When you buy a product from the supermarket, you read the label and can safely assume that what's inside is what it says on the tin. But when it comes to investment, if you buy a cautious managed fund, you might be shocked to find that what's inside of it is not actually that "cautious".
These so-called cautious managed funds sit together in a category, but the name caused so much confusion and controversy that the group was re-labelled "Mixed Investment 20-60 per cent Shares" last year.
Despite the change in name, these funds are still being touted as cautiously-managed products. "Most people looking for cautious funds are older, looking for capital protection, security and not too much in equity markets," says Patrick Connolly, of the independent financial adviser AWD Chase de Vere.
However, you'd be wise to scratch under the surface to see what exactly is in these products, because not only do they vary wildly, but some have a large chunk of their holdings in shares.
"If you look at some of these funds, they have 60 per cent in equities – and they still have an aura of being cautious," says Brian Dennehy at FundExpert.co.uk. "But in no way is that cautious."
And there is a danger that if you invest in funds with a "cautious" label that have a lot of money in the stock market, then you might not be prepared for the amount you could lose during market downturns.
"Funds that have more than half of their money invested in the stock market do not fit into my interpretation of a cautious investment," says Gavin Haynes at Whitechurch Securities. "An example would be Kames Ethical Cautious Managed which has close to 60 per cent in equities.
"While I believe this to be a good fund, I do not believe that it fits the cautious label."
It's not just having a large amount in shares that you should be wary of, because bonds also carry risks. These funds, according to the Investment Management Association's definition, must have a minimum of 30 per cent in bonds and cash.
"Bonds can be volatile too," says Richard Marwood, who runs a couple of cautious managed funds at AXA Investment Managers. "No one should expect emerging market, high-yield corporate bonds to behave the same way that developed market government bonds do.
"What is most important is that investors and their advisers look beyond the fund labels and actually take note of what assets are held in their portfolios."
Although viewed as seemingly safer, bond funds actually fell further than equity funds in 2008 during the crisis, says Mr Dennehy. And with UK government bonds now at expensive levels and offering rock-bottom yields, there are doubts cast over whether there is any value left in them.
"Investing in bonds now requires more vigilance on the part of advisers than on any previous occasion, including 2008," says Mr Dennehy. "So you should be very wary. On the whole these funds don't feel 'cautious', certainly not with the swirling macro risks. Incautious funds in sheep's clothing?"
You will have to dig deeper still, though, than just looking at how much these funds invest in shares and bonds.
"If you are in high yield bonds, they can act like equities too," says Juliet Schooling Latter at Chelsea Financial Services. "It also depends on what shares you're in.
"So just saying 'bonds' doesn't necessarily give a guide as to how cautious the fund is."
Your version of "cautious" will likely be different to another person's interpretation of the term, depending on a whole range of circumstances. "So it's difficult to make something cautious," says Ms Schooling Latter. "There is a great disparity of returns among these funds."
The Newton Managed Income fund, for example, has returned around 35 per cent over three years, whereas at the other end of the scale, if you'd have invested in the JPM Cautious Total Return fund, you would be down by 5.6 per cent.
"The JPM Cautious Total Return has been very cautious and yet has had some pretty negative returns," says Ms Schooling Latter.
And you would hope that when markets take a turn for the worst your money in a cautious fund would be relatively safe. "In 2008 – it was a tragic year – the old cautious managed sector was down more than 15 per cent. That isn't cautious," adds Ms Schooling Latter.
A lot of these cautious products are also "fund of funds", meaning there is an extra layer of charges and the overall amount you pay in annual fees can be quite high – in some cases, more than 2.4 per cent.
"You mostly pay more because these are fund of funds – but why wouldn't you choose a good equity fund and a good bond fund?" says Mr Dennehy. "For example, Invesco Perpetual Income and M&G Corporate Bond, rather than a one-size-fits-all approach."
But to write off all cautious managed funds would be to dismiss a more than 100 products, in which there is some quality. Mr Haynes recommends the Investec Cautious Managed fund, run by well-respected manager Alastair Mundy.
"This fund aims to produce an attractive total return through a mixed portfolio of blue chip UK equities and investment grade bonds," says Mr Haynes. "It has a strong performance record and is an excellent choice within the cautious managed sector."
The Jupiter Merlin Income fund run by John Chatfeild-Roberts is another highly regarded and strong performing product. "For investors looking to go down the fund-of-funds route, then this has proved to be an excellent core holding within the cautious managed sector," says Mr Haynes. "This strategy is aimed at long-term investors who are seeking a sustainable level of income and steady capital growth."
Mr Connolly tips the Cazenove Multi Manager Diversity Fund managed by Marcus Brookes and the Fidelity Multi Asset Strategic fund, run by Trevor Greetham. "Most people who are looking in this sector are seeking to spread and diversify risk – these are multi-asset funds and they don't take big bets," says Mr Connolly.
So if you are looking to invest your money cautiously because you don't want to be heavily exposed to stock markets or risky bonds, don't blindly pile your cash into cautious managed funds. Look under the bonnet and check the charges, because there are some products out there that make it worth doing the research.
Emma Dunkley is a reporter for Citywire.co.uk