31 March 2016
What is a mixed fund?
Some funds invest solely in one type of financial product, such as share funds or bond funds. However there are also "mixed" funds that, as their name suggests, place their assets in a mixture of different asset class categories.
What types of mixed funds are there?
There are 2 types of mixed funds: "classic" funds and "flexible“ funds.
Generally speaking, the manager of a "classic" fund will establish an investment policy based on a fixed distribution of shares and bonds. Within this category, there are 3 different fund types: defensive funds, neutral funds and dynamic funds. The latter are made up of the highest fixed proportion of shares.
The percentage invested in shares within a "flexible" fund may fluctuate considerably. This flexibility allows the fund to adjust its make-up according to the behaviour of the market. While the market is moving in a stable and upwards direction, flexible funds have the opportunity to benefit from some of these peaks thanks to their higher share exposure. When the market goes through turbulent times, however, mixed "flexible" funds are able to limit their risk exposure or even completely withdraw from the equities market altogether.
What are the main advantages and risks of mixed funds?
The major advantage of mixed funds is that they are less risky than "pure” share funds. They also allow investors to benefit from good market performances, while still limiting their risk exposure. As a general rule, this type of fund is more resilient in the event of a market correction than one which is made up of 100% shares. Why? Because mixed funds also invest in bonds and/or in liquidities. On the other hand, mixed funds do not allow you to benefit fully from, e.g., a rise in share prices in the same way that 100% share funds do.
The fact that mixed funds are deemed to have a limited risk does not mean they are risk free. In fact, these types of funds do not come with a capital guarantee.
Mixed funds generally enable investors to diversify their assets as much as the geographical or sectoral spread of their portfolio. In most cases, these funds are invested at a global level. This consequently reduces the risk of the portfolio by offering more resilience in the event of market fluctuations.