Five must-have funds for a recession
Three independent financial advisers tell FE Trustnet which portfolios are best-placed to cope with the shrinking UK economy.
By Mark Smith, Reporter, FE Trustnet
Thursday April 26, 2012
The UK slipped back into recession yesterday and with many economists forecasting a further fall in GDP for the second quarter, investors may wish to consider some of the more stable and reliable funds with a proven track record in difficult markets. Here are five examples of such funds:
JOHCM UK Opportunities
runs the JOHCM UK Opportunities
portfolio with a defensive mindset and his process focuses on stocks that can weather difficult conditions," said Tim Cockerill, head of collectives research at Rowan Dartington.
"His outlook is fairly downbeat and that clearly informs his thought process. With this in mind there are few surprises in his top-10 holdings, which include GlaxoSmithKline, Imperial Toabcco, British American Tobacco, Unilever and Reed."
"These stocks have proven their value in the flat market we’ve experienced over the 18 months. I use the term ‘survival’ guardedly but that is the key to these companies. They have strong balance sheets, good cash flows and defensive earnings. This means they can withstand difficult times."
"Wood isn’t interested in short-term newsflow such as the result of the French election or what the latest polls are saying. The fund has a low turnover and the manager takes a five-year view on the companies he buys. It sits nicely as a standalone cautious fund and also as part of a wider portfolio."
JOHCM UK Opportunities has returned 24.7 per cent over the last five years while the average fund in the UK All Companies sector has stayed flat, according to data from FE Analytics
. It also posted top-decile returns in 2008 when markets were in free-fall and again in 2011 during a period of extreme volatility. It has an annual historic yield of 3.04 per cent.
Invesco Perpetual Income
"Mr Woodford is an obvious choice for this situation but he is also one of the best choices," continued Cockerill. "He has been negative in his outlook for the UK economy for a long period of time which has seen him run the portfolio defensively, and off-benchmark even when his competitors have been bullish."
"You have to be aware of what he is invested in because as confidence returns from time to time his funds can slip down the performance league tables."
Invesco Perpetual Income fund lists pharmaceutical giants GlaxoSmithKline and AstraZeneca in its top-10 holdings alongside reliable dividend growers Vodafone and British American Tobacco.
Our data shows the fund returned 8.59 per cent in 2011, more than any other fund in the UK Equity Income sector. It is also one of the least volatile funds of its kind.
Liontrust Special Situations
Chris Spear, managing director of advisory firm Spear Financial, says that he has been using Liontrust Special Situations in his portfolios for years to help cushion the effect of any recession.
"What investors need for this sort of market are well-known reliable funds with a good track record and Liontrust Special Situations certainly ticks the box. The fund is very low risk compared with its competitors and the performance is hard to ignore."
Our data shows that the fund has returned 118 per cent over the last three years, second only to MFM Slater Growth in the UK All Companies sector.
The real strength, however, is the fund’s stability. Over the last three years it has an annualised volatility score of just 13.57 per cent compared with a sector average of 16.33 per cent. It is FE Alpha Managers Anthony Cross
and Julian Fosh’s
focus on keeping unexpected surprises to a minimum that has stood the fund in good stead in tricky markets.
Newton Asian Income
"Income funds act as fantastic shock-absorbers in this kind of market," added Spear. "They are unlikely to outperform in fast rising markets but they’ll still give some growth."
"Newton Asian Income is a fund I’ve been using increasingly. It’s strange to think of a fund exposed to the Asian market as a cautious play but the fund has been less volatile than the FTSE over the long-term and diversifying away from the stuttering UK economy is a defensive move that investors should be thinking about right now."
With an annualised volatility score of 19.79 per cent over the last five years, the Newton Asian Income fund has been less volatile than many UK-focused funds. With a return of 78 per cent over the same period it has also performed a lot better.
Artemis Strategic Assets
Hargreaves Lansdown’s Rob Morgan says that negative growth in the economy is not the only issue investors need to be focused on right now and a defensive multi-asset fund may help to protect against losses.
"The big worry is not just low growth but the potential for inflation as well," he said. "Investors certainly need to protect capital but in an environment of rising prices you also have to take some risk just to stand still."
"A total return fund like Artemis Strategic Assets is a good bet for this scenario. William Littlewood who manages the fund is short the gilts market and is also invested in gold. This is the perfect strategy for an environment of disappointing growth and high inflation."
Although William Littlewood’s
£896m portfolio has seen a great deal of inflows since its launch nearly three years ago, so far it has failed to impress. According to FE data, it has returned 31.39 per cent since May 2009, underperforming its FTSE All Share benchmark by around 14 per cent.