Mixed investment fund

economic-dictionary

A mixed investment fund is an investment fund that combines fixed income and variable income. The proportion varies depending on the profile of the fund and its investment policy.

In the first place, it must be taken into account that the original purpose of a mixed fund is to incorporate a percentage of investment in fixed income that can offer stability to a variable income fund. The mission of fixed income is to protect potential misbehavior of equity assets. In addition, by incorporating investment in equities, a profitability bonus can be achieved. In principle, the higher the percentage of exposure to equities, the greater the risk assumed and the higher the potential profitability of the fund.

On the one hand, the fund invests in fixed income assets (corporate debt, government bonds, etc.). On the other, in variable income assets (shares and participations of listed companies or not). Depending on the investment policy of the fund, the maximum investment percentage in one or the other is established. In fact, mixed funds are often characterized by being quite flexible. In other words, there is no strict percentage in which the fund must be invested, but rather within a range.

For example, a fund's prospectus determines that it will typically be invested between 30% and 40% in equities. This does not imply that 40% should always be invested in equities or even 30%. What's more, it could also be below 30% at times. The fund manager may find it appropriate to reduce equity exposure over a period of time.

Classification of the Mixed Fund

As long as they have a percentage of both types of investment (variable and fixed) it will be a mixed fund. However, in some places distinctions are made according to the investment vocation of the fund (types of assets that comprise it). For example, in Spain, the CNMV classifies mixed funds as follows:

  • Mixed fixed income: Exposure to variable income assets less than 30%.
  • Mixed equity: Exposure to equity assets greater than 30% and less than 75%.

On some occasions, the term “mixed” refers to the geographical distribution of the financial assets that make up the fund. In this sense, we would speak of a mixed fund based on the exposure to assets of one country or another.

On the other hand, the concept of a mixed fund should not be confused with that of a multi-asset fund. Although sometimes both terms are used synonymously. Generally, a multi-asset fund refers to those funds that diversify the investment in a very broad category of assets (currency, real estate, commodities, etc.). While, mixed funds, usually go hand in hand with the diversification of fixed and variable income.

Advantages of a mixed investment fund

  • Adaptability: The distinctive feature of this category of funds is that they adapt to all risk profiles (conservative, moderate, risky, very risky, etc). An investor with a high risk appetite will choose a mixed fund with a high percentage of exposure to equities and vice versa.
  • Flexibility: As it is a mixed product, it can adequately accommodate itself to changes and market evolution.
  • Profitability expectations higher than fixed income funds.
  • Diversification of the portfolio: In addition to distinguishing their composition in fixed and variable income, they usually also combine the geographical origin of the assets.

Disadvantages of a mixed fund

  • Unexpected behavior of fixed income: We said that, in mixed funds, the percentage of investment in fixed income acts as a «safe haven asset». That is, it tries to protect a possible bad performance of equity assets to compensate for its losses. However, the opposite scenario can occur. Fixed income can take an opposite direction to variable income and, while the fund gains from its investments in the stock market, it loses everything from fixed income assets (bonds, bonds… etc).
  • Uncertain time horizon: These are usually funds in which investment is recommended in the medium and long term. However, poor performance in fixed income can occur in the short term. Therefore, it is very important to pay attention to the behavior of the market before suffering losses.

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