Investors who have a small amount of cash or who are sceptical about buying a handful of funds to diversify may want to look at single funds that cover diverse asset classes.
Here is a selection you may wish to consider:
Jupiter Merlin Growth
The Jupiter Merlin Growth portfolio is in the top-quartile of the IMA Flexible Investment sector over three, five and 10 years, according to data from FE Analytics
, outperforming its peers in both rising and falling markets.
FE Alpha Managers John Chatfeild-Roberts
, Peter Lawery
and Algy Smith-Maxwell
have achieved a 10-year return of 113.48 per cent, compared with 64.57 per cent from its FTSE APCIMS Growth benchmark.
Performance of fund vs sector and benchmark over 10-yrs
Source: FE Analytics
Adrian Lowcock, senior adviser at Bestinvest, says it is a fund he uses frequently.
"The sort of time you would use this is when you are just starting out and you need some diversification very quickly," he explained.
Jupiter Merlin Growth is a fund of funds, and BGF Blackrock World Energy, Henderson Global Technology and physical gold ETFs are some of its more diversified plays.
Lowcock says that in his opinion a single fund can only give so much diversification.
"What we tend to find is you will be able to get diversification among some asset classes in certain funds but miss out on others, so you end up needing to get a few funds to be truly diversified," he commented.
"You might buy a strategic bond fund, a global equity fund and then a hedge fund for example."
"You also have to remember that you automatically get commodity exposure from the UK due to the companies in the FTSE."
Cazenove Multi-Manager Diversity
"One for a cautious investor would be Cazenove Multi Manager Diversity," said AWD Chase de Vere’s Patrick Connolly.
"It’s a fund that invests typically one-third in equities, one-third in fixed interest and cash and one-third in alternative investments so effectively you get a whole portfolio in one."
"Multi-manager funds are often best for diversification but you need to be very, very careful with charges."
Cazenove Multi-Manager Diversity has a TER of 1.75 per cent, which is relatively cheap for fund of its kind.
This fund is one of the best performers in IMA Mixed Investment 20-60% Shares over five years, returning 18.09 per cent compared with just 4.64 per cent from its sector.
Performance of fund vs sector and benchmark over 5-yrs
Source: FE Analytics
It is headed up by Marcus Brookes – a manager that Robert Love, research director at Asset Intelligence, rates particularly highly in falling markets.
"It’s benchmarked against CPI rather than the sector averages so it is really focused on achieving real growth over the mid- to long-term," said Love.
The £808m portfolio has a minimum investment of £5,000.
Fidelity Multi Asset Strategic
Connolly also likes Fidelity Multi-Asset Strategic, which is run by Fidelity’s head of asset-allocation Trevor Greetham.
"It buys predominantly Fidelity’s own funds which brings charges down," he said.
"It has excellent calendar-year numbers," Love added.
Data from FE Analytics
shows the fund has beaten its sector in every discrete calendar year since launch and on a cumulative basis it has returned 21.69 per cent over five years, which puts it in the top-quartile of its IMA Mixed Investment 20-60% Shares sector.
It has a TER of 1.58 per cent and a minimum investment of £1,000.
CF Miton Strategic Portfolio
Connolly is also a big fan of FE Alpha Manager Martin Gray and recommends his CF Miton Strategic Portfolio
over the larger and higher profile CF Miton Special Situations Portfolio
"The other Miton fund is larger and has the same philosophy but is more conviction-based," he explained.
"CF Miton Strategic Portfolio has less conviction, so if, for example, the other fund put 100 per cent in cash, it would put only 60 per cent, and we prefer that because it is more stable."
The portfolio has been a top-quartile performer in IMA Mixed Investment 40-85% Shares sector over one, five and 10-year periods, but is in the bottom quartile over three years as it didn’t participate in the 2009 and 2010 QE-fuelled rally.
Performance of fund vs sector and index over 5-yrs
Source: FE Analytics
The fund has the second-lowest annualised volatility over five years, with a score of just 7.57 per cent. The fact that it made gains in 2008 when the sector fell along with the markets is a significant selling point.
The fund draws on a wide pool of investments to diversify risk, including gold, currencies, property and derivatives.
The £230m portfolio, which is also a multi-manager fund, has a TER of 2.13 per cent and a minimum investment of £1,000.
Prudential Managed Defensive
The £200m portfolio is a fettered fund of funds, meaning that it only invests in other funds run by M&G.
"It’s not totally dissimilar to the Fidelity fund but buys underlying M&G funds instead," said Connolly.
"M&G have strength in many areas. They are strong in fixed interest, equities and property. Again you get lower charges because it buys M&G funds."
The portfolio is another strong performer over five years, with top-quartile returns of 25.62 per cent
in the IMA Mixed Investment 20%-60% Shares sector.
Returns over shorter time horizons aren’t so strong, but as it is a defensive its focus is on stability.
The fund had, as of the end of March, its two largest holdings in the M&G European Corporate Bond and M&G Corporate Bond funds and a strong bias towards fixed interest investments, setting itself a limit of 35 per cent for total holdings in equities.
The TER was 1.65 per cent as of October last year, the last month for which data was available.