Newton Real Return, Jupiter Absolute Return and BlackRock Gold & General could offer investors some protection in the event of a sustained market sell-off, according to Willis Owen’s Adrian Lowcock. 
While anticipated by some, the US market sell-off has been sharp and sudden and been felt around the world.
The latest correction has been spurred on by comments from the Federal Reserve chair Jerome Powell suggesting that four hikes were likely in 2019 leading to a rise in bond yields and a sell-off in equities.
Lowcock, head of personal investing at Willis Owen (pictured), said: “Stock markets have been slow to react to comments from the Federal Reserve chairman Jerome Powell where he stated the US was a long way from neutral on interest rates and indicated more rate rises were on their way.
“Markets fear that the Federal Reserve will raise interest rates faster and higher than initially anticipated which raises concerns they are behind the curve. This scenario usually ends up triggering a recession in the US which would be felt on a global scale.”
Performance of indices in October
Source: FE Analytics
He added: “The Fed chair’s comments have led to a reassessment of the situation and changes in investor sentiment which has resulted in a sell-off.
“Given segments of global stock markets such as the technology sector have been trading on high valuations, some profit-taking and correction are inevitable.
However, as the Churchillian maxim notes ‘never let a good crisis go to waste’, investors may wish to reflect on their own asset allocation strategies.
Lowcock said: “This is a good opportunity for investors to revisit their goals, assess their investments and look at how they are performing in volatile, falling markets.
“The next step is to determine if they need to make any changes to ensure they are well diversified with assets that can preserve capital in these situations as well those which can grow in rising markets.”
Below, Lowcock highlights three fund ideas that might be worth considering for investors looking to protect their portfolios.
Newton Real Return
First up is Newton Real Return, the £8.5bn absolute return fund is managed by Aron Pataki and Suzanne Hutchins. However, Willis Owen’s Lowcock notes the influence of head of real return and industry veteran Iain Stewart.
“Stewart’s first priority is capital protection and then looks to deliver returns of 4 per cent above cash per annum over the longer term,” he said. “Stewart runs an unconstrained and flexible approach which initially uses Newton’s thematic research to identify opportunities and to position the portfolio appropriately.”
The fund has two parts, said Lowcock. One a core element investing in shares and bonds with a long-term outlook and low turnover; and, around the core holdings including cash, government bonds and derivatives to reduce risk.
Performance of fund vs sector & benchmark over 10yrs
Source: FE Analytics
Over 10 years, the Newton Real Return fund has delivered a total return of 71.67 per cent, compared with a 35.32 per cent gain for the average IA Targeted Absolute Return peer (although it should be noted that the sector is home to a range of strategies) and a 57.42 per cent return for the LIBOR GBP one-month + 4 per cent benchmark.
The fund has an ongoing charges figure (OCF) of 0.8 per cent and a yield of 2.31 per cent.
Jupiter Absolute Return
The next fund backed by Lowcock for investors seeking protection in a sell-off is the £1.5bn Jupiter Absolute Return fund managed by James Clunie.
Lowcock noted: “The fund has a record of showing negative correlation with equity markets during periods of corrections offering investors some protection.”
Clunie’s fund targets an absolute return over a three-year rolling period, independent of market conditions through investment in a portfolio of global assets.
“He uses the same screens to identify stocks he wants to sell, as those he wants to buy, such as valuation and quality factors,” explained Lowcock.
“Stocks are only sold when Clunie can identify a catalyst to short the market and he has built a reputation as one of the few managers with a distinct skill in short selling.”
Under Clunie – who joined the fund in September 2013 – the fund has delivered a total return of 13.49 per cent compared with a 10.86 per cent gain for the average IA Targeted Absolute Return peer and a 2.71 per cent return for the LIBOR GBP three-months benchmark.
Clunie has used the same strategy since 2009, having previously run it at Scottish Widows Investment Partnership prior to joining Jupiter in 2013.
The fund has an OCF of 0.84 per cent.
BlackRock Gold & General
Finally, Lowcock recommends the BlackRock Gold & General fund managed by Evy Hambro – chief investment officer of its natural resources equity team – and FE Alpha Manager Tom Holl.
The £745m fund invests in gold and other precious metals mining companies from across the market capitalisation spectrum, albeit with a bias to large-caps.
“Gold is often a good defensive asset in times of markets stress and offers investors protection,” said Lowcock. “The fund invests primarily in gold and other commodities and looks to identify good companies which use cash wisely and keep costs low.”
The managers consider factors that are likely to influence the price of gold and other commodities and build this into their company analysis.
Currently, the fund has an 84.81 per cent exposure to gold-related equities and a 9.89 per cent of the fund held in silver mining companies.
Over the past three years, the fund has delivered a total return of 25.53 per cent compared with a gain of 48.75 per cent for the benchmark FTSE Gold Mining index.
Performance of fund vs benchmark over 3yrs
Source: FE Analytics
Investors should make note that while the managers ultimately aim to outperform gold bullion over the long-term, it is a portfolio of equities and performance can differ.
BlackRock Gold & General has an OCF of 1.17 per cent.