Overview of IA Mixed-Asset Fund Categories
The Investment Association (IA) categorizes mixed-asset funds into four primary sectors:
Mixed Investment 0-35% Shares
Mixed Investment 20-60% Shares
Mixed Investment 40-85% Shares
Flexible Investment
Additionally, IA Volatility Managed and Targeted Absolute Return funds are also included in this broad category as they typically invest across multiple asset classes.
Performance and Assets Under Management (AUM)
The Mixed Investment 40-85% Shares sector stands out as the largest, with assets under management totaling £88.4 billion as of March 2024. This sector has seen a notable increase in AUM by 7.15% (£5.9 billion) since March 2023. In contrast, the Mixed Investment 0-35% Shares sector is the smallest with £8.2 billion in AUM, having experienced a significant decrease of 21.9% over the same period.
Overall, the total AUM across all mixed-asset sectors stands at £264.7 billion, reflecting a minor decrease of 0.08% in the past year. The most substantial decline has been observed in the IA Targeted Absolute Return sector, which saw a reduction of £6.7 billion, followed by Mixed Investment 0-35% Shares, which fell by £2.3 billion.
Market Dynamics
Money market funds have benefitted from rising interest rates, which offer more stable returns. Meanwhile, there has been increased interest in higher-risk sectors, particularly the IA Mixed Investment 40-85% Shares, which has gained significant assets. The IA Volatility Managed sector also saw a 10% increase (£5.7 billion) in AUM as investors sought diversified solutions that cater to a broad range of risk profiles.
Noteworthy Fund Trends
Vanguard LifeStrategy Range: This passive fund range remains a leader in AUM, totaling approximately £40.6 billion. The ‘balanced’ risk 60% equity fund is particularly popular, holding around £14.9 billion.
HSBC Global Strategy Range: With £8.2 billion in AUM, HSBC’s Global Strategy range has attracted strong inflows due to its market cap-oriented approach.
L&G Multi-Index Range: This range has accumulated £7 billion, benefiting from its low-cost offerings.
Market Background
The 2022 interest rate hiking cycle was challenging for both equity and fixed-income markets, resulting in negative returns for many funds. However, 2023 saw a rebound as inflation receded and interest rates were expected to have peaked. This led to strong performance in equity markets, particularly for technology and AI-related stocks, and positive returns for fixed-income assets. Credit markets also improved, and the final quarter of 2023 saw a broad market rally, positioning the UK, Europe, and the US favorably for 2024.
Responsible Investment Funds
In 2023, responsible investment funds faced a decline in assets, with outflows around £3 billion. This reflects a more challenging environment for these funds in 2022 and highlights the reality that focusing on sustainable investments often involves trade-offs. Despite this, the IA Volatility Managed sector, which includes some responsible mandates, continues to attract positive inflows. This suggests a sustained interest in responsible investment, driven by ongoing policies and regulations such as the US Inflation Reduction Act and the EU Sustainable Finance Action Plan.
Conclusion
The landscape for IA mixed-asset funds is evolving, with a clear shift towards higher-risk sectors and increased interest in diversified, low-cost passive funds. The recent trends and market dynamics indicate a positive outlook for the mixed-asset space as we move into 2024, particularly for sectors that balance risk and return effectively.
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