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5 defensive funds for a lengthy eurozone crisis
23 July: After the second Greek election we said we were not out of trouble. With markets reeling today at the prospect of a bailout of Spain we repeat our choice of five funds from Citywire Selection we think should keep you safely invested.
The second Greek election result has done nothing to resolve the uncertainties hanging over the eurozone and the global economy.
The New Year stock market rally seems an age ago. With the developed world’s sovereign debt crisis going hand in hand with a banking crisis, markets will remain highly volatile.
Now is probably not the time to be ‘risk on’. But disinvesting could be equally rash if a concerted moves by central banks and authorities finally propel us beyond crisis and into recovery.
With this in mind we asked Matt Goodburn of Citywire Selection to nominate the team's five favourite defensive funds.
Regular readers will recognise the names, all of which are star picks in Citywire Selection. Three of the funds featured in our recommendations for novice ISA investors in March.
All the funds have an impressive track record in preserving investors’ capital through turbulent times. But, be clear, although they have proved their defensive capabilities, they are not low risk. Most of these funds use financial derivatives and short sell stocks they believe will fall in price in order to construct portfolios that balance risk with protection. However, there is always the possibility that the managers will get these decisions wrong.
Click on the links below to see the funds' fact sheet with performance charts and further information.
Citywire AAA rated Sebastian Lyon (pictured) posted a hugely impressive tenth consecutive calendar year of positive returns during 2011 with the £1.8 billion Trojan fund. His risk-averse stance and exposure to gold and index-linked bonds has been the key driver of returns. Lyon is maintaining these key positions, believing the problems linked to debt and money printing will have long, drawn-out consequences for the global economy. Cash is at nearly 20% and high yielding blue chip equities with strong balance sheets are the only equities he is happy to hold. MG.
Ruffer Investment Company
The investment trust is famous for delivering a 24% return during the financial crisis of 2008. In last year’s turmoil it did not pull off the same feat, although the net asset value of its portfolio held steady even if its share price fell modestly. Long-term performance returns remain very strong from one of the leaders in multi-asset investing which has a strong focus on capital preservation. Correlation across asset classes has been high, but Steve Russell (pictured) and Hamish Baillie remain focused on ensuring offsetting assets are fulfilling their role in protecting other parts of the portfolio. Around a third of the trust is in index-linked bonds and Japan provides the largest equity slice at 24%. The Japanese bet has performed well in fits and starts but has dragged on recent performance. MG.
Newton Real Return
Fund manager Iain Stewart (pictured) remains defensive in his £5.5 billion Newton Real Return fund with a high allocation to gold and cash in place. While being underweight government bonds and having 10% in gold dampened performance in 2011, Stewart is waiting for further market falls before adding to his high yielding equities and corporate bond positions. A small dip into the red of 0.4% during 2011 should not put investors off a fund that has posted consecutive positive returns in the previous four calendar years although performance so far in 2012 remains subdued. Over three years to 15 June it has achieved a total return of 27.6%. MG.
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Look up the funds
- Trojan O Inc
- Newton Real Return GBP Inc
- Jupiter Absolute Return Acc
- CF Miton Special Situations Portfolio Ret A Acc
- Jupiter Financial Opportunities
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