Not every investor wants to chase the highest possible returns. For some, avoiding the stomach-churning ups and downs of markets is just as important as making their money grow. That can be particularly true when markets feel unsettled. If you’re a naturally cautious investor, there are funds designed to take a more measured approach.
Of course, lower risk doesn’t mean no risk, and being more cautious can mean accepting potentially lower returns. But there are plenty of options for investors who prioritise a smoother ride.
Here are five lower-risk funds for investors looking for a little less drama from their portfolio and hopefully a better night’s sleep.
Artemis Short-Duration Strategic Bond
This is a great option if you hate volatility but still want a better-than-cash return. We see this fund as a ‘Steady Eddie’ targeted absolute return fund that wants to control risk. The three-strong management team of Stephen Snowden, Jack Holmes and Liam O’Donnell aim for a minimum annual return of the Bank of England’s Base rate + 2.5% after fees. They invest globally in government and corporate bonds, as well as asset-backed and mortgage-backed securities. However, portfolio duration is limited and high-yield and emerging market exposure is capped.
Now, this fund is unlikely to ‘shoot the lights out’, but that’s just the point. Cautious investors want to make a return and preserve their capital, so this ticks all the boxes. As an added bonus, its fees are low at 0.39% OCF. This is another plus point, given that many targeted absolute return funds tend to charge more.
Our next suggestion is conventional corporate bonds. This is a predominantly investment grade corporate bond fund, meaning it has little exposure to the riskier high yield market. Lead manager Ben Edwards has plenty of experience and benefits from access to BlackRock’s impressive international resources. This includes specialist fixed income analysts, quantitative risk tools and a 24-hour global trading platform. Add in this fund’s flexible mandate, and you have a potential potentially useful option for more cautious bond investors.
Currently, the fund is heavily invested in BBB-rated names (60%), while financial institutions, industrials and utilities are the most significant sectors*. Ben, who has been at the helm for more than a decade, has run the fund in a lower-risk way since becoming lead manager. Interest rate exposure, for example, is typically less than the benchmark.
VT Chelsea Managed Cautious Growth
This is our multi-asset solution for those who want their long-term savings to grow but aren’t comfortable dealing with. It’s a global fund aiming for lower volatility than equity markets. It does this by diversifying across asset classes and geographies. Chelsea’s experienced research team will adapt the portfolio in response to the prevailing market and economic conditions.
Currently, equities account for around 40% of the portfolio alongside holdings in targeted absolute return, fixed interest, gold and silver, alternatives, and property. Approximately 13% is in cash. As far as countries are concerned, the highest allocation is 35% in the US, followed by almost 26% in the UK and 20% in Europe ex UK**.
We see this as a solid monthly income bond fund. The fact that it’s quite short duration means it’s less exposed to interest rate movements than rival portfolios. It aims to achieve income and capital growth by delivering a return, net of fees, that’s greater than its target benchmark over rolling three-year periods.
Hilary Blandy, who has managed this fund for six years, invests in a mix of investment-grade and high-yield bonds. How much she puts in each will depend on whether she feels the market backdrop requires a more defensive or aggressive stance. We believe the monthly income element is a nice added feature. When combined with the fund’s yield, currently 6.75%, it makes this portfolio an attractive option for income seekers.
Janus Henderson Absolute Return
The aim of this fund is to deliver positive returns in all market conditions – and to do so with lower volatility than the stock market. While this may sound like music to the ears of cautious investors, an absolute return isn’t guaranteed; it’s simply the objective.
As it’s a long/short equity fund, its managers, Ben Wallace and Luke Newman, can identify stocks whose share prices are expected to rise, as well as those likely to fall. This gives them greater potential to deliver a positive return, although limits on overall market exposure reduce the fund’s volatility. Recently, they’ve benefitted from holdings in Anglo American and Persimmon*, while having short positions in select banking, defence and consumer stocks.
