The three flexible investment funds to invest with (almost) no stress

Mixed-asset funds attracted strong investor interest early this year, with £630m of inflows in January alone according to Investment Association data, as investors seek diversified exposure amid geopolitical uncertainty.

Yet finding strategies in the IA Flexible Investment sector that genuinely let investors sleep at night has proved difficult.

Kate Marshall, lead investment analyst at Hargreaves Lansdown, noted that the continued demand for mixed asset funds reflects investors "adapting to a period of geopolitical and market uncertainty by balancing participation in equity markets with allocations to defensive and diversified assets”.

Despite their popularity, the IA Flexible Investment sector – which should offer the most adaptable risk management – has failed to produce a single fund combining top-decile downside protection with top-decile risk-adjusted returns over the past five years.

For this analysis, we measured five-year downside capture against the FTSE UK Private Investor Global Growth index, a benchmark designed to track a portfolio heavily weighted toward global equities (both developed and emerging markets) for higher capital appreciation. This is suitable for flexible-investment funds, which can allocate up to 100% in equities.

The complete absence of funds meeting both criteria – top-decile downside capture and top-decile Sortino ratio – reveals how difficult it has been to simultaneously protect capital and generate strong risk-adjusted returns. However, three funds came close enough to merit attention, splitting into two distinct groups.

The defensive duo

Two funds achieved top-decile downside protection but missed the Sortino threshold, landing in the second decile for risk-adjusted returns.

M&G UK Income Distribution sits first for downside capture at -3.6%, meaning it made money during down periods of the reference index. The £467m fund yields 4.5%, significantly higher than most flexible investment strategies.

The fund has been a XX-quartile performer over the past five years, up 60.6%, although its individual calendar years show a clear trend. While it struggled in the growth markets of 2023 and 2024, the fund leapt to the top of the rankings during the volatility of last year  and, crucially, in 2022 when interest rates hit both equities and bonds. Its Sortino ratio of 0.57 also landed in the second decile, just missing the top tier.

It has a heavy UK-equity focus (74.9% as of January 2026), with just 0.6% in European equities. Despite this high equity allocation, its domestic bias provided some insulation from global market volatility, particularly during periods when US technology stocks drove international indices.

Sector weightings show 40.3% in financials and 18.2% in consumer products. Fixed interest holdings total 22.3% across UK and global bonds.

WS Ruffer Equity & General delivered the second-strongest downside protection with a capture ratio of just 9.4%.

The fund is managed by FE fundinfo Alpha Manager Alex Grispos and, like the M&G fund above, has protected investors in difficult markets, including making a positive return in 2022.

Its Sortino ratio of 0.64 placed it above the M&G fund, although its five-year return of 44.3% lags the sector meaningfully, reflecting the cost of its ultra-defensive positioning.

The fund's asset allocation as of late February 2026 shows a relatively cautious 46.6% in equities, split across UK (10.3%), North American (18.9%), international (23.4%) and other regional holdings.

Fixed income accounts for 17.4%, with alternatives making up 4.8%. The remainder is in cash. This low equity weighting – less than half the benchmark's 100% – explains much of its defensive profile.

The risk-adjusted winner

Man Stockmarket Managed Fund, meanwhile, recorded a top-decile Sortino ratio of 1.02 but was in the second-best decile for downside capture, at 35.4%.

The five-Crown FE fundinfo rated fund has been a first-quartile performer in three of the past five years and has returned 71.1% over five years – substantially ahead of both defensive funds above.

Its downside capture shows it fell roughly half as much as the all-equity benchmark during down periods, offering less protection than the ultra-defensive strategies but still providing meaningful cushioning.

However, performance did not plummet during more growth-oriented years, with the portfolio maintaining an above-average return in each of the past five calendar years, suggesting a more balanced approach than the ultra-defensive strategies above.

This article is part of a series. The sectors previously covered are: global, UK, North America, emerging markets.