Cautious funds losing cash

The cautious managed sector is seeing low returns and in some cases is losing investors' cash, according to new research.

Data from moneyspider.com reveals some of the biggest names in fund management have posted negative returns in the cautious managed sector, in the worst case falling over 17 per cent.

For example, a £5,000 investment a year ago in the ‘E’ rated New Star Tri-Star fund would now be worth just £4,149, while Foreign & Colonial’s MultiManager Distribution is down 13.6 per cent, leaving just £4,401 from a £5,000 investment.

"Our data show that the average manager in the cautious managed sector has posted minus four per cent returns in the 12 months to the end of May,” said Tony Ahearne at Moneyspider.com.

“These funds have become the favoured alternative to traditionally ‘safe’ with profits policies and other lower risk asset classes, but in our view the Cautious Managed sector is exhibiting dangerous signs that it is anything but cautious."

He added: “The basic ethos of most of these funds is that they promise a share of stock market rises while limiting losses from a fall."

Mr Ahearne explained part of the problem was there is a huge variety of cautiously managed funds - ranging from pure bond funds and those that have the traditional cautious-managed mix of 60 per cent equities and 40 per cent bonds to multi-asset funds, which can invest in anything from commodities to swaps, futures and other derivatives.

“Clearly, such a wide investment remit means that some funds are vastly more exposed to higher risk than others – and some of the big name fund managers are getting it spectacularly wrong,” he added.