By IMA rules, the funds must hold a range of different investments. The Mixed Investment 0-35% Shares sector is new to the IMA and, as the name suggests, caps a fund’s holding of direct equity investments at 35 per cent. It also requires a minimum 45 per cent in fixed income, such as corporate or government bonds, and cash. Additionally, 80 per cent must be invested in established market currencies – US dollar, sterling or euro – of which at least 40 per cent must be sterling.
Meanwhile, Mixed Investment 20-60% Shares replaced the Cautious Managed sector and must hold at least 30 per cent in fixed income or cash and 60 per cent of the fund in established market currencies.
Mixed Investment 40-85% Shares replaced the Balanced Managed sector and, unlike the other funds, it has no minimum for fixed income or cash holdings. It does require 50 per cent investment in established market currencies, of which 25 per cent must be in sterling.
Finally, Flexible Investment replaced the Active Managed sector and has no minimum or maximum equity component, nor a minimum fixed income, cash or currency requirement.
Ken Rayner, director at Rayner Spencer Mills, the fund research firm, says the old sector names led to assumptions. “The idea of changing them was obviously to get people away from the thought that all funds in the cautious sector were going to be cautious forever,” he says.
Indeed, the fact the sector names have changed does not mean they provide a better indication of risk, says Paul Glover, chief investment manager at NFU Mutual. “Although equities are viewed as the higher-risk asset class and this largely drives which sector a fund is listed in, this measure alone can be an oversimplification of categorising risk,” he says. “For instance, it could be argued that a portfolio of defensive, high-yielding equities on a low valuation is no riskier over the medium to long term than government bonds with negative real yields.”
Richard Marwood, manager of the Axa Distribution fund, says while the sector names were designed to give investors more clarity about what the funds do, naming them according to equity exposure is a “fairly blunt tool” because it does not say much else about how a fund is managed.
“Have a look at what the strategy of the fund is, because there are all sorts of different styles in the sectors,” he says.
Meanwhile, Richard Troue, investment analyst at Hargreaves Lansdown, says these funds can be a convenient way to gain exposure not just to equities but other asset classes, but care needs to be taken because no two funds are alike.
