Can you own just one fund? The answer might surprise you

With more than 3,000 funds available on the ii platform, and a total of 40,000 UK and global investment options, knowing where to put your cash can be confusing.

To narrow down the options, our fund research team produce the Super 60 and ACE 40 recommended lists, which give 100 fund ideas, both actively and passively managed.

• Invest with ii: Buy Global Funds | Top Investment Funds | What is a Managed ISA?

But investors often crave simplicity above everything else, which can help them stick with a regular investing plan and keep track of their portfolio.

But is it possible to own just one fund? You might be surprised to know that for a certain type of investment product, one fund is all that you might need.

Such funds are called a “managed” investment solution. Through just one strategy investors get access to a diversified basket of funds investing in stocks, bonds and alternative assets, managed by a professional portfolio manager.

• Underperforming Baillie Gifford trust could merge with sister fund
• Benstead on Bonds: stock market wobble shows why we own bonds

They are therefore diversified by design, giving investors a ready-made portfolio that can be fitted to their risk profile, such as with different allocations to stocks and bonds, and also keep an eye on geographic concentration and valuations, so as not to be too exposed to one market.

Most large asset management groups have their own managed solutions, which are generally made up of their own passive investment products to keep costs down.

The market leader is Vanguard’s LifeStrategy range, where its 20% , 60% and 80% Equity funds sit on our Super 60 list of recommended funds. The 100% Equity option is also popular.

BlackRock’s MyMap investment range does a similar job, as do Legal & General Investment Management’s Multi-Index funds and abrdn’s MyFolio Index range.

Interactive investor also now has its own managed product, the ii Managed ISA. Powered by abrdn fund managers, it offers investors access to a range of diversified portfolios, with annual fees starting at just 0.13%.

There are two distinct styles (sustainable and regular) and five levels of risk. While there's no minimum investment period, all our portfolios are designed for long-term growth (at least five years).

Customers can open a Managed ISA for no additional cost, via ii.co.uk. They are then taken through a risk questionnaire to direct them to the most suitable portfolio.

Peter Sleep, investment director at wealth manager Callanish Capital, says: “I wish I could say you can buy one fund safely, but it is not that simple. The Woodford blow-up and enduring saga illustrated what insiders knew all along, but maybe smaller investors did not, that funds can go off the rails.”

However, he does say that if you still want to invest in single funds, there are some “great” diversified funds in the market such as the Jupiter Merlin range or the L&G Multi Asset Index range.

• Why this fund region is seeing record investor demand
• Will lower interest rates hurt these funds?
• Is this new type of ISA the one for you?

“The idea of these ranges is to offer one-stop funds but with slightly different amounts of volatility, or as I like to say, wobbliness, to suit the most relaxed investors to the most cautious investors.

“Most investment firms offer these multi-asset ranges and some of them represent great value, but do keep your eye on them and check them once a year or so,” Sleep says.

Alan Smith, chief executive of financial planner Capital Asset Management, also likes this “managed” approach to investing, so long as costs are kept low.

He says: “There’s constant news flow about ‘hot’ active funds, and so the concept of a managed portfolio seems pedestrian by comparison.

“But as an advice firm we think that in 80% to 90% of cases a really good multi-asset fund is the best solution – and then you let the investments grow.

“Vanguard’s LifeStrategy launch more than 10 years ago was a big breakthrough here, and the data so far shows that it has been a top performer on a risk-adjusted basis.”

Since Vanguard’s range launched, its funds have beaten their rivals on average. The 60% Equity strategy is up 144% since summer 2011, compared with 109% for the Investment Association (IA) Mixed Investment 40-85% Equity sector.

Meanwhile, the 100% Equity fund is up 242% compared with 213% for the IA Global Equity sector.

Will a ‘normal’ fund also do the job?

While managed funds are designed to be a one-stop shop and are diversified, most funds simply execute one strategy, such as buying value or growth shares in a certain market, or tracking an index.

But Sleep says if you put everything in a fund like this, then you have to watch it like a hawk.

“It is not just a question of performance or fees of the funds to be aware of, but also your life may change, and with that you may find your immediate cash needs may change, investment horizons shorten, or your ability to live with risk may change,” he said.

Sleep's view is that this could make a great fund with a great track record suddenly unsuitable to your circumstances, adding: “For instance, a long-term higher risk fund may be unsuitable for someone who needs money now to pay school fees, alimony (you never know) or to buy a second home.”

But that does not mean that a single strategy cannot work as a portfolio. While active funds can operate in a niche area that can be prone to market swings, some passive funds can own thousands of shares or bonds, meaning that single positions won’t have much impact on overall performance.

Jan Loeys, a managing director at JP Morgan who has a PhD in economics, and who held previous roles at central banks and business schools, says that in principle, you do not really need more than two funds: an all-of-market global equity fund and a bond fund in your own currency, with weights adjusted for the risk and return needs of an investor.

“You are going to be fine just doing that. It gives you simplicity. It is easy to understand what you have, and it gives you liquidity as these are large markets you can easily move in [and] out of. It can be done in a passive form, which minimises costs,” he said.

• Are these the only two funds DIY investors need to own?
• Sign up to our free newsletter for investment ideas, latest news and award-winning analysis

Smith is also in favour of backing a market-cap weighted global fund. He says: “This approach allows capital markets themselves to determine the mix across companies and countries. This is about as neutral as you can get and gets rid of home bias. Start with the most logical option which is 100% global equities and then find a reason not to do that.

“You can get access to global capitalism for next to nothing in fees. We can over-engineer the investment choice. Own the world, own companies – then the next thing is behavioural, about sticking with a plan over the long term.”

One fund that could work with this approach is Super 60-rated iShares Core MSCI World ETF USD Acc GBP (LSE:SWDA), which owns about 1,500 from developed markets such as the United States, Japan and Europe. It costs 0.2% in annual fees.

For investors after more diversification, Vanguard’s FTSE All-World UCITS ETF (LSE:VWRD) owns 3,700 shares, including those from emerging markets such as India and China, for 0.22% in annual fees. HSBC FTSE All-World Index , which is an index fund, tracks the same global stock market for 0.12% in fees.

Investors should be wary, however, that these funds have around two-thirds invested in the US, so a downturn for the largest stocks in that market, such as tech firms Apple Inc (NASDAQ:AAPL), NVIDIA Corp (NASDAQ:NVDA) and Microsoft Corp (NASDAQ:MSFT), would be detrimental to performance.