Savers are being warned against 'cautious' managed funds after research found many portfolios in fact have significant exposure to risky assets.
The report by consumer group Which?, set to be published today, comes in the wake of the FSA's £7.7m fine on Barclays over the bank's inappropriate sale of risky funds, one of which was in the cautious managed sector, writes the Daily Mail.
Under the rules of the IMA, which categorises funds, cautious managed funds can invest as much as 60% cent in equities, but need to have 30% or more in safer fixed-interest investments, such as gilts and cash.
The Which? survey of investors in cautious managed funds found while most were happy to accept lower returns for reduced risk, the level of equity investment in the average fund was relatively high at 42%.
One-third of cautious managed funds were more than 50% invested in stocks and shares, and one, CF Miton Global Income, even exceeded the 60% rule.
More than half of the 245 funds in the sector invest in 'alternative assets', such as derivatives, futures and hedge funds.
The IMA is looking at its sectors and consulting IFAs and other bodies with a view to renaming some.
Despite its supposedly lower-risk profile, the cautious managed sector has a history of volatility.
The average fund in the sector fell by more than 18% between 2007 and 2008, and in the past decade the sector has underperformed less risky investment sectors, such as gilt and corporate bond funds.
Which? named 12 'cautious' funds that had lost investors money in the past three years, including CF Miton Cautious Income Portfolio, Aviva Investors Manager of Manager s Cautious fund and Henderson Cautious Portfolio.
The Which? report comes after Skandia said subjective fund labels such as Cautious Managed can be misleading and put its weight behind UCITS IV - a European-wide standardised risk score to help consumers better understand their investments.
Has run Cautious Managed fund since 2011
What’s right – not what sells
Richards fires back at committee report
Available on Investcentre platform
Invested from 2006-2011