WHAT ARE MIXED FUNDS?

Mixed funds are one of the broadest, most flexible and discretionary categories of investment funds available.

They could be classified as suitable for moderate profiles, but only within this category can funds be found for all tastes.

It is necessary to know what types of mixed funds exist, what characteristics they have and what average returns they are presenting. This information together with an adequate study of our risk profile as investors will open the way for us to choose a mixed fund wisely.

Let’s see how this financial product, due to its wide extension and room for manoeuvre granted to the manager, can be ideal for any type of saver.

However, it is necessary to fine-tune the shot before shooting and this is what we will learn today.

Mixed funds can be defined as those that combine both fixed and variable income portfolios in their portfolios.

We say”roughly speaking” because there are actually multiple subcategories within mixed funds, hence the problem of choosing one.

It is not as simple as simply combining the two types of assets, it is also necessary to decide in what proportion.

Objectives of the mixed funds

But let’s start at the beginning. A mixed fund was created to provide stability to an equity fund by including fixed income assets in its portfolio. In this way we create a product that is halfway between fixed income and equity funds, in terms of risk.

From another point of view, one might also think that the intention is to incorporate equities into a fixed-income portfolio in order to increase returns while maintaining an adjusted level of risk.

Which of the two visions is the right one? Is a mixed fund set up to protect a portfolio of equities or is it intended to increase the return on a portfolio of bonds?

The percentage of each of the two types of assets included in the fund’s portfolio can be used to determine the manager’s view of these issues.

In principle, it should be clear to us that a mixed fund is a category of investment funds. The categories were created jointly by the Comisión Nacional del Mercado de Valores and Inverco (Association of Collective Investment Institutions) to offer a criterion to savers and to be able to choose a tailor-made investment fund.

What the category of the fund indicates to us is the investment vocation.

In other words, the fund’s guidelines for deciding which assets to include in its portfolio and the percentages thereof.

The investment vocation defines the level of risk that the fund can assume and this information is very useful to fund managers.

Thus, a mixed fund will have more return and risk than a fixed income fund, but less than a variable income fund.

But this is all we need to know?

Of course not, of course not.

This information is very general, it does not indicate the percentage of each type of asset, and therefore, the manager’s vision, or the specific risk profile.

For this reason, different subcategories have been created within the universe of mixed funds.

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Types of mixed funds

It should be noted that mixed funds are very flexible products. In reality, all investment funds are flexible products, this is one of their advantages. However, this category is characterized by being particularly ductile.

There is no fixed percentage to determine the types or subcategories. There are ranks and the fund manager has ample room for manoeuvre in setting his or her criteria for the strategy.

We should also point out that there are other factors for defining the categories of mixed funds. Depending on the geographical area in which the selected assets originate and the exposure to a particular currency, multiple rates are set.

According to Inverco, the categories are:

Mixed fixed income euro

Characterized by not being able to have a percentage of equity exposure greater than or equal to 30% of the total portfolio. They must also have an exposure to foreign currency assets of less than or equal to 30% of the total.

International mixed fixed income

They must have an equity exposure of less than 30% of the total portfolio, but have more than 30% in assets issued by entities located outside the euro area and denominated in foreign currency.

Euro mixed equities

They must have a percentage of equity in their portfolio of between 30% and 75% (inclusive). They cannot have more than 30% exposure to assets issued in currencies other than the euro.

International equities

The distribution of the portfolio is the same as for mixed euro equities, but in this case they can have a percentage of exposure.

Investment advices

All analysts point in the same direction: a year marked by volatility and the normalisation of monetary policies. Here are some investment tips for 2018.

As for fixed income, the truth is that it should not be a priority for 2018. However, we have provided some strategies and products to balance our global portfolio with these types of assets.

As far as equities are concerned, experts still have their eye on Europe. This 2018 may come with a few surprises of volatility. For this reason, the best advice is basically active management and diversification.

Interestingly enough, these principles now apply more than ever to bonds.

Debt securities are marked by an expected rise in interest rates in the United States and the start of the normalisation of European monetary policy. This will cause bond valuations to fall.

It is recommended to be very cautious in fixed income this year. This may not be the best time and our portfolios should be focused on equity assets.

Although, without a doubt, a small exposure to this type of assets can provide an added stability in the architecture of the global investment basket.

Several analysts recommend a very active management in this scenario, as if it were equities. Those were the days when bonds could be included in the investment portfolio, time could pass and coupons could be collected, without worrying that the valuation of the assets could damage the assets.

2018 is marked by changes. Changes in monetary policy and the fear of rising inflation.

Strategy and prudence are the best advice that can be given in fixed income for 2018.

But what fixed income strategies work best in such a scenario?

Fixed income investment strategies for 2018

Long-term fixed income exposure is not recommended. These types of assets are more sensitive to inflation and will suffer more from stated intentions to change monetary policy.

There are certain managers who have a clear preference for corporate debt, leaving aside sovereign debt. The objective is clear: if we juggle credit risk, we can achieve greater profitability.

High yield” bonds are an option for those who can afford less risk aversion. Once again, however, we see diversification as the best weapon to combat credit and duration risk.

Let’s see an example of this.

Examples of fixed income products for 2018

Good management and diversification is what defines one of the best fixed income funds. Exactly the recipe so that fixed income (the little exposure we can have in favor of portfolio stability) can be of some use to us during 2018. We’re talking about Gam Star Credit Opportunities.

This fund has an annualized appreciation of 7.72% over the last three years (accumulated return over the same period of 21.93%).

How do you do it? Management, management and more management. Necessary more than ever for fixed income.

With a volatility of only 2.72%, the Gam Star Credit Opportunities, denominated in euros, is investing globally. With a maximum of 20% of the portfolio in securities issued in Emerging Markets (one of the best fixed-income strategies in the scenario described).

Government bonds, subordinated debt securities, preferred stock, convertible securities, corporate bonds and contingent capital notes make up your investment portfolio. Playing this way with credit risk; in other words, diversifying.

The fund has what fixed-income investors need for 2018, a good managerial capacity.

Management capacity and diversification is the best recipe. As the CEO of Tressis Gestión, Jacobo Blanquer, states:”Our clients do not pay us for losing money”. Perhaps this is why the mixed fund it manages, the Adriza Global FI, has little exposure to fixed income and an accumulated return of 36.86% over the last five years.

In short, fixed income is not going through its best times. A small contribution to our portfolio in search of stability is not a bad idea, as we can see from the investment policy of Adriza Global FI. Greater exposure makes it necessary to manage the portfolio with equity strategies.

Investment advice on variable 2018

In line with the above, for 2018, active management of this market is also recommended.

This year has seen a marked increase in volatility, which could jeopardise our profitability if we lose sight of the situation.