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8 defensive funds should Europe cause a crash
Are your investments sufficiently balanced should the eurozone crisis provoke a stock market crash? This update of our ISA tips should help.
Are your investments sufficiently defensive should Deutsche Bank’s forecast of a eurozone inspired market crash prove correct?
The most defensive short-term tactic is to go into cash. However, timing the market is very difficult. You may get out of the stock market in time but will you re-enter in time to capture the rally when the turbulence and fears subside?
ISA tips update
To help you we have highlighted eight funds that we recommended in our ISA tips series in March. All the funds are defensive – and either featured in ‘how to defend your investments as markets tumble’, an article we published as markets looked rocky towards the end of the tax year; or in ‘5 ISA tips for starter investors' people looking for one fund to buy and hold for the long term.
By defensive we mean funds which, in various ways, have balanced portfolios with a mix of assets that aim to minimise losses when markets fall, but capture some of the growth when markets race ahead.
How have they done?
So far so good. Since 30 March, when we first published our ISA tips series, all the funds have increased in value and beaten the FTSE 100, which grew just 0.25%, and the MSCI World index, an index that measures global stock markets that lost 0.3%.
All the funds have good longer-term track records over three or more years.
Although these funds will not always be the best performers, the analysts in our Citywire Selection team who chose them still think they are good bets for the future.
It is also worth noting that several of these funds are invested in banks, whose shares could be hit if the eurozone crisis causes a financial panic. However, these holdings tend to be in big global banks such as HSBC (HSBA.L), which should be able to ride out any storm.
Trojan fund factsheet
Unfortunately, Trojan, our top performing fund is not open to new investors. However, existing shareholders will be smiling having seen their money grow by 5.6% since the end of March. Fund manager Sebastian Lyon is well known for his cautious stance that has seen him load the fund up with cash and index-linked gilts (UK government bonds whose return is linked to inflation). This approach has seen the fund produce nine consecutive years of positive returns, a rare feat in the investment industry.
2. M&G Optimal Income
M&G Optimal Income
This fund invests in bonds, an asset class traditionally seen as more defensive than shares. However, bonds are looking highly vulnerable as inflation rises and following an rally caused by the government buying back gilts in order to inject money into the sluggish economy. Nevertheless, as the future is always uncertain it is a good idea for cautious investors to keep some of their money in bonds. M&G Optimal Income manager Richard Woolnough is a safe pair of hands for this job. With this fund he has the flexibility to invest widely within bonds and has the power to short stocks, ie, make money when their value falls. Since 30 March the fund has gained 2.4%.
3. Ecclesiastical Higher Income
Ecclesiastical Higher Income fund factsheet
Fund manager Robin Hepworth has recently added to defensive investments in pharmaceutical stocks, such as GlaxoSmithKline (GSK.L), telecoms, such as Vodafone (VOD.L), and utilities, such as Scottish & Southern (SSE.L). Wary of the indebtedness of many European countries, including the UK, Hepworth has increased his interest in Asian companies and continued to shy away from UK banks. With a remit to invest globally in shares and bonds Citywire AA-rated Hepworth has helped this fund grow 2.1% since the end of March.
4. Investec Cautious Managed
Investec Cautious Managed fund factsheet
The last time we spoke to fund manager Alastair Mundy he had reduced the fund’s investment in UK shares thinking there were better value opportunities elsewhere, such as Japan. Typically, Mundy holds between 50% and 55% in UK equities, but recently that has dropped to around 36%. Outside shares a big slug of the fund is in Norwegian bonds, which have done well on the back of a strong krone. Investec Cautious Managed has made 1.7% since the end of March.
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Making the most out of Europe's potential means seeing things differently. Learn more about how BlackRock's focused approach to investing in Europe helps investors unlock the continent's vast potential.
In this guide to investment trusts, produced in association with Aberdeen Asset Management, we spoke to many of the leading experts in the field to find out more.
More about this:
Look up the funds
- Trojan O Inc
- Ecclesiastical Higher Income A
- Investec Cautious Managed A Acc Net
- Newton Real Return A GBP Inc
- Jupiter Merlin Growth Portfolio Acc
- Veritas Global Equity Income GBP A
Look up the shares
Look up the investment trusts
Look up the fund managers
- Richard Woolnough
- Sebastian Lyon
- Robin Hepworth
- Alastair Mundy
- Iain Stewart
- Steve Russell
- John Chatfeild-Roberts
- Charles Richardson
More from us
- Stocks could plunge 35% if euro crisis deepens, Deutsche warns
- How to defend your investments as markets tumble
- ISA 2012: a guide to the Citywire Selection of best funds
- Citywire Selection
- FTSE Share Prices & Performance
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