If you are looking for excitement in your investment portfolio, you probably wouldn’t look for it in the Balanced Managed sector. The name conjures up images of static, unadventurous funds. But appearances can be deceptive.

The key to understanding this sector is to appreciate that it exists to manage volatility.

The idea of a balanced fund is it provides a broadly spread portfolio that reduces the overall level of risk for the investor. But this doesn’t mean risk is eliminated altogether.
Most of the constituents of the Balanced Managed sector are predominantly invested in equities – the sector definition allows up to 85 per cent of a portfolio to be invested in shares – and at least ten per cent of this has to be in non-UK equities.

This is quite a broad remit and, indeed, Balanced Managed funds are characterised by their diversity. Many adopt a fund of funds approach, while others are directly invested in portfolios of equities and fixed interest securities. But what they generally have in common is an active and flexible approach to portfolio management that can see the asset allocation balance of a particular fund change dramatically over time.

As data analysis website Trustnet puts it, when considering Balanced Managed funds ‘we are looking for evidence that they pass the “Ronseal Test” – i.e. that they do indeed achieve a balance, and that they show signs of intelligent management’. The funds profiled below score highly on both counts.

CF Miton Special Situations Portfolio
This fund has recently been renamed the CF Midas Special Situations Fund, reflecting the fact that iimia MitonOptimal and Midas Partners have merged to form Midas Capital.

The fund is still managed by Martin Gray, who has overseen its portfolio since launch at the beginning of 1998. £121 million in size, it is an unconstrained balanced fund of funds portfolio, managed to secure both strong returns and low volatility. The fund has a global reach using a top-down, macro-economic approach and focuses on special situations in equity markets. The manger will also use investments denominated in foreign currencies, where this can enhance returns.

McInroy & Wood Balanced/ McInroy & Wood Income
Two funds managed by McInroy & Wood Ltd, an Edinburgh-based boutique management house. The firm’s approach is based on establishing a sound strategic framework for its portfolios, with the general objective of preserving the purchasing power of clients’ capital. This fits well with the balanced mandates of these funds, which invest across equities and fixed interest stocks on a global basis.

The Balanced fund is £74 million in size and the Income fund, £128 million. The difference is the Balanced fund places an equal emphasis on income and capital growth, while the Income fund prioritises an above average level of income.

Newton Balanced
One of the larger funds in the sector at just under £350 million, Newton Balanced is directly invested in a mixed portfolio of equities and fixed interest securities. It is a conservatively managed fund that gives investors a portfolio spread broadly across the world’s equity and fixed interest markets, with a focus on capital growth. Launched in 1993 and managed by Iain Stewart, it can go up to 100 per cent in equities, but equally may be more heavily invested in more defensive assets depending on market conditions – it currently has just under 28 per cent in cash.

New Star Balanced Portfolio
New Star Balanced Portfolio is managed by the fund of funds team at New Star, headed by Mark Harris and Craig Heron. It is primarily focussed on generating capital growth, with little or no income yield, from a portfolio based on international equities, but maintains some fixed interest exposure to moderate risk. Launched in December 1989
and £365 million in size, the fund has just under half of its assets invested in the UK, the remainder spread across a global portfolio, predominantly in equities, but around 8 per cent in bonds.

Scottish Friendly Managed Growth
Another directly invested fund, managed on behalf of Scottish Friendly by the team at Edinburgh-based SVM Asset Management, headed by Colin McLean. The portfolio is actively managed with a focus on capital growth without too much volatility, so the core element of the fund is invested in UK equities with some global equity exposure to provide additional growth.

In order to reduce volatility, the fund will also have a smaller proportion of its assets in fixed interest securities, such as government bonds. The current portfolio split is 65 per cent UK equities, 20 per cent overseas equities and 15 per cent fixed interest and cash.