July 13, 2021

More Complicated than Just Equities

by Dewi John.

Using the Lipper Leaders scoring system to analyse the best-performing funds in the IA Mixed Investment 40-85% Shares sector


Fortune has favoured equities over the past few years, and that’s been the case with Mixed Investment sectors.

In March, we looked at the Mixed Investment 20-60% Shares—the ‘middling sort’ of the mixed asset stable. This month, we turn out attentions to its wilder sibling—the multi-asset sector with the highest permitted equity exposure.

Over the past few years, higher equity exposure (which entails greater risk, defined in terms of portfolio volatility) has been a good bet: five-year average returns for the low, medium and higher equity mixed asset sectors have returned 21.4%, 30.7% and 47.2% respectively[1], and it’s been a similar pattern, whether you look at three-year, one-year or last-quarter returns.

While the 40-85% Shares sector fell more than its peers during the COVID-induced market falls of early 2020, it rebounded harder. This is no surprise, as UK All Companies is up almost 30% over one year, while Sterling Corporate Bonds average a little over 3.5%. And, while only a couple of funds have beaten the All Companies’ average, volatilities are lower. Which is what you’d expect from these funds.

That said, within the sector, while there is a positive relationship between the (current) proportion of equities and three-year returns, it’s modest, at 0.065 (where 1 would be a perfect correlation and 0 none). Running three-year returns versus the funds’ total expense ratio gives a much stronger inverse correlation of -0.34, showing a much stronger relationship between lower fees and higher performance. In other words, charges matter.

All but one of the top-performing funds over three years score a five—the maximum—Lipper Leaders Consistent Return score, and the tenth comes in with a four. Such metrics are important, and it’s always worth checking them before making an investment decision. Making a judgement on returns alone tells you little about the risk taken to achieve them, or how likely it is that they can be repeated.

The top-performing Liontrust Sustainable Future Managed’s largest holding is the Liontrust GF Sustainable Future Global Growth fund, a global equity fund with a pronounced bias to new economy stocks, and information technology is the fund’s largest equity exposure overall. Likewise, the second-placed Baillie Gifford Managed equity exposure has a few such stocks in its top holdings, such as Shopify and the ubiquitous Amazon. It’s got a more diversified sector spread, with Industrials the largest (14.7%), followed by Consumer Discretionary (13.9%). It seems to be consistently running a significant cash buffer—possibly explained by its strong inflows, the second highest in the sector.

Equity valuations are running at all-time highs, which means greater downside risk. Nevertheless, fixed income returns have lagged, and inflationary concerns have led investors to continue to favour equities, which will likely continue to boost the asset class, and so this sector within mixed assets.


Table 1: Top-Performing Mixed Investment 40-85% Shares Funds Over Three Years (with a minimum five-year history)

All data as of May 31, 2021; Calculations in GBP

Source: Refinitiv Lipper

[1] To 31 May 2021


This article first appeared on page 24 of the July edition of Moneyfacts


Refinitiv Lipper delivers data on more than 330,000 collective investments in 113 countries. Find out more.

The views expressed are the views of the author and not necessarily those of Refinitiv. This material is provided as market commentary and for educational purposes only and does not constitute investment research or advice. Refinitiv cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice.

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