multi-asset 40%-85% have between 40% and 85% in equities.

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The IA flexible sector, meanwhile, has greater scope. The funds in this sector are expected to have a range of different investments, with no minimum or maximum requirement for investment in equities. The manager can have up to 100% if they feel this is correct.

These sectors are certainly popular. At the last count, there was around £50 billion in both IA multi-asset 30%-60% shares and IA multi-asset 40%-85% shares. IA flexible weighed in with £29.6 billion, while there was £9.2 billion in IA multi-asset 0%-35% shares.

The recent turmoil in global markets, particularly the economic and political uncertainty in Europe and the US, has increased their attraction. In fact, IA multi-asset 40-85% shares was the biggest selling sector in September, with £268.1 million of net retail sales.

There are never any guarantees and these sectors are no different

However, there are never guarantees in investment and these sectors are no different. One of their particular downsides is relying on one manager to get the asset allocation correct, points out Darius McDermott, managing director of Chelsea Financial Services.

“There are hundreds of funds in them all doing very different things,” he said. “You need to look carefully at what you are investing in and make sure you understand it. Some funds can be quite expensive, so you need to be getting value for money.”

He believes the starting point is deciding how much equity exposure you are comfortable with having because this will determine which of the four IA mixed-asset sectors are most suitable.

“You should then look at each individual fund to see what it is investing in, how dynamically the fund is managed, and the costs involved,” he adds.

He suggests M&G Episode Income and Premier Multi Asset Monthly Income are worth considering, as well as Jupiter’s Merlin range of funds.

“The Merlin funds, which have different investment objectives, are predominantly funds of funds, managed by a very experienced team,” he says.

He likes the team’s focus on buying ‘the right quantities of the right fund manager’ and the fact it invests in equity, bond, commodity and property funds, as well as Exchange Traded Funds (ETFs) and trusts.

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Alastair Mundy

The aim of the fund, which has been going for a quarter of a century, is to provide income and long-term capital growth.

It seeks to invest conservatively around the world in a diverse range of equities and bonds, as well as cash, other funds and derivatives as required.

The manager, Alastair Mundy (pictured), is an experienced hand, according to Patrick Connolly, a chartered financial planner at Chase de Vere.

He particularly likes the split between growth assets and those providing protection, such as the holdings in gold and silver. “He adopts a contrarian approach, by making long-term investments in cheap, out-of-favour companies,” Mr Connolly adds.

At present, the fund’s largest allocation is to UK equities (25.6%), followed by the 19.9% in North American equities and 19.8% in cash and short-dated government bonds.

Its top 10 equity holdings, which account for 20.9% of the fund, include Citigroup, Capita, Travis Perkins, Barclays, Grafton Group and Royal Bank of Scotland.

The other asset classes, each of which account for less than 10% of assets, include physical gold and silver, Norwegian Government bonds and Japanese equities.

As far as sector exposure is concerned, there is 25.1% in financials, 23.6% in industrials, 9.3% in consumer discretionary, 8.2% in information technology, and 6.2% in materials.

The other areas that are represented include utilities (4.2%), energy (3.5%), communication services (2.2%), real estate (1.5%), consumer staples (1.1%) and healthcare (0.9%).

Value of £100 invested in the fund over five years

Year 2014 2015 2016 2017 2018*
Fund percentage movement in year (%) 0.38 -2.16 19.1 3.58 0.38
Value of £100 ** (£) 108.79 106.44 126.77 131.31 126.07

* To 9 November 2018 **The £100 was invested on 1 January 2018.

Manager Alastair Mundy
Launch date 7 June 1993
Total fund size £1.9 billion
Minimum initial investment £1,000 lump sum
Monthly investment £100
Initial charge & Perf. fee 0%/0%
Annual management fee 1.5% a year
Contact details for retail investors 020 7597 1800


This article was originally published in our sister magazine Moneywise, which ceased publication in August 2020.

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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