Looking at the Flexible sector compared to the other three sectors, for example, demonstrates the tradition of funds with higher equity exposure reaping higher returns. The sector average return for Flexible Investment over 5 years was £1,874.9, around 27 per cent higher than the 0-35 per cent Mixed Investment sector, which returned £1,374.2 in the same period, according to data from FE.
Mr Howse suggests that funds that are not confined by strict limits on the amount of equities or bonds they must hold will do best in future, despite the fact that it is currently “very difficult to judge what will perform strongly over the next five years”.
An illustration of the diverse nature of the mixed investment sectors comes from the very best performer over the past half decade. As the name suggests, the CF Ruffer Japanese portfolio is hardly a typical multi-asset fund. Instead, it invests almost solely in Japanese shares, largely ignoring its ability to hold some bonds issued in Japan or securities from elsewhere in the world. Over five years it has returned £2,018 on £1,000.
Japanese equities were boosted by the weak pound in 2016, and with the fund having a 93 per cent weighting to this asset class, according to FE Trustnet, it is unsurprising that the product has managed to beat its rivals, most of which will focus on UK or global shares and bonds.
The approach of the next two top performers is more familiar. The second best fund, also in the Flexible sector, is Newton Osprey, a traditional balanced fund investing in a mix of bonds and equities. Advisers may not be so familiar with this specific portfolio, though, as it only opened up to retail intermediaries in late 2015.
In the tradition of high equity exposure remaining king, the third best performing fund was the Royal London Sustainable World Trust fund, from the Mixed Investment 40-85 per cent Shares sector, with a five-year return of £1,965.60.
Mr Howse says that the performance of such funds is not particularly astounding considering the fact that equities have remained strong over the past five years, “particularly if you’ve had some defensive exposure to guard against market drawdowns at the same time”.
The Royal London fund has a 58.5 weighting to overseas equities, with its largest geographical allocation weighting in the US, which again, has had favourable results for UK-based investors since sterling’s slump.
Adviser interest
Research from Heartwood Investment Management shows that intermediaries’ increased interest in multi-asset funds has not peaked yet. Two in five advisers (39 per cent) have moved clients from single-asset to multi-asset income funds as a means of securing “more reliable long-term income” over the past year, the company found.
