September 27, 2022

Mixed Assets: Charges Matter in Roiling Markets

by Dewi John.

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


We last looked at this sector a little more than a year ago. It’s fair to say that the intervening period has been rather eventful.

Nevertheless, despite the market turmoil of the past year, this has remained a popular sector with investors, having attracted almost £5bn over the 12 months until the end of July, as opposed to its 0-35% Shares and 20-26% Shares equivalents, which have both seen net outflows over the same period. It’s also had the better part of performance over the period. (Sector average performance has been -6.8%, -5.4%, and -4.5%, from lower to higher equity exposure).

At first pass, this may be rather counterintuitive: in volatile, falling markets, you seek the safe haven of bonds. Except, of course, where bonds are vulnerable to losses as base rates rise (the Sterling Corporate Bond sector is down 11.4% over the same period).

Last June, this column appraised the sector’s prospects thus: “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 favour the sector, and so this sector within mixed assets.” Given the numbers above, that looks to have been a decent summary.

Looking forward, in truth, between equities and bonds, this looks like a market where there’s nowhere to hide, at least in the broadest terms. For instance, last June, when we looked at the relationships between different quantitative factors in the sector, we found that there is a positive relationship between the proportion of equities and three-year returns: then a modest 0.065 (where 1 would be a perfect correlation and 0 none). That’s now strengthened, to a (albeit still modest) correlation of 0.127. However, we noted a stronger correlation between three-year returns versus the funds’ total expense ratio (a good measure of overall cost) gave a much stronger inverse corelation of -0.34, showing a much stronger relationship between lower fees and higher performance. That inverse relationship has strengthened, and the July 2022 correlation for the same variables has gone to -0.478.


Punchy Equity

In other words, charges matter, and seem to matter even more in a falling market—at least, in this instance.

This, of course, is at the level of sector averages. But if you’re buying a specific fund, this can take you very far away from the average performance. Three-year returns run from 26.9% to -21.6%, and 12-month returns from 11.8% to -24.1%. At the bottom of the range, on both counts, it tends to be funds that had more punchy equity exposures—tech and emerging markets, for example. This can work well on the way up but punishes when equity markets go into reverse.

This has changed the three-year rankings in the table below (and indeed throughout the sector). Nevertheless, four out of the 10 have retained their places in the table: the Royal London Sustainable World Trust, Janus Henderson Institutional Global Responsible Managed, Courtiers Total Return Balanced Risk and Premier Miton Diversified Growth.

The top-placed Orbis OEIC Global Balanced Fund has won that spot through its 12-month performance. It’s historically had one of the higher equity exposures, and a significant exposure to oil & gas, which will have bolstered it over this year.

With rates still on an upward trajectory, there’s more trouble in store for bond investors. Until that settles, the more aggressive side will likely continue to take most assets. However, one clear lesson to come out of the data is charges matter even more in troubled markets.


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

All data as of July 31, 2022; Calculations in GBP

Source: Refinitiv Lipper



This article was originally published in July Moneyfacts, p19.

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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