How to be flexible with your equity exposure

How would you like to invest heavily in shares – but have a fund manager that can dilute this equity exposure when they feel it’s appropriate?

Well, that is the reality if you opt for one of the portfolios in the increasingly popular IA Mixed Investment 40-85% Shares sector.

As its name suggests, this area is for funds that have between 40% and 85% of assets under management in equities, which is a pretty substantial amount.

But how do you know if this is the right area for you – and which funds are attractive? Here we take a look at this sector and highlight four portfolios that are worth a look.

A mix of investments

Everyone knows that diversification makes a lot of sense. It’s one of the reasons why so many fund houses now offer multi asset portfolios. While investing in equities usually provides the best chances to enjoy bumper longer-term returns, other asset classes can play important roles, such as limiting the potential downside.

However, it was traditionally difficult to gauge exactly how much exposure different funds had to various asset classes, especially as many are given quirky names. This was one of the reasons why the Investment Association introduced various “Mixed Investment” classes more than a decade ago that made everything much clearer.

The mixed investment sectors

There are three available mixed investment sectors that dictate the minimum – and maximum – amounts that funds may hold in equities. They are IA Mixed Investment 0-35% shares, IA Mixed Investment 20-60% shares and IA Mixed Investment 40-85% shares. There is also the IA Flexible sector, which has no restrictions.

IA Mixed Investment 40-85% Shares, for example, enables funds to have a relatively high proportion of assets in company shares. However, there’s no minimum fixed income or cash requirement. Another important sector rule is having a minimum 50% investment in established market currencies – US Dollar, Sterling and Euro – of which 25% must be Sterling.

Growing popularity

Billions of pounds have been poured into the IA Mixed Investment 40-85% Shares sector recently, which has help established it as one of the most popular with UK investors.

There is currently £82.4bn in this sector, which makes it the fourth biggest behind IA Global, IA UK All Companies, and IA North America*.
Given the interest in this sector, it’s unsurprising that there are plenty of funds from a variety of leading investment groups that are competing for investors’ cash.

Here we highlight four funds that could be worth considering if you are wanting relatively high exposure to equities, albeit with a degree of asset allocation flexibility.

Liontrust Sustainable Future Managed

This is a sustainable multi asset fund, backed by a well-resourced team, that has illustrated its ability to outperform over the last two decades. The managers at the helm – Peter Michaelis and Simon Clements – have an enviable combined industry experience of more than half a century.

Their aim is to deliver capital growth, as well as some level of income, over the long term. This is classified as being at least five years. Their investment process identifies key structural growth trends that are expected to shape the future global economy – and then finds well-run companies likely to capitalise. These themes including increasing financial resilience, improving the efficiency of energy use, and enhancing digital security.

Orbis Global Balanced

The aim of this fund is to balance investment returns and risk of loss through a diversified global portfolio that primarily consists of equities and bonds. Its manager, Alec Cutter, scours the world for the most attractive opportunities that he can find within a number of asset classes. The fund also has a contrarian approach which has been successfully demonstrated on a number of occasions. Every holding must be an active contributor to the portfolio.

You can hear more about this fund and the manager’s views on this podcast:

BNY Mellon Multi-Asset Balanced

Then we have the BNY Mellon Multi Asset Balanced fund. This aims to strike a balance between income and capital growth over the long term. As usual, this is defined as being at least five years.

The fund’s manager, Simon Nichols, has created a global multi asset vehicle that uses themes to target the forces driving global change in markets. The fund reiterated it remained focused on companies that are believed to have more resilient earnings profiles and attractive end-market outlooks. “Over the longer term, we will continue to seek out investment opportunities as developments in technology, health, energy and geopolitics continue to shape the world around us,” it stated**.

Jupiter Merlin Balanced

Our final suggestion is a multi-manager fund from a vastly experienced team. This portfolio, which invests in a wide variety of other funds, as opposed to individual stock and fixed income positions, can take defensive measures when appropriate.

Investment decisions are made by the Jupiter Independents team, which also runs the other portfolios coming under the ‘Merlin’ umbrella. According to the most recent factsheet, this fund has 37.3% exposure to global equities and a further 29.4% in UK equities***. Fixed income accounts for 13.1%, with 7.4% in US equites, 5.6% in Japanese equities, with the remainder being in other funds and cash***.

*Source: Investment Association rankings for June 2023
**Source: BNY Mellon Investment Management, 30 June 2023
***Source: Fund factsheet, 30 June 2023