Sustainable funds from Royal London and those with a high passive exposure dominate the list of most consistent outperformers in the IA Mixed Investment sectors over the past decade.
Performance of funds vs sectors
Source: FE Analytics
L&G Mixed Investment 0-35% topped the lowest-risk IA Mixed Investment 0-35% Shares sector, beating its peer group composite in eight of the past 10 years.
Of the 31 funds with a track record long enough to be included in the study, another five beat the sector in seven of the past 10 years, including the Vanguard LifeStrategy 20% Equity fund.
L&G Mixed Investment 0-35%, managed by Bruce White and Christopher Teschmacher, aims to beat the Bank of England Base Rate over rolling three-year periods, through a portfolio with at least 45% of its assets in investment grade bonds and money market instruments.
It currently has 25.7% in equities and 11% in cash. Six of its top-10 positions are in tracker funds; all active positions in its top-10 are in fixed income funds.
Rather than make concrete predictions about macro themes, the managers prefer to think in terms of scenarios and likelihoods, and avoid attaching too much weight to any single view.
As an example, they take a four-step approach to considering the impact of inflation on their portfolios.
“First, be mindful of the potential for the bond/equity correlation to change when inflation is the number-one topic of conversation for investors,” said Teschmacher.
“Second, be aware that local inflation is particularly negative for your domestic currency. Third, think about the difference between assets which hedge inflation risks in the short term and those which are likely to enjoy positive real returns in the long run.
“Finally, be mindful that the best protection against unpredictable inflation risks is typically to diversify both your real and nominal assets on a global basis.”
L&G Mixed Investment 0-35% made 69.3% over the 10-year period in question, compared with 48.7% from its IA Mixed Investment 0-35% Shares sector and 4.5% from the Bank of England base rate.
Performance of fund vs sector and index over 10yrs
Source: FE Analytics
The Royal London Sustainable Diversified Trust is the most consistent outperformer in the IA Mixed Investment 20-60% Shares sector, beating its peer group composite in every one of the past 10 years.
Of the 94 funds with a track record long enough to be included in the study, another four managed to beat the sector in nine of the past 10 years.
The Royal London fund is headed up by Mike Fox, George Crowdy and Sebastien Beguelin, who aim to deliver capital growth over three to five years by investing in a diverse range of asset classes that are deemed to make a positive contribution to society.
It primarily invests in the domestic market, with 39.9% of its portfolio in UK fixed income and 20.7% in UK equities.
In a recent note to investors, Fox said that the fund would be negatively affected in the short term by its aversion to commodities and defence, sectors that have rallied following Russia’s invasion of Ukraine. However, he said it was more important that investors knew where their profits and returns were coming from.
“We can and have, over time, delivered good investment returns without being involved in these areas,” he explained.
“So long as the companies we invest in keep adapting and delivering, past experience tells us current events will pass and our portfolios will rebound.”
Royal London Sustainable Diversified Trust made 181.8% over the 10-year period in question, compared with gains of 74.3% from the IA Mixed Investment 20-60% Shares sector.
Performance of fund vs sector over 10yrs
Source: FE Analytics
The same managers also run the Royal London Sustainable World Trust which, along with Vanguard LifeStrategy 80% Equity, is the most consistent fund in the IA Mixed Investment 40-85% Shares sector over the past decade, having outperformed in all 10 of the past 10 calendar years.
Of the 101 funds with a track record long enough to be included in the study, another six funds beat the sector in nine of the past 10 years.
Royal London Sustainable World Trust has a similar set of aims to the Royal London Sustainable Diversified Trust. However, aside from a higher weighting to equities – which at 82.7% is currently close to the sector maximum – it also has more of a global perspective: 47.1% of the portfolio is in US equities, compared with just 16.4% in the UK.
The fund made 317.7% over the 10-year period, compared with 113.7% from the IA Mixed Investment 40-85% Shares sector.
Performance of funds vs sector over 10yrs
Source: FE Analytics
Vanguard LifeStrategy 80% Equity is a passive fund that invests 80% of its assets in global equities and 20% in global bonds. The team at Square Mile Investment Consulting & Research said that Vanguard is one of the only asset managers with the breadth and quality of funds to be able to implement this type of strategy.
However, it warned “the fact that there is no change to the asset allocation or underlying passive selection to reflect extreme valuations means the fund may suffer when market valuations adjust”.
Vanguard LifeStrategy 80% Equity made 113.7% over the 10-year period in question.
| Name | Fund size (£m) | OCF (%) |
| L&G Mixed Investment 0-35% | 1144.5 | 0.44 |
| Royal London Sustainable Diversified Trust | 3580.9 | 0.77 |
| Royal London Sustainable World Trust | 2997.3 | 0.77 |
| Vanguard LifeStrategy 80% Equity | 7602 | 0.22 |