Six investment funds ‘staying alert’

With the ‘rule of six’ set to be in place for a possible six months in an effort to control a second wave of the coronavirus, ‘staying alert’ is as important as ever for the UK population.

It’s also important for investors as we have seen in recent days. Following a phenomenal bounce back from most stock markets (the UK perhaps being the exception), we’ve seen stock prices pull back a bit of late – especially in some of the big tech names. For example, Apple’s share price had risen some 80% in US dollar terms year to date by the start of September, only to fall 17% in the past three weeks*.

While this may be a temporary blip in a strong structural growth story for technology companies, it does serve as a reminder that investors should not become complacent.

Here we take a closer look at six funds with defensive tactics.

1. Rathbone Global Opportunities – this fund is a truly active, unconstrained growth fund run by an experienced manager. His high conviction contrarian strategy has proven itself over many years and he is not afraid to admit his weaknesses or past errors, a refreshingly honest approach, which allows him to concentrate on his core strengths – including stock picking. The fund altered its approach after the global financial crisis in 2008, adding a core defensive bucket of reliable growth stocks. These core holdings have helped reduce the fund’s volatility.

2. JOHCM Global Opportunities – this global equity fund can invest in any company around the globe but has a strong bias towards larger and medium-sized multi-national businesses. Its manager always has an eye on capital preservation. As a result, he is very willing to hold high levels of cash if valuations are unattractive. Because of this cautious approach, the fund has historically been one of the least volatile in its sector. As the manager himself says: “We harness the upside potential of owning shares in great businesses, but we do it without taking on inappropriate risks. Heads we win, tails we don’t lose too much.”

Manager Ben Leyland, told us more in this recent video:

3. Nomura Global Dynamic Bond – manager Dickie Hodges blends two approaches when building this strategic bond portfolio. First, he studies the state of the global economy and identifies which sectors and investment themes look most attractive. He then undertakes fundamental analysis to populate his preferred areas with ideas. He makes heavy use of put options (an option to sell assets at an agreed price on or before a particular date) as a means of defending this portfolio at times of stress. The top ten is currently dominated by US treasuries**.

4. Morgan Stanley Global Brands – the investment team behind this fund have a mantra: ‘don’t lose money’, which will possibly be as comforting to investors at the moment, as the familiar names that can be found in the portfolio. The team looks for high quality companies with defendable and visible future earnings, allowing them to give attractive returns to shareholders and reinvest in their business to stay ahead. The managers define risk as the permanent loss of capital, and therefore they will consider factors in a variety of categories, including the sustainability of the company’s strong position, the effects of technological disruption and sensitivity to the macroeconomic environment.

Laura Bottega, lead product specialist for the fund, discusses the fund’s strong performance in the market sell-off earlier this year, in this podcast:

5. Rathbone Strategic Growth Portfolio – this fund invests in actively-managed funds and investment trusts, as well as passives and direct equity holdings. Underlying assets will include fixed income, equities, commodities and property, as well as alternative investment strategies. The team focuses not only on returns, but also on risk and correlation of assets. Asset classes are divided into three distinct categories – liquidity (those that can be bought and sold easily, currently 24%* of the portfolio), equity risk and diversifiers. This last bucket currently represents about 8% of the fund, with investments in gold and S&P 500 puts***.

6. Jupiter Strategic Bond – this flexible ‘go-anywhere’ fund allows the manager considerable freedom to exploit opportunities across global bond markets. The aim is to achieve a moderate income, but with the prospect for growth, although in practice the manager is prepared to sacrifice yield in order to preserve capital. He is quite cautious in his approach and emphasises limiting potential losses in tough markets. Since launch he has demonstrated that he has an aptitude for reading the economic cycle and the fund has posted some exceptional risk-adjusted performance figures. US and Australian government bonds currently dominate the fund’s top ten holdings***.

*Source: Yahoo finance, 22 September 2020
**Source: fund factsheet, 31 July 2020
***Source: fund factsheet, 31 August 2020