As the year comes to an end, many investors will use the opportunity to reassess their portfolios and plan ahead for 2017. 
Most major developed markets were in positive territory during 2016, with emerging markets also showing a strong rebound after a disappointing 2015.
Solid performance in 2016 came despite some significant geopolitical headwinds and heightened uncertainty.
However, bigger challenges lie ahead in 2017 with Brexit negotiations set to commence early next year, Donald Trump taking office in January and further elections in key European countries.
Indeed, after a tumultuous 2016, some investors may consider a more cautious investment approach will be more prudent next year.
With further challenges on the horizon, FE Trustnet asks the experts which funds or trusts they would recommend for cautious investors heading into 2017.
Amaya Assan, senior investment research analyst at Square Mile Investment Consulting and Research, says Newton Global Dynamic Bond fund could be one to see markets through a potentially choppy 2017.
“This is a fund that takes opportunities from across the global bond market. It is cautiously run and the team have a good record of funding returns in a difficult environment for fixed income securities,” she said.
The £1.6bn fund, run by Paul Brain, aims to make a minimum return of one-month UK LIBOR plus 2 per cent per annum over five years before fees.
Performance of fund vs sector and benchmark over 5yrs
Source: FE Analytics
As the above graph shows, the fund has not slipped below its targeted return since over the past five years and has beaten the IA Targeted Absolute Return sector by 1.55 percentage points over the period.
Importantly, it has experienced extremely low volatility (2.23 per cent) compared with riskier asset classes such as equities, though that is slightly above the IA Targeted Absolute Returns Sector average (1.96 per cent).
Assan said: “The focus on risk, and in particular on downside risk, makes this fund an attractive proposition for investors who wish to gain access to various parts of global fixed income markets but who are mindful of the capital volatility of their investments.”
“However, investors should be aware that the manager invests with a three-year time horizon in mind and that over shorter time periods there could well be a degree of capital volatility.”
“The fund's allocations to four distinct parts of the fixed income markets - developed market government bonds, investment grade credit, sub investment grade credit and emerging market sovereign bonds - can be varied, but the combination of these assets over time should provide a good risk/return trade off as, historically, they have been impacted by different economic and market factors and tend not to all move in tandem with each other.”
“The focus on downside risk means that we believe this fund should be a suitable capital preservation vehicle over longer time periods. Income generation is a secondary consideration but we believe the fund's investments into fixed income instruments should generate a decent level of income, although the exact level of this will vary over time.”
The four crown-rated fund has a clean ongoing charges figure of 0.81 per cent and currently yields 2.76 per cent.
Invesco Perpetual Global Targeted Returns
Adrian Lowcock, investment director at Architas, says he would choose the Invesco Perpetual Global Targeted Returns fund for its capital preservation potential.
“For cautious investors I would go with some capital protection. Markets have rallied strongly in the last few months and a lot of optimism is priced in. As such capital preservation is important,” he said.
The £7.4bn fund, run by Dave Jubb, David Millar and Richard Batty, targets a gross return of 5 per cent per annum above UK three-month LIBOR and aims to achieve this with less than half the volatility of global equities.
Launched in 2013, the fund has returned 17.59 per cent to investors since inception, slipping below its target in October this year for the first sustained period of time.
Performance of fund vs sector and benchmark over 5yrs
Source: FE Analytics
However, it has returned more than double the sector average (8.33 per cent) and has been far less volatile (4.3 per cent) than the MSCI AC World global equity index (10.01 per cent).
“The fund invests in macro-economic themes with a view to delivering a positive return over three years, no matter what the global environment,” Lowcock said.
“The fund typically holds 20-30 ideas across each asset class making it very diversified. The focus on macro-economic trends means the fund can be flexible and position to protect investors from volatile or falling markets.”
The fund has an OCF of 0.87 per cent and currently yields 0.95 per cent.
“Trying to find a truly cautious portfolio is becoming increasingly difficult, with global macroeconomic and political headwinds causing great uncertainty for nearly all asset classes,” Alex Paget, research analyst at Kepler Partners said.
“As such, one way to mitigate those risks could be via a multi-asset portfolio. In our view, two of the stand-out options for more defensive investors, who want capital preservation but also the potential for growth, are Ruffer Investment Company and Personal Assets.
“Both portfolios are managed in a similar way, with high weightings to more defensive asset classes like index-linked bonds, gold and cash with also a decent level of exposure to higher-quality equities.
“However, at this point in time, Personal Assets is our preferred option for cautious investors,” the analyst said.
The £730m Personal Assets Trust, run by FE Alpha Manager Sebastian Lyon, has returned 12.64 per cent over the course of 2016 and is 10.2 per cent higher in net ass value terms thanks to a high weighting to index-linked government bonds.
Performance of trust vs sector and benchmark over 5yrs
Source: FE Analytics
“Yes, it does have a higher weighting to equities than Ruffer, but we think the fact it implements a zero discount policy makes it a more attractive option at this point in time for those who want to minimise risk – compared to Ruffer which has no hard and fast discount control mechanism and is currently trading on a 3 per cent premium to NAV.”
“We believe Personal Assets’ manager Sebastian Lyon is an experienced and top quality ‘custodian of capital’, though it must be noted that if equities go gangbusters, this trust is going to lag.”