The Morningstar database contains 220 funds in the cautious allocation category. This type of fund is designed for investors who want a broad diversity of asset classes in a "one-stop" shop. The funds can invest up to 40% in equities, and all the major ones in the sector have the discretion to take up to 30% offshore. In the risk spectrum it sits between variable fixed income and balanced funds. It makes up 12% of the unit trust sector. But over the past 12 months it has come under pressure, with net outflows of R6bn. Investors expect some extra return from investing in a cautious allocation fund, rather than staying in the cash or fixed-income sector. But over the past three years that extra return has not materialised. All the asset classes in which these funds invest have produced mediocre returns. David Knee, chief investment officer of Prudential, says it would be the wrong reaction to exit these funds impulsively and move into cash. Knee says nobody can predict when a recovery...

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