Research reveals transformation of ‘cautious’ sector

Just 11 of the 58 funds that made up the former IMA Cautious Managed sector 10 years ago have survived in the same form and remain in the now rebranded sector.

Research by Seven Investment Management (7IM) has shown large numbers of funds have either been closed or merged away by fund groups in the past decade.

The IMA’s shake-up of the former ‘balanced, cautious and active’ sectors in 2011 also prompted some fund groups to relocate products to better reflect the new definitions, which now group funds by the amount of equity exposure they are permitted to have.

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Justin Urquhart Stewart, co-founder at 7IM, said his team had carried out the research because the group’s investment process had passed its 10-year anniversary and he wanted to look at survivorship within the IMA Mixed Asset sectors.

“It’s amazing how many funds just vanish,” he said.

“As an industry we need to try and show long-term performance – not just dump or hide the poorly performing ones.

“In March 2004 there were 58 funds in the IMA Cautious Managed sector. If we look at the IMA Mixed Investment 20-60% Shares sector today there are 136 funds.”

Of the 11 funds that have been in the now-called IMA Mixed Investment 20-60% Shares sector for 10 years and remain there today, just one has undergone a minor change.

Aberdeen’s Multi-Manager Cautious Managed fund was initially launched under the Credit Suisse brand but the same team, led by Aidan Kearney and Graham Duce, has run it throughout using the same process.

“What are your chances of not just picking a fund that will achieve its investment objectives, but of picking a fund that will even survive the long-term investment course,” Mr Urquhart Stewart said.

“And how does this turnover of funds skew traditional performance measurement over the long term?”

Mr Urquhart Stewart said the research was not done to question the changes as its own Moderately Cautious fund moved to the youngest multi-asset sector, the 0-35% Shares sector, which was launched in 2012.

“The point was that one must consider the constituents of the universe being considered to have shifted and continue to shift,” he added.

Among the survivors is the £993.2m Threadneedle Equity & Bond fund, which is run by its head of multi-asset Alex Lyle and chief investment officer Mark Burgess. Mr Lyle runs several funds for Threadneedle, including the three-strong FP Omnis Threadneedle fund range.

Other funds from major groups include Legal & General’s £43.3m Distribution Trust run by Kevin Chessum.

But smaller groups also feature in the sector, including Margetts Fund Management with its £146m Providence Strategy run by Toby Ricketts – which was in the IMA Cautious Managed sector as far back as 2001.

The sector launched in 1999 and by 2001 had just nine funds in it, according to data from the IMA.

The mixed asset fund universe has grown substantially in recent years, particularly with the onset of the RDR, which places a greater burden on advisers wishing to select their own investments.