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ISA funds to weather volatile markets

20th March 2012 Print

As market volatility continues, Andy Parsons, head of investment research at The Share Centre, recommends three funds for the more risk averse ISA investor.

"Due to the increased volatility of the market caused by the current economic uncertainty, many investors lack confidence and are now more risk averse when considering their investments. Our research shows that almost a third (30%) of investors or savers are prepared to accept less risk now than they were 12 months ago.

"Willingness to take on risk will impact an investor's attitude to a volatile market. Those that are less risk averse may look for the buying opportunities, where as the more cautious investor should look for the long term, drip feed their investment into  the market and identify those managers with a proven historic track record at helping reduce downside risk to their portfolio during times of market volatility. .

"Funds can be an appropriate way for investors to spread their risk and diversify their portfolio. Three funds that we believe offer investors a lower degree of risk through the management styles adopted by the fund managers are  the Newton Real Return fund, the Invesco Perpetual High Income fund and the M&G Optimal Income fund. All of which have the potential to deliver  above  market bench returns over the longer term."

Newton Real Return fund

"The fund will appeal to a broad range of investors seeking a return over inflation with low volatility and is well positioned to perform in the current economic climate.

"The fund targets cash +4% and uses a three-pronged approach to maximise opportunity and minimise risk. These are unconstrained stock-picking, diversification through global investment across several asset classes and strong defensive qualities with a bias towards capital preservation.

"The fund currently has more than £5.3bn in assets under management, making it one of the largest in the absolute returns universe and also boasts a strong track record of steady returns and low volatility.

Invesco Perpetual High Income fund

"This fund is run by one of the most highly respected fund managers, Neil Woodford and is one of the very largest actively managed funds within the UK, with assets under management currently totalling around £11bn. The sheer size of the fund ensures it sits very comfortably as the largest in terms of assets under management within the highly competitive UK Equity Income arena.

"Neil's reputation is based on his consistent and well-established management style; he is not afraid of being contrarian or to back his convictions and beliefs. He has held firm in the belief that solid defensive companies with strong earnings growth are the place to be.

"The fund looks to identify long term themes and attractive valuations in companies. With the current turmoil and uncertainty, the portfolio is tilted towards sectors such as health care, consumer products and industrials.

"For those investors unsure which UK Equity Income fund to choose and preferring to follow a manager with a proven track record, then this fund could suit."

M&G Optimal Income fund

"This fund is well positioned for low-risk experienced investors looking for a predominantly debt focused investment opportunity. Investors looking to add additional spice to their income portfolio through the investment experience and knowledge of a well respected fund manager and fund house should take a closer look.

"It is reasonably unconstrained and Richard Woolnough has the flexibility to invest across the entire bond market - as much as 100% in gilt or high yield debt. However, equity exposure is capped to a maximum of 20% and non-sterling currency exposure is also limited to a maximum of 20%. Investors should be aware that the manager does have the ability to actively use derivatives and in particular credit-default swaps to manage risk and potential default risk.

"Total returns are prioritised ahead of income, albeit the current yield of around 4.39% makes it an attractive investment for those income seekers looking to help supplement their lifestyle.

"Richard and his team take a view on economic factors and construct the fund accordingly. The fund has to have at least 80% of its investment in sterling investment grade corporate bonds."