The spread of the coronavirus outbreak beyond China has prompted governments and central banks around the world to take action to try to limit its impact.
As such, concerns over a global recession have risen as already weak economic growth begins to tail off amid supply chain disruptions and greater numbers of the workforce are affected.
As such, Trustnet asked five fund pickers which funds they would recommend investors hold should the global economy deteriorate in the coming months.
Allianz Strategic Bond
First is GDIM Discretionary Fund Managers’ Tom Sparke who chose Allianz Strategic Bond fund, which he said he would be “very glad to be holding” should a global recession come about.
“We have held the fund for some time now and it has done an excellent job of protecting a portfolio when tougher times hit,” he explained.
The £1.1bn fund is managed by Mike Riddell and Kacper Brzezniak and invests in bonds from a range of issuers, although 80 per cent will be denominated or hedged back to sterling.
“For a fund that has returned such welcome positive numbers in the bad times the volatility is relatively low and when it has lost value it has been in small increments, which makes it a very useful fund for a diversified portfolio,” said Sparke.
Since Riddell joined the fund at the end of November 2015 the fund has made a total return of 32.25 per cent, compared with a 17.90 per cent gain for the average IA Sterling Strategic Bond peer and a 14.77 per cent return for the benchmark Bloomberg Barclays Global Aggregate Hedge GBP index.
Performance of fund versus sector & benchmark over 10yrs
Source: FE Analytics
As the above chart shows, Allianz Strategic Bond has made a total return of 164.56 per cent over the past decade, outperforming both the index (140.98 per cent) and the peer group (127.18 per cent). It has an ongoing charges figure (OCF) of 0.65 per cent and a yield of 1.11 per cent.
Liontrust Special Situations
The second fund is the £5.2bn Liontrust Special Situations fund chosen by Bestinvest managing director Jason Hollands.
Hollands said that there are “mounting odds of a technical recession taking place, due to the coronavirus, combined ultra-low interest rates, public spending increase and low energy prices”.
As such there will likely be a short, sharp shock to markets followed by a V-shaped recovery, which should benefit the Liontrust fund.
It is managed by FE fundinfo Alpha Managers Anthony Cross and Julian Fosh who follow the proprietary ‘Economic Advantage’ process, seeking out UK companies that have at least one of three characteristics: intellectual property, strong distribution or recurring business (at least 70 per cent of annual turnover).
The Liontrust managers believe that competitors would struggle to replicate these elements, giving them a defensive moat.
Over the past 10 years it Liontrust Special Situations has made a total return of 226.59 per cent, outperforming the average IA UK All Companies peer which was up 77 per cent and the FTSE All Share’s 64.55 per cent return.
The five FE fundinfo Crown rated fund has an OCF of 0.83 per cent.
BNY Mellon Real Return
Charles Stanley Direct’s Rob Morgan opted for something slightly different in the BNY Mellon Real Return fund, a well-respected multi-asset absolute return strategy.
Absolute return funds typically aim to be “‘plodders’ rather than the ‘leapers’ in the fund world,” said the pensions and investment analyst, and have typically had limited appeal during the post-crisis bull run in equities but could now be worth a look. And one fund Morgan likes is BNY Mellon Real Return, which he said could appeal to for investors looking for capital growth but with one eye on volatility.
“Prioritising capital preservation is an aspiration rather than a promise and the fund has succumbed to recent market falls, albeit to a far more limited degree than an equity fund,” he said.
This fund’s strength lies in its diversification, said Morgan, having a core portfolio of lower-risk assets taking hedging positions to dampen volatility and to provide downside protection.
“With the range of assets at the managers’ disposal it can be ‘flexed’ to deal with different environments, which makes an ideal ‘all weather’ fund to hold in the core of a portfolio,” he added.
BNY Mellon Real Return is overseen by Aron Pataki, Suzanne Hutchins and Andy Warwick who aim to deliver a return of cash plus 4 per cent per annum over five years and a positive return on a rolling three-year basis.
Performance of fund versus sector over the past 10yrs
Source: FE Analytics
The £6bn fund has made a total return of 39.14 per cent over the past decade underperforming the LIBOR GBP 1m +4% index (56.19 per cent). It has an OCF of 0.85 per cent.
Polar Capital Global Insurance
FundCalibre managing director Darius McDermott opted for Nick Martin’s Polar Capital Global Insurance in the event of a global recession.
“Everything around us is insured, regardless of economic boom or bust, which gives this fund some very nice defensive characteristics,” he said. “The key driver of its returns are underwriting profits that are largely disconnected from gyrations in the global economy “given insurance is not a discretionary purchase and is often required by law.”
McDermott said manager Martin has been using the recent sell-off to top up holdings in the £1.5bn high conviction strategy, which has historically navigated testing markets well.
Over the past decade it has made a return of 224.06 per cent, beating the MSCI World/Insurance benchmark’s 133.40 per cent gain. The fund has an OCF of 0.87 per cent.
Troy Trojan
Rounding off the fund picks is Ben Yearsley, co-founder of Fairview Investing, who recommends the £4.5bn Troy Trojan fund run managed by Alpha Manager Sebastian Lyon and colleague Charlotte Yonge.
“If we are going into a prolonged recession, normally you’d want safe haven assets like government bonds as rates normally get cut,” he said. “That’s already happened though and even if another 0.5-1 per cent comes off rates in the US as seems likely, this is effectively already priced in to bond markets.
“So you have to look to equities - and those companies with strong balance sheets, and low levels of debt that can survive a recession and come out the their side. The kind of companies Troy buys across its fund range.”
Yearsley added: “If you want a multi-asset fund then Troy Trojan with its mix of shares, government bonds and gold is probably a good recession focused fund.”
The Trojan fund targets capital growth ahead of the UK retail price index (RPI) rate of inflation over three-to-five years.
Over the past 10 years the fund has made 59.68 per cent, slightly underperforming the average IA Flexible Investment peer (60.75 per cent) but performing much better than the UK Retail Price index (32.57 per cent). It has an OCF of 1.02 per cent.