One of the surprises of 2016 was that, despite a lot of noise around Brexit, Donald Trump and (to a lesser extent) Italy, markets actually performed quite well. 
With 2017 set to follow suit, with a lot of uncertainty but little guide to how markets will react, investors may be looking to take a more balances approach.
Investors have less than a month use their £15,240 ISA allowance for 2016/17 which ends on 5 April and this time of year sees investors routinely rushing to make use of the tax-wrapper allowance before the deadline.
Having looked at the funds for cautious investors to consider, this article looks at which funds investors looking to take a balanced approach to their investments should consider.
The below recommendations therefore are for someone who is more comfortable with the general volatility of markets but doesn’t want the full exposure to equity markets and appreciates the benefits of diversification.
We kick off with Sheridan Admans, investment research analyst at The Share Centre, who suggests the £667m M&G Global Select fund run by John William Olsen and Kasper Mikkelsen.
“Global markets still remain fragile, as the International Monetary Fund projects a pickup in activity in 2017, albeit with a wide dispersion of possible outcomes. It is anticipating a rise of global GDP growth of 3.4 per cent in 2017 from 3.1 per cent in 2016,” he said.
“Global equity funds, provide investment diversification of assets, regions and sectors. Therefore, the utilization of a global fund in an investment portfolio should potentially provide access to the best companies in the sectors and assets that a home market bias cannot deliver directly.”
The fund has a good long-term track record, sitting in the top quartile of the IA Global sector over the last decade having returned 151.11 per cent.
As the below graph shows, this is 45.76 percentage points ahead of the sector average and 7.85 per cent ahead of the notoriously difficult to beat MSCI AC World.
Performance of fund sector and benchmark over 10yrs
Source: FE Analytics
Admans said: “This manager has a great track record navigating global investing with a very considered fundamental approach to stock selection.
The fund aims to deliver capital growth and income over the long term (five years or more) by investing at least 70 per cent of the portfolio in a range of company shares from across the world and is a concentrated portfolio of between 30 and 40 holdings.
Stocks are selected based on their individual merits, with a focus on quality businesses where an element of change is helping to drive their value.
“Crucially, the fund manager will purchase shares in a company when short-term issues have provided a clear valuation opportunity, with a view to holding those shares over the long term,” the analyst added.
The fund, which currently yields 1.06 per cent, has a clean ongoing charges figure (OCF) of 0.92 per cent.
Another option is Liontrust Special Situations, which Chelsea Financial Services managing director Darius McDermott suggests, though this may be a little riskier than usual.
“This might seem a little aggressive for a balanced investor but I think it makes a really good core for a portfolio,” he said.
The five crown-rated, £2.5bn fund is run by the economic advantage team headed up by FE Alpha Managers Julian Fosh and Anthony Cross.
“The managers have a distinctive investment process, which has been implemented with a high level of skill and consequently the fund has an impressive long-term track record,” McDermott said.
“They look for firms with ‘intellectual capital’ which includes strong distribution networks, recurring revenue streams and products with no obvious substitutes.
“Another important factor is how key employees are motivated, with the preference being through direct ownership of the company’s equity.
“The resulting portfolio consists of companies that can grow their earnings independently of the wider economy, which I think could be very important in the short-medium term.”
As such the fund has a large- and mid-cap bias with 38.8 per cent invested in FTSE 100 stocks and 31.6 per cent in FTSE 250 companies.
The fund has been a consistent performer, sitting in the top quartile of the IA UK All Companies sector over one, three, five and 10 years.
Performance of fund vs sector and benchmark over 10yrs
Source: FE Analytics
Over the last decade the fund has returned 212.78 per cent, more than double the All Companies sector and FTSE All Share.
The fund has a yield of 1.7 per cent and an OCF of 0.87 per cent.
For those with income at the top of their agenda, Schroder UK Alpha Income run by Matt Hudson is Architas investment director Adrian Lowcock’s preference.
“Hudson, runs the fund following a business cycle philosophy where he researches the stage of the market cycle the economy is in and invests to reflect this,” he said.
“This approach requires a significant understanding of economics and the changing dynamics of the UK economy. Hudson combines this knowledge with analysis of companies looking for those businesses which are able to grow earnings and along with that dividends.
“The fund tends to do well across the market cycle but tends to lag during transition phases.”
Schroder UK Alpha Income has been a top quartile performer in the IA UK Equity Income sector over the last 10 years, returning 123.35 per cent on a total return basis but has lagged more recently (one and three years).
The fund has a yield of 4.46 per cent and an OCF of 0.91 per cent.
Royal London Sustainable World Trust
Balanced investors do not just have to look at equity funds however, as Informed Choice managing director Martin Bamford suggests the £308m Royal London Sustainable World Trust.
“It is a fund we are regularly recommending for investors with ethical preferences, which does an equally good job for balanced risk ISA investors,” he said.
“This fund, which is managed by Royal London head of equities [and FE Alpha Manager] Mike Fox, has consistently shined in the IA Mixed Investment 40-85% Shares sector, delivering the best performance over the past five years out of more than 100 funds in the sector.”
Performance of fund vs sector over 5yrs
Source: FE Analytics
Indeed, the five crown-rated fund has returned 97.8 per cent over the last half-decade and has been a top quartile performer over one- and three-year periods as well.
It invests mainly in global equities (83.2 per cent), with some exposure to fixed interest securities (15 per cent) and cash (1.8 per cent).
“For an investor prepared and able to take balanced risk with their ISA investment, this fund would be a simple way to gain exposure to expert fund management.”
Royal London Sustainable World Trust has a yield of 1.31 per cent and an OCF of 0.78 per cent.
The final fund is the EdenTree Higher Income run by FE Alpha Manager Robin Hepworth, David Katimbo Mugwanya and Thomas Fitzgerald.
The £366m fund is recommended by Hargreaves Lansdown investment director Mark Dampier, who says with around 19 per cent in bonds, 60 per cent in UK equities and the rest overseas equities, the fund has “a good mix in my view”.
The fund aims to provide an above average and growing level of income together with capital growth over the longer term by investing in a mix of equities, fixed interest securities and other vehicles.
The fund has been a top quartile performer in the IA Mixed Investment 40-85% Shares sector over 10 years, returning 113.82 per cent to investors.
However, more recently the fund has struggled and has been in the third quartile over one and three years, lagging its FTSE All Share benchmark over these periods.
The fund has a yield of 4.23 per cent and an OCF of 0.79 per cent.