Pockets of geopolitical woe from Iraq to Russia have presented an ongoing risk over the past few months, threatening to knock back gains that investors have made in recent years.
While past performance is by no means a guide to the future, there are tried-and-tested ways to protect against the downside, and a number of managers have a proven ability of weathering the storm much better than their rivals.
Here, with the help of research from Bestinvest, FE Trustnet looks at fund managers in five sectors with a proven track record of beating their peers in months when their benchmark has fallen.
UK Smaller Companies
After stellar gains in UK small caps over the past few years, 2014 has brought the sector back down to earth with a bump. The average fund is down 2.48 per cent.
Three fund managers in particular have demonstrated the ability to outperform in down months over the past 10 years, doing so in three-quarters of all periods where markets have fallen.
FE Alpha Manager Simon Knott of the £29m Discretionary fund has beaten the FTSE Small-Cap ex ITs index in 80.4 per cent of down months over the past 10 years.
FE Alpha Managers Rosemary Banyard and Andy Brough of Schroder UK Smaller Companies and Paul Marriage of Schroder UK Dynamic Smaller Companies also score highly, with 76.9 and 76.6 per cent outperformance in down months.
The two Schroders funds have returned 183.99 and 365.66 per cent respectively over the past decade, compared with 181.17 per cent from the sector average.
Performance of funds, sector and index over 10yrs
Source: FE Analytics
The three funds all currently favour industrial stocks, with the sector accounting for at least a third of each one's assets.
The two Schroders funds have been known to raise their cash weighting up to 10 per cent of assets at less favourable times, such as in 2011 and at the beginning of the year.
Schroder UK Smaller Companies and Discretionary are top quartile for downside risk over 10 years while Schroder UK Dynamic Smaller Companies is second quartile.
Europe ex UK
An overweight position in industrials is also a strong theme for the most defensive managers in the Europe ex UK sector.
Vincent Devlin, manager of BlackRock Continental European, and FE Alpha Manager Alexander Darwall of Jupiter European both have more than a third of their assets in the sector.
The managers also favour blue chip healthcare stocks, each holding Swiss pharmaceutical giants Roche and Novartis, as well as Denmark's Novo-Nordisk, in their top-10. Such companies can provide useful dividends when share prices are falling.
They often also come with strong balance sheets, visible earnings and good cash flows, which further help to protect against the downside.
Darwall has been one of the undisputed leaders in the European equity space in recent years, with each of his three open-ended funds consistently outperforming their respective benchmarks.
Feras Al-Chalabi, who heads up the CF Odey Continental European fund, also scored highly for his defensive record.
The CF Odey, Jupiter and BlackRock portfolios are top quartile for their Sharpe ratios and max drawdown over the past 10 years, and the first two are also top quartile for downside risk; the BlackRock fund is second quartile.
All three funds have delivered top quartile returns over this period.
Performance of funds, sector and index over 10yrs
Source: FE Analytics
Japan
The Japanese equity market has been highly volatile over the past 10 years. While sentiment has been improving in recent months, investors in this country have seen numerous false dawns before, so the ability to defend against market falls is extremely important.
The team of the £636m CF Morant Wright Japan fund have the best record over 10 years for defensive outperformance, helped by their focus on mega caps such as Toyota and Nippon Industries.
The fund has also returned more than the sector and its Topix benchmark on a total return basis over this time.
Performance of fund, sector and index over 10yrs
Source: FE Analytics
Andrew Rose, manager of the £1.3bn Schroder Tokyo fund, and Stephen Harker, manager of the £1.3bn GLG Japan Core Alpha fund, also score highly, outperforming in 65.7 and 61.3 per cent of down months respectively.
North America
The US market is notoriously difficult to consistently beat, particularly when markets are falling.
Thomas Forsha and Henry Saunders, co-managers of the Aviva Investors US Equity II fund, are top of the list for their defensive record over 10 years, although their current fund has only been trading since 2013.
Aviva bought their Riverroad business in 2010 but data from 2003 onwards demonstrates the managers’ ability to protect against the downside, according to Bestinvest. They have outperformed in 73.8 per cent of down months over the last 10 years.
Closely behind them are Gordon Grender of GAM North American Growth and Mick Brewis at Baillie Gifford American, who scored 63.4 and 61.3 per cent, respectively.
IMA Asia Pacific ex Japan
The best defensive manager in this sector comes from one of its dominant fund houses – Angus Tulloch at First State.
The Asian equities team at Aberdeen finished in second place, while Matthew Dobbs, manager of the Schroder Asian Alpha Plus fund, claimed third place.
