Over the three months to end of July, the market environment has been fairly similar to what came in the three months before. Inflation falling, interest rates rising and stock markets continuing to rise despite a consensus among economists that a recession (even if only a mild one) is coming.
US economic data has improved and does seem to lean towards a ‘soft landing’. A ‘soft landing’ means an economy slows down but manages to avoid recession. This may or may not turn out to be true, but economic data in other regions isn’t looking as strong.
Even if the US does achieve what many think unlikely, it could be that the negative impact from other regions still results in a recession across the developed world.
This article isn’t personal advice. If you’re not sure whether an investment is right for you, ask for financial advice. Investments and any income they produce can fall as well as rise in value, so you could get back less than you invest.
How have stock markets performed?
Shares have continued their positive returns, with most stock markets around the world gaining in value over the three months to the end of July.
The US has led the way, with the MSCI USA index returning 8.49%* over the period. Nvidia’s strong earnings report in May, due to significant increased earnings from Artificial Intelligence (AI), sparked a lot of interest in both Nvidia itself as well as a number of other companies linked to the ‘AI revolution’.
Over the same period the UK lagged, losing 1.16%*. The lack of technology related companies listed on the UK stock market, along with longer term trends causing investors to reduce their investments in the UK, have both acted as headwinds.
Within global stock markets, growth style stocks have fared best, outperforming their value style peers.
Past performance is not a guide to the future.
What about bonds?
Interest rates and inflation have been key reasons behind the losses in bond markets over the last 18 months or so.
Over the quarter, central banks in the UK, US and Europe all raised interest rates further and inflation has come down across the board.
| Region | Interest rate at 30 April 2023 | Interest rate at 31 July 2023 | Inflation at 30 April 2023 | Inflation at 31 July 2023 |
| UK | 4.25% | 5.00% | 8.70% | 6.80% |
| US | 5.00% | 5.50% | 4.90% | 3.20% |
| Euro area | 3.00% | 3.75% | 7.00% | 5.30% |
Interest rate increases have continued to act as a headwind for bonds. While inflation falling is a positive, bond investors have been expecting inflation to drop and so the impact on bond prices has been limited.
The best performing bond sector over the 3 months to end of July was high yield, while government bonds have been the worst performer.
How have mixed asset and total return funds performed?
Funds that invested more in shares and less in bonds have seen better returns over the past five years. Funds in the IA Flexible Investment and IA Mixed Investment 40-85% Shares sectors have performed best over this period as they generally invest more in shares.
This trend has continued over the past year, including the three months to end of July, although it has been a volatile period. The best performing mixed-asset sector over the last 12 months was the IA Flexible Investment sector, with the sector average performance of 2.29%*.
Funds in this sector have few limitations on what they can invest in and are able to change their investments significantly if they want to. While many of these funds have performed well over the period, there are no guarantees, and all investments can fall in value as well as rise.
The worst performing sector was the IA Mixed Investment 0-35% Shares sector. The average fund in this sector fell 2.10%. The cause of these losses has been the higher proportion invested in bonds within these funds compared to other sectors.
Performance of mixed asset and total return funds over 12 months
Past performance is not a guide to the future. Source: Lipper IM, to 31/07/2023.
Annual percentage growth
| July 18 – July 19 | July 19 – July 20 | July 20 – July 21 | July 21 – July 22 | July 22 – July 23 | |
| IA Flexible Investment | 4.50% | -2.66% | 19.73% | -4.47% | 2.29% |
| IA Mixed Investment 0-35% Shares | 4.23% | 0.18% | 7.07% | -7.07% | -2.10% |
| IA Mixed Investment 20-60% Shares | 4.06% | -2.32% | 13.26% | -5.42% | 0.00% |
| IA Mixed Investment 40-85% Shares | 5.15% | -3.12% | 18.03% | -4.26% | 1.53% |
| IA Targeted Absolute Return | 0.73% | -0.33% | 6.88% | -0.47% | 1.56% |
| MSCI USA | 15.77% | 5.52% | 29.99% | 6.41% | 7.00% |
| FTSE All Share | 1.27% | -17.76% | 26.64% | 5.51% | 6.09% |
| IA £ High Yield | 4.72% | -0.16% | 10.70% | -8.83% | 4.10% |
| IA UK Gilt | 7.10% | 10.50% | -4.62% | -14.58% | -15.73% |
| MSCI AC World Growth | 13.69% | 15.95% | 24.79% | -4.85% | 9.32% |
| MSCI AC World Value | 8.11% | -14.20% | 27.55% | 10.00% | 4.98% |
Past performance is not a guide to the future. Source: *Lipper IM, to 31/07/2023.
How have mixed asset and total return funds on the Wealth Shortlist performed?
Our wealth shortlist funds have delivered different returns over the past 12 months. They have different approaches and objectives though, so we don’t expect them to perform in the same way.
Remember, 12 months is a short timeframe when looking at how an investment has performed. Investments should be held as part of a diversified portfolio for the long term – by long term we mean at least five years.
Investing in these funds isn't right for everyone. Investors should only invest if the fund's objectives are aligned with their own, and there's a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest, and make sure any new investment forms part of a diversified portfolio.
For more details on each fund and its risks, please see the links to their factsheets and key investor information below.
Baillie Gifford Managed
Baillie Gifford Managed was the strongest performing Wealth Shortlist fund in this sector over the past 12 months. It returned 5.55%** – above its IA Mixed Investment 40-85% peer group average of 1.53%.
The fund has tended to be more volatile than its peers with a strong bias towards investing in growth style companies. This style has broadly come back into favour in 2023 which has helped this fund bounce back after a period of underperformance. The shares in the fund have been the driver of this positive performance over the period.
Please note that the fund holds HL shares.
BNY Mellon Sustainable Real Return
BNY Mellon Sustainable Real Return was the worst performing Wealth Shortlist fund in the sector over the last 12 months. It returned –6.69%. The managers try to provide some shelter during market wobbles while also delivering some long-term growth. It invests in a diversified set of shares, bonds and derivatives with an emphasis on companies that meet it’s environmental, social and governance (ESG) criteria.
The managers use derivatives with the aim of adding some stability to returns, however, this approach adds risk and over the last 12 months, derivatives have lost the most value, with bonds and alternatives also losing value. It wasn’t all bad though with some of the funds’ investments in company shares adding value.
Annual percentage growth
| July 18 – July 19 | July 19 – July 20 | July 20 – July 21 | July 21 – July 22 | July 22 – July 23 | |
| Baillie Gifford Managed | 9.90% | 14.73% | 24.14% | -23.35% | 5.55% |
| BNY Mellon Sustainable Real Return | 9.18% | 5.38% | 10.56% | -5.56% | -6.69% |
| IA Mixed Investment 40-85% Shares | 5.15% | -3.12% | 18.03% | -4.26% | 1.53% |
| IA Targeted Absolute Return | 0.73% | -0.33% | 6.88% | -0.47% | 1.56% |
Past performance is not a guide to the future. Source: **Lipper IM to 31/07/2023.
VIEW BAILLIE GIFFORD MANAGED FACTSHEET INCLUDING CHARGES
VIEW BAILLIE GIFFORD MANAGED KEY INVESTOR INFORMATION
VIEW BNY MELLON SUSTAINABLE REAL RETURN FACTSHEET INCLUDING CHARGES
VIEW BNY MELLON SUSTAINABLE REAL RETURN KEY INVESTOR INFORMATION
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Our fund research is for investors who understand the risks of investing and that investing in funds isn't right for everyone. Investors should only invest if the fund's objectives are aligned with their own, and there's a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest, and make sure any new investment forms part of a diversified portfolio.