Investors are being urged to fully research cautious managed funds, rather than simply opting for the best performer.

J.P. Morgan Asset Management strongly believes that investors should be looking at underlying characteristics of funds that lie in the IMA Cautious Managed sector, suggesting that just because a fund is in the sector, it doesn't necessarily mean it fits an investor's idea of ‘cautious’.

Mike Parsons, head of UK retail sales at J.P. Morgan Asset Management, said, ‘We don't believe screening for performance in the Cautious Managed sector is the best way of identifying funds.  Picking the best performing fund in a rising market, could well mean you are just buying the fund with the highest underlying risk.’

Parsons believes that it is more prudent for investors to work with their advisors and assess the maximum drawdown of funds in the sector to better gauge whether a particular fund fits their risk profile.

Some funds in the sector fell by nearly 40 per cent from the beginning of September 2008 to the end of March 2009 (the worst market period in the midst of the crisis).

While some funds in the sector may perform well in a market upturn, this might indicate a level of volatility that an investor may not be aware of and could suggest a level of risk some are not willing to take.

Over 75 per cent of funds in the cautious managed sector experienced a loss of more than 15 per cent from the beginning of September 2008 to the end of March 2009 with 45 per cent experiencing a loss of more than 20 per cent.

Parsons continued, ‘Assessing the underlying volatility of an investment is important in any sector but is absolutely essential in the Cautious Managed sector particularly as the sector traditionally draws those seeking a level of capital protection within a balanced portfolio.

‘The current criteria allowing a fund to enter the Cautious Managed sector does not take into account the issue of volatility which is why funds in the sector must be fully researched and must reflect an investors expectations.'