Using the Lipper Leaders scoring system to analyse the best-performing funds in the IA Mixed Investment 40-85% Shares sector.
This is the more equity-heavy of the Investment Association’s three mixed investment sectors, and it’s proving to be the most popular. It has attracted £1.18bn over the 12 months to the end of July, in contrast to Mixed Investment 0-35% Shares, down £1.5bn, and Mixed Investment 20-60% Shares, which has shed £4.24bn.
This phenomenon likely isn’t multi-asset investors chasing performance, as people tend to stay within their risk-tolerance tramlines, so it’s a little difficult to determine why the aggressive mixed investment funds have proven more attractive than their more cautiously inclined peers.
Whatever is driving it, it has worked for its investors, as the sector is the only one to have posted a positive return over the 12-month period, albeit a modest and sub-inflationary 1.3%. Over three years, the returns run -2.7%, 6.8%, and 14.7%. This pattern is explained by the annus horribilis experienced by bonds last year, as rising rates decimated returns, and their lacklustre performance this year, with rates still creeping upwards. Bonds have not proven to be the low-risk asset of expectations over this period, and so as a result a tilt towards equities has helped returns.
It’s likely that rates are reaching their peaks, so investment conditions could shift significantly hereafter, especially if slow growth or even recession make a dent in what are generally rather rich equity valuations. If this comes to pass, then relative performance between the sectors may begin to reverse. But, suffice it to say, we are not there yet, as is clearly reflected in the figures.
While there is a clear positive correlation of equity allocation to return between the sectors, this is present but rather weak within the sector (0.168 between current equity allocation and three-year returns, for those of you who like the occasional correlation statistic). In short, this means that whatever explains the ranking of three-year returns within the sector, there’s a lot more going on that can be explained by how much you’ve tilted to equities.
That said, the fund at the top of the table below, TB Wise Multi-Asset, has the third-highest equity allocation within the sector—87.6%, and it has been up to 10 percentage points higher. Unsurprisingly, that comes with higher volatility: it’s the second most volatile in the sector and has the lowest Lipper Leaders Consistent Return score on that table. However, it has beaten its (equity) benchmark in four of the past five calendar years, lagging only in 2022 and year to date, also outperforming it over three, five, and 10 years.
Second-placed Orbis OEIC Global Balanced Fund Standard has a volatility more in line with the sector average and has the highest Consistent Return score of 5—as indeed do a further five funds in the table.
FP Russell Investments Multi Asset Growth seems to have navigated its way around bonds’ poor performance by holding a large cash weighting: 13.1% in June, with bonds only 7.6% of the portfolio, and cash has been up to about 30%. As ever, outperformance owes much to avoiding the losers, not just picking the winners.
The fund has been pretty active in its asset allocation calls, and the relative proportions between cash, bonds, and equities have shifted considerably over time. That’s not necessarily a positive thing—as one fund manager famously remarked, “I don’t get paid for being busy, I get paid for being right”—the fund’s ranking implies a certain positive relation between “busyness” and “rightness” in this instance.
In summary, and to reiterate, given morphing macroeconomic conditions, it’s worth stressing that the winds that have blown in favour of certain asset classes (especially equities) and against others (bonds) may change directions. Fund selecting according to past performance can come badly unstuck in such conditions, and it’s worth paying attention to more risk-adjusted measures in these conditions.
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, 2023; Calculations in GBP
Source: Refinitiv Lipper
This article appeared in the August edition of Moneyfacts, p15.
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