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Five funds for balanced investors to turn to in 2023

29 December 2022

Experts share their favourite funds for investors who want to take some risk, but aren’t willing to stomach huge losses if things go wrong.

By Matteo Anelli,

Reporter, Trustnet

As 2023 approaches, the word “appetite” is perhaps more frequently used in connection to the Christmas dinner. Here on Trustnet, though, it’s more likely to refer to risk.

As we enter the new year, we asked five experts which fund they think would be suitable for investors with a moderate appetite for risk and who plan to stay invested for at least five years.

First up is Rob Burgeman, investment manager at wealth manager RBC Brewin Dolphin, who picked the £22bn Fundsmith Equity fund.

Performance of fund year-to-date against sector
Source: FE Analytics

Its investment philosophy has been summarised by its founder, Terry Smith, as: “Buy good companies, do nothing”.

“This is a global equity fund that will never invest in businesses that are highly cyclical in nature, where there is no great evidence of an ability to generate free cash or where the industry has a long and venerable tradition of spending shareholder capital, often for little return,” said Burgeman.

While the longer-term record has been excellent, the fund has suffered a little this year, as the chart above illustrates. This was due to the economic and political environment, where there have been strong returns from the resource sector, while quality growth has suffered a derating.

But precisely for this reason, now is “an excellent entry point”, according to Burgeman.

“The top holdings are Microsoft, Novo Nordisk, l’Oréal, LVMH and food flavourings company McCormick. As we have seen, this fund will not perform (in relative terms, at least) in all market conditions, but it does represent a wonderful portfolio of qualitative assets that should deliver excellent long-term returns,” he said.

Kelly Prior, investment manager in the multi-manager team at Columbia Threadneedle Investments, emphasised the importance of having diversified sources of return, be that capital or income, and went for the Jupiter Monthly Income fund.

Performance of fund year-to-date against sector
Source: FE Analytics

“Manager Hilary Blandy generally invests on the cusp of investment grade and high yield in paper with a shorter maturity than the market average,” she said.

“Many consider this the sweet spot of income and capital investing in the fixed income universe, but the crucial point is underwriting in this area of the market. With corporate margins likely to come under pressure, the scope for downgrades is ever increasing, so credit selection is key at this point in the cycle.”

With a small fund size of £171m and a large team of analysts and investors around the manager to help formulate the individual investment strategy, Prior considers this fund as having the potential to offer “great all-in returns” in the coming years.

“While volatility is likely in the overall market, the superior income available should smooth the ride as should the funds less than market sensitivity to interest rates,” she said.

Jason Hollands, managing director at Bestinvest, selected RIT Capital Partners, a trust that has a strong association with the Rothschild family, who are cornerstone shareholders in the company and are represented on the board.

Performance of fund year-to-date against sector
Source: FE Analytics

“The trust is free to invest globally in any asset class, including both listed and unquoted companies and it is also highly diversified geographically and across currencies,” he said.

“The starting point is to take strong macro-economic views and then reflect these in the choice of assets and strategies held in the portfolio. The portfolio includes investments in externally managed hedge funds, absolute return funds and private equity funds as well as direct holdings in listed companies chosen by the in-house team and two direct prestigious properties in central London.”

Historically, the trust has a core equity bias, but currently the portfolio has significant exposure to hedge funds, absolute return and private equity.

For investors wanting straightforward and low-cost exposure to the UK market, Rob Morgan, chief investment analyst at Charles Stanley, picked the “simple, competitive tracker fund” Fidelity Index UK, which aims to track the FTSE All Share Index before costs and is “a good medium- to high-risk option”.

Performance of fund year-to-date against sector
Source: FE Analytics

“With barely 2% exposure to the tech sector, the UK has been a poor performer for a long time now, but the ingredients could now be in place for a period of outperformance versus global markets,” he said.

“Valuations are low, both relative and absolute, owing to widespread investor disdain. More importantly, the market may be underestimating the potential for dividend payouts to increase. Earnings are healthy, dividend cover is high and the make-up of the UK market with its skew towards energy, commodities and generally well-capitalised financials should be relatively resilient during a period of high interest rates.”

With this fund, investors buy into “substantial” companies with the majority of their assets and trading activities overseas, such as the oil and pharmaceutical majors. At present, the market yield, and hence that of the fund, is “healthy” at around 3.5%.

Lastly, as the prospect of recession is “staring investors in the face”, Alena Kosava, head of investment research at AJ Bell, stressed the importance of portfolio diversifiers in the form of real assets such as high-quality infrastructure.

“Whether it is through energy needs, distribution networks or communication services, infrastructure is a key part of a fully functioning economy. Due to the ongoing war in Ukraine, the importance of energy security and independent infrastructure assets also came to the fore,” she said.

Her pick was then the First Sentier Global Listed Infrastructure fund, which looks to provide exposure to all the above areas and more through a global portfolio of infrastructure companies.

Performance of fund year-to-date against sector and index
Source: FE Analytics

“With more than 40% invested in energy-related companies, this fund provides exposure to many leaders on energy transformation and critical distribution infrastructure such as railroads and toll roads. The portfolio is biased towards the US sector (58% of assets) and has material exposure to electric utilities (30%), highways and rail tracks (15%), and multi-utilities (14%).”

Currently yielding 2.6%, the fund benefits from the experienced team at First Sentier based in Australia, who has been at the forefront of infrastructure investing for many years.”

As illustrated above, the fund is ahead of the index over the year-to-date, having kept up with the market rally from the lows in March, delivering a gain of 8.8% relative to the index gain of 7.3%. Longer-term performance is also ahead of the broader market.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.