Cautious Managed Funds

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Published Wednesday, June 8th 2011

You’re a cautious investor. So you want your investments in a cautious managed fund because, you think, you’ll be taking less of a risk, right?

Well, not exactly.

You could find that your definition of cautious when it comes to managed funds is very different from the investment world’s definition.

So how do you make sure you get what you want for your investments?

You’ll be pleased to know that the IMA are currently working on that problem, spending a good amount of time and probably as much money.

The IM who?

Good question. The IMA, otherwise known as the Investment Management Association are a body representing the investment industry. Recently, they have proposed a change in the definitions of the three key investment fund sectors. Their reason for this is that they consider the current definitions are too descriptive and not accurate. It’s a fair point.

At the moment, funds are grouped very broadly into three sectors:

• Active managed, which can hold up to 100% in equities

• Balanced, which can hold up to 85% in equities and

• Cautious managed funds, which can hold a maximum of 60% in equities.

The IMA has suggested that these sectors be renamed as:

A, B, C and also a new D sector, which would cover funds classed as very low risk.

Not a huge change there. But with just a few letters removed, a whole lot more confusion has been created. Any eagle eyed readers may have linked the sarcasm in earlier paragraphs to this less than productive solution.

You could go so far as to argue that renaming the cautious managed funds sector ‘C’ and so on makes things even less transparent for the average investor.

How can you really know whether the fund you are in is what you would define as ‘cautious’ or not?

Over the last three years, between the best performing fund in the cautious managed sector and the worst performing was a massive difference of 58% , that’s an average of just over 19% per annum. The worst performing fund would have lost you 12.65% over the three years, while the best performing fund would have gained 45.37%1.

Holding 60% of your assets in an equity based environment would give a risk averse ‘cautious’ investor a very different experience from what they were expecting.

Will the new sector classification by the IMA make judging what funds you want in your investment portfolio, particularly if you have any classed as cautious managed funds any easier? That does seem questionable.

What is without question, however, is that taking independent investment advice before you invest in any fund is vital.

A good independent financial adviser will sit down with you and listen in detail, asking questions along the way, to everything you want to achieve with your investments – whether you want capital growth or an income, for example.

Most importantly, what your adviser will also do is assess your attitude to risk and find out what you really want when you say you are cautious and want a ‘cautious managed fund’.

A thorough risk profiling (not as scary as it sounds!) is essential to make sure you’ve got the investments you want, need and most importantly, what you’re expecting.

The very best independent financial advisers will do their homework when it comes to your investments so you don’t have to. They undertake detailed research of funds, assessing data, studying performance and questioning fund managers to make sure they have exactly the right information. They will lift the lid on the fund tin to make sure you know exactly what it is you’re getting.

Always use an independent and fee-based adviser, which will give you the security of knowing that they are acting on your behalf. And the security of knowing that when you want cautious, you’re going to get cautious.

For more information about your investments, call Worldwide on 0845 230 9876 or e-mail

1 Source: Sesame research to period ending March 2011.

The value of shares and investments can go down as well as up.

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