Multi-asset ISA options for cautious investors

Diversification is a sensible strategy for investors to adopt but ensuring you have an adequate mix of asset classes in your portfolio is a challenge.

The traditional approach is to choose a variety of equity and fixed income funds, but another solution is opting for a fund in one of the IA Mixed Investment sectors that give investors clarity as to how much equity exposure they’re embracing.

Each of the three available sectors will dictate the minimum – and maximum – limits that funds must have to qualify for inclusion. They are IA Mixed Investment 0-35% shares, IA Mixed Investment 20-60% shares, and IA Mixed Investment 40-85% shares.

Here we take a look at the IA Mixed Investment 20-60% shares, examine how it operates, and highlight some funds that could be worth considering this ISA season.

What is this sector – and who is it for?

Funds in the IA Mixed Investment 20-60% shares sector must include a range of investments. In this case, it means having between 20% and 60% invested in equities. In addition, at least 30% of the fund must be in fixed income products. For example, corporate or government bonds, as well as cash investments.

Broadly speaking, a portfolio in this sector could be suitable for more cautious investors that want a decent amount of fixed income exposure, along with other asset classes.

It’s currently the eighth most popular sector out of more than 50 and has £47.7bn of assets under management, according to the Investment Association’s December 2022 figures.

Funds to consider

FundCalibre has a number of Elite Rated funds in this sector. Here are four examples:

M&G Episode Income

Our first suggestion is M&G Episode Income. This is a multi-asset fund that invests directly in individual stocks and bonds, as well as property funds. Its curious name refers to periods – episodes – when investors’ emotions cause them to act irrationally and provide attractive opportunities.

According to the most recent factsheet, the fund has 38.8% exposure to equities, with 29.8% in government bonds, and 12.7% in corporate bonds*. It also has exposure to infrastructure and cash*. Within equities, North America has the largest allocation at 15.7%, followed by 7.7% in Japan and 7.5% in Europe*. It also has exposure to Asia Pacific excluding Japan and the UK*.

VT Momentum Diversified Income

Producing a high level of regular income is the objective of the VT Momentum Diversified Income fund that’s run by a four-strong team led by Richard Parfect. They have the flexibility to invest across asset classes, including UK and overseas equities, fixed income, property, and more specialist investments accessed via third party funds. As this fund distributes a monthly income, it should appeal to income-seeking investors.

Specialist assets currently account for 30.8% of the fund, followed by 29% in credit and 22% in UK equities*. These specialist holdings include Chrysalis Investments*.

This invests in – and supports – innovative businesses with the potential to disrupt and transform huge markets.

Aegon Diversified Monthly Income

This multi-asset fund has the flexibility to pursue the most attractive income opportunities that its managers can find around the world. The duo charged with this task are Vincent McEntegart, who has been at the helm since 2014, and Jacob Vijverberg, who joined in late 2017. Their objective is to generate income with a target yield of approximately 5% per annum, with the potential for capital growth over the medium term. This is classed as any five year period.

The fund benefits from a broad investment universe that includes fixed income, equities, listed property, specialist income, and cash. Bonds currently account for just under half of the portfolio, particularly those BBB, BB and B-rated*. North America accounts for the largest equity region exposure*. Financials, meanwhile, is the most significant sector, followed by technology and industrials*.

Ninety One Global Income Opportunities

This fund, which is managed by Jason Borbora-Sheen and John Stopford, aims to provide income with the opportunity for capital growth. We like the fact it invests conservatively around the world, leading to a diverse range of equity and bond holdings. It can also put some of its money into other assets.

Its focus means that the fund invests in assets offering a reliable level of income – as well as capital growth possibilities – in a variety of market conditions. Equities account for 31.5% of the asset allocation split today, followed by 25.3% in developed market sovereign positions*.

High yield corporates and emerging markets local currency debt come next, followed by investment grade corporate positions and property*. Looking ahead, the managers believe the backdrop is continually evolving, which will necessitate a nimble investing approach over the coming months.

*Source: fund factsheet, 31 January 2023

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