It proved to be a troubling start to the year for low-equity multi-asset funds, which are often simply known as stable funds. And Morningstar subscribers will know them as cautious allocation funds. There was a shock R3bn outflow from the category in the March quarter. And it is understandable. The promise from these funds — though of course none offers a guarantee — is that you can get most of the stability of a money market or income fund from them. Well-constructed stable funds have not experienced more than a 3% to 4% short-term loss, and if you hold on for 12 months there is almost no chance of loss. But the other implicit promise is that investors will participate in some solid returns from the stock market. These funds can have a 40% exposure to equities as well as a 25% allocation to international assets. When markets are strong and interest rates are high stable funds seem like an ideal mix of stability and high returns. Their low-volatility character adds to their appeal. ...

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