Re-categorisation, less stringent rules and the addition of extra sectors are all potential ways to rebalance the mixed investment sectors, several industry experts have told FE Trustnet.
Last month, we looked at the sectors experts wanted reformed, asking our readers to cast their vote. After Targeted Absolute Return and Property sectors, the Investment Association’s Mixed Investment sectors emerged as the most popular with 16 per cent of the ballot.
Having previously looked at the most popular choice – the IA Targeted Absolute Return sector – FE Trustnet looks at the IA Mixed Investment sectors.
For this study we will also include funds in the IA Flexible Investment, IA Specialist and IA Unclassified sectors.
Performance of sectors over 5yrs
Source: FE Analytics
Financial services specialist The Wisdom Council said while experienced investors are familiar with ‘multi-asset’, for those with less experience, ‘mixed’ could be clearer and sound less like jargon.
“‘Flexible’ is often associated with ‘they can do whatever they want’ which can have both positive and negative connotations, typically depending on how much risk the investor is comfortable with,” it noted. “It can have little meaning unless contextualised.”
As such it suggests rebranding the sectors into the following categories: Bond Focused, Equity & Bond, Equity Focused, Equity Plus, Bond Income and Equity Income.
While this may help with the terminology, Mike Deverell partner and investment manager at Equilibrium, said he would prefer the terms around the mixed investment sectors cleared up.
“Whilst the names implies the constraints are only around equity weighting there are more rules that many investors don’t realise,” he explained.
For example, funds within the IA Mixed Investment 20%-60% Shares sectors must have at least 30 per cent in fixed income or cash with a minimum of 20 per cent in equities. 
Opinion was split among experts FE Trustnet spoke to over whether the sector criteria encouraged diversification, constrained managers or were too broad.
Premier Asset Management portfolio manager Simon Evan-Cook suggested adding another sector – the Mixed Investment 85% to 100% Shares sector – as it may help to clean up the IA Flexible Investment and IA Unclassified sectors.
“The IA Flexible sector, in so far as it contains quite a few funds that would sit in a ‘Mixed Investment 85% to 100% Equity’ sector, if such a sector existed,” he said.
“These are potentially very different to fully flexible multi-asset funds, which can go anywhere, and in doing so could hold anything between 0 per cent and 100 per cent equity.
“I suspect it’s the latter that the sector is really designed for, but it has also become the home to the former as they have nowhere else to go.”
He added: “I think it’s worth investigating how many funds would potentially sit in that sector, as well as whether that classification would be useful to end investors.
“I suspect there are quite a few that would qualify in the Flexible sector, but also some in the global equity sector.”
Indeed, this may benefit up the IA Global sector as well as the IA has defined this sector by funds with at least 80 per cent in global equities that “must be diversified by geographic region”.
However, Hawksmoor Investment Management fund manager Ben Conway, is against hamstringing funds with narrower bands.
The fund manager said: “We consider our Vanbrugh fund to be cautiously managed. At some points in the cycle, when equities are cheap and the margin of safety wide, it makes sense to be able to hold lots of them.
“Correspondingly as they get more expensive, you should have room to lower the weighting substantially.
“The point is the IA classifications are merely a gentle guide for the investor, no more. Moreover, if 20-60% or 40-85% is too wide, where do you draw the line?
“At some point you have to put the onus on fund buyers to conduct proper due diligence and appreciate what each fund is actually mandated to do.”
However, he said that his main concern would be to reclassify the way the IA treat convertible bonds, which currently count towards a fund’s equity position.
“They are not equities. Convertible bonds are a unique asset class – they display convexity that no other asset in the capital structure of a company displays.
“Ideally, we’d like them to be treated as bonds (as they display bond-like characteristics as the underlying equity price falls – they only act like equities when prices rise a lot) – and thus could use some of the 30 per cent fixed and interest and cash budget (especially since most fixed interest assets are so expensive).
“This is a clear example of the IA’s classifications actually hindering, albeit in a relatively minor way, efficient portfolio construction.”
Not everyone agrees that the sectors should change, however.
Ben Yearsley, director at Shore Financial Planning director, said: “Mixed investment is ok, I think it works well with the different equity weightings across the different sectors. At least the parameters are clearly defined.”
He said that while the mixed investment sectors were fine, the IA Specialist sector “is a mess” and some new sectors could be created.
“In my view it's a catchall that when there are enough funds of the same type, like TMT [Technology/Media/Telecommunications], they get split out into their own sector,” he said.
He added that he would largely leave the sectors alone, though there may be potential to remove healthcare funds and let them have their own sector.
Performance of potential IA Healthcare sector over 5yrs
Source: FE Analytics
Including funds that focus on biotechnology and those in the global sector, a healthcare sector could include as many as 13 funds if they were to move out from their current sectors.
Yearsley also noted that the IA Flexible Investment sector is a “really odd sector” and “probably the worst of the lot”.
“It is a complete mish-mash of funds making comparisons largely pointless. It’s a bit of global, a bit of mixed and a bit of other. Honestly not sure if there is an answer to it,” he said.
However, he added that the problem is the more sectors you create the more complicated life becomes trying to analyse them and therefore said he is not sure it actually helps.