Many high-selling UK-domiciled mutual funds bearing the title “cautious managed” and “balanced managed” are in fact far more skewed to one potentially risky sector than their name implies, according to HSBC Investments. Far from being diversified, assets in many of these funds are concentrated in relatively narrow portions of markets, Dan Rudd, head of external distribution of HSBC Investments, said in a statement. HSBC's comments come at a time when investors have been scurrying for the relative safety of cash, government bonds and other low-risk assets to protect wealth amid the credit crunch. Traditionally, a widely spread mix of assets has been regarded as one of the best ways to protect and grow wealth over the long run. To qualify for inclusion in the Investment Management Association’s Cautious Managed sector, funds can hold up to 60 per cent of their assets in equities. The IMA’s Balanced Managed sector allows up to 85 per cent equity exposure within the portfolio, HSBC said, adding that many funds invest near the maximum permitted levels in equities. This risk is then further compounded by a concentration on the UK. “Considering the dominance of equities and the UK focus, it is fair to say that many such funds could hardly be described as cautious or balanced – though many are happy to call themselves this,” Mr Rudd says. Mr Rudd argues that to be truly cautious or balanced, it is necessary for these funds to hold a much wider mix of assets than just equities and bonds, and to take a global approach to investment. A fund which diversified into property, hedge funds, private equity and commodities would by its very nature provide broader geographic exposure. Overall, this would provide a better balance between risk and return for the long-term investor, HSBC said. “Perhaps it is time for clearer labelling and naming conventions for funds. This would ensure that funds which are globally invested and multi-asset are recognised as such and that this distinction is clearly defined,” Mr Rudd added. The IMA declined to comment on specific individual funds bearing the "Cautious Managed” or “Balanced Managed” tags. However, it said: “The IMA sector names have existed for many years for the benefit of consumers and their advisors; changing the names would risk confusing those they are meant to help.” “The nature of the Managed sectors is that the funds are actively managed and typically will offer a certain amount of exposure to each asset class, depending on their outlook for returns in the asset types at different points in time,” he added.