Five funds for an uncertain outlook

A respite from the steady stream of bad news from Europe, a few sunny days after 12 weeks of drizzle, and the warm glow of Olympic triumph have combined to make this summer a pleasant one – but winter is fast approaching and the markets may well feel the chill. 

Nothing has really changed in Greece and closer examination of the Spanish banking sector is inevitable once the finance world returns to work in September. 

That, combined with likely disappointment on Draghi's promise to do 'whatever it takes', victory for the anti-euro far left in The Netherlands, riots in France, and growing uncertainty about the coalition and its cuts here in the UK, leaves little room for optimism about the outlook. 

With this in mind, FE Trustnet asks the experts to name five funds they think are best prepared to weather the storm.


The Personal Assets Trust

Kieran Drake, research analyst at Winterflood Securities, said: "We’d recommend this trust for protecting capital. It’s managed by Sebastian Lyon, who’s main objective is the preservation of capital, with growth as a secondary requirement." 

"The trust has a global unconstrained mandate, investing across different asset classes and the manager is quite bearish at the moment; it only has about 50 per cent in equities, with 15 per cent in gold and the rest in government bonds." 

"If you look at the performance of the trust over the last few years, it’s done very well in volatile markets. Given the manager’s bearish stance and current weighting, it’s not performed as well during the market rally, but you’d expect that."

The Personal Assets Trust is managed by Troy Asset Management founder Sebastian Lyon. It has the maximum possible five crown-rating from FE, and is top-quartile over three and five years. It has a TER of 1.15 per cent and, according to data from FE Analytics, was trading at a slight premium of 1.67 per cent on 17 August 2012. 


Old Mutual Global Strategic Bond

Strategic bond funds do not suit everyone. Those who depend on a regular income may experience a period where that income diminishes, if the manager suddenly turns very defensive and shifts into cash, or hedges against his own position by neutralizing his exposure with shorts, but that – says Rob Morgan, investment analyst at Hargreaves Lansdown – is the price of their flexibility. 

He added: "Old Mutual Global Strategic Bond, managed by Stewart Cowley, is a good example. He is very defensive at the moment so the yield is very small, but you can expect capital security and if he has called things right then you can also expect good total returns over the longer term." 

"We tend to favour more strategic corporate bond funds which can react and buy into different areas as and when the manager thinks there might be issues in the market." 

Old Mutual Global Strategic Bond fund is managed by Stewart Cowley, head of fixed income at the group. The £699m fund is first quartile over one and five years, according to data from FE Analytics, and has a TER of 1.15 per cent. 


Jupiter European Opportunities 

Tom Tuite-Dalton, funds analyst at Oriel Securities, thinks manager Alexander Darwall’s painstaking approach to stock selection makes this trust an attractive option for a rally. 

"I think stock-picking trusts like this are worth looking at. Although it has some leverage [debt] in place, the manager is very careful about the companies he buys in terms of the consumers to which they are exposed." 

Drake agrees. "The manager has a different approach, he focuses solely on stockpicking - choosing companies that will do well regardless of the macro economic environment - and that's an approach which has served the trust well historically. The trust has an open ended equivalent, so this may be worth considering as an antidote to discount volatility, but the closed ended version also has the flexibility to invest as much as it likes in the UK - and is currently running with 30-40 per cent exposure, so it's really a pan-European vehicle."

Jupiter European Opportunities has been managed by Darwall since launch in 2000. The £244.7m trust has the maximum possible five crown-rating from FE and a low TER of 0.94 per cent. According to data from FE Analytics it is a top-quartile performer over three and six months, as well as over one, five and 10 years. 


Veritas Global Equity Income

Good quality equity income funds are essential for investors looking to maximize their returns over the long-term, but UK equity income funds are limited to a largely blue-chip set of potential investments – which many believe are already overpriced. 

Gary Potter, joint head of multi-manager at Thames River, said: "Historically, companies in the UK Equity Income sector have delivered the highest yields, but we are now finding cases of Asian and emerging market companies which have sufficient strength in their cash flow to be able to pay decent dividends." 

"If you have any concerns about the UK economy and want to venture further afield, this fund offers exposure to good-quality global equity income." 

The £153m Veritas Global Equity Income fund has the maximum possible five crown-rating from FE and is first quartile in the IMA Global Equity Income sector over five years. It is managed by Charles Richardson and Andy Headley and has a TER of 1.18 per cent. 

Its minimum investment is £30,000 for anyone investing directly, but anyone using a recognised platform such as Hargreaves Lansdown will need just £1,000 up-front. 


3i Infrastructure

Potter believes funds with exposure to infrastructure are also well placed to satisfy that need for income and offer a means to avoid over-subscribed traditional equity income stocks. 

"There is no doubt that in this environment, with the quest for income, ever more and more people will be dragged into taking more risk to find it," he said. "But there are other options out there, which may also act as a little more ballast in the portfolio." 

"Infrastructure offers a line into projects which are there for the long-term, offering exposure to a robust and strong income of 4 to 5 per cent, and they’re going to continue whatever the market does in the short-term – because they’re projects which are already committed to." 

3i Infrastructure has the maximum possible five crown-rating from FE, and is first quartile over three and five years, with a yield of 4.78 per cent.