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Pros and cons of the Mixed bag

This article is part of
Guide to the Mixed Investment sectors

The positives and negatives of funds of funds in the Mixed Investment sectors can very much depend on the individual fund you are looking at.

Ben Yearsley, head of investment research at Charles Stanley Direct, says the biggest negative about Mixed Investment funds was mediocrity in terms of performance.

“There are lots of poor managed funds simply tracking benchmarks and charging an active fee for the privilege. These are clearly to be avoided.

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“The main positives are that if you find a good fund, you can stick with it for the long haul with access to bonds, equities and other assets without the hassle or the cost of having to change funds.

“Also if the manager is active in their asset allocation decisions you have the opportunity of outperforming as they take advantage of different market conditions.”

Mixed Investment funds provide a single point of entry for a diversified portfolio of assets.

Ken Rayner, director of Rayner Spencer Mills, argues that a clear pro of Mixed Investment funds is that they take the complex selection process of combining assets into the hands of an investment manager, rather than someone with less skill and time to do it.

However, he warns some Mixed Investment funds can have higher costs.

Asset allocation is the biggest driver of investment performance and mixed funds mean that the asset allocation is being driven by the fund manager, notes Gavin Haynes, managing director of Whitechurch Securities.

He said this was why Mixed Investment funds were proving popular with advisers and clients wanting to delegate asset allocation responsibility.

With the increasing importance of risk rating funds, mixed funds can provide asset allocation tailored to different risk profiles, he added.

But, because of the wide parameters of the sectors, Mr Haynes warned it is very difficult to compare the performance and risk attributes of different Mixed Investment funds within each sector without digging deeper.

For example, he said a fund with 45 per cent in the stock market versus a fund with 80 per cent in the stock market will have very different characteristics but both feature in the same IMA Mixed Investment fund sector.

My Haynes said: “It is also very simplistic to just look at equity content to try and categorise the risk/reward profile of a fund. You need to look at the overall asset mix and stock selection.”