The latest figures from an investment supermarket show that over half of their net sales last month went into Cautious Managed funds.
What does ‘cautious managed’ actually mean?
Investment funds fall into one of a number of ‘sectors’, which include the cautious managed sector.
The Investment Management Association (IMA) Cautious Managed sector includes funds investing in a range of asset classes.
The maximum amount of equities that these funds can hold is limited to 60% of the fund. At least 30% of the fund has to be invested in cash and fixed interest securities.
Whilst these maximum investment limits should make funds in this sector more cautious than investing wholly in equities, exposing nearly two-thirds of your investment portfolio to company shares is not necessarily a cautious approach to investing.
In an economic environment where the investment markets are volatile, it is unsurprising to see so many investors opting for what they perceive as a more cautious approach.
From the start of 2012, the IMA Cautious Managed sector is being renamed Mixed Investment 20-60% Shares.
This renaming exercise will bring the IMA managed sector names into line with the names now used by the Association Of British Insurers (ABI). More importantly, it will help to remove the impression that funds within this sector are ‘cautious’ investments, although we suspect many of the funds will still be named Cautious Managed.
At the same time, on 1st January 2012, the IMA Balanced Managed sector is being renamed Mixed Investment 40-85% Shares. IMA Active Managed will become the Flexible Investment sector.
When an investor is looking for a genuinely cautious investment approach, we believe in creating a bespoke portfolio of individual funds rather than opting for one or more funds in the Cautious Managed sector.
This approach ensures more control over the underlying asset allocation of the investment portfolio, which helps us and the investor to understand the amount of risk they are taking.
With up to 60% of Cautious Managed funds invested in company shares, a stockmarket crash can have a serious impact on the value of such a fund.
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