The low-risk funds to buy, hold and forget about

BNY Mellon Real Return, M&G Global Macro Bond and Personal Assets Trust are some of the cautious options investors can hold and forget about, even when markets go berserk.

The opening weeks of 2022 have tested investors resilience to volatility in a way many have not experienced before. Equity markets in particular have struggled, facing the joint headwinds of rising inflation and interest rates which have shaved off future returns from some of the most highest-growth areas of the market.

Indeed, since the start of the year, the only major market to have made a positive return is the FTSE 100, as the below chart shows.

Performance of global indices YTD

Source: FE Analytics

This has been exacerbated by the growing tensions between Russia and the Ukraine, with investors diving for cover in more defensive assets.

Considering this, Trustnet asked a group of fund pickers for lower-risk portfolios they can hold for the long term, but that should still provide decent returns if markets rebound.

BNY Mellon Real Return

First up was the BNY Mellon Real Return, a member of the IA Targeted Return sector. These types of funds are a typical slow-and-steady option as absolute return strategies aim to deliver positive returns regardless of the market environment.

The BNY Mellon fund was a good option for conservative investors with a long-term investment timeline, according to Gill Hutchison, research director at The Adviser Centre.

The £5.5bn fund is run by managers, Aron Pataki, Suzanne Hutchins and Andy Warwick who “have a key eye on risk,” she said. Indeed, the fund aims to deliver a return, before fees, of 4% above cash per annum (over five years).

It is made up of a “core” set of assets, a combination of equities and bonds, which is complimented by a “stabilising layer,” Hutchison said, a broader range of alternatives “designed to diversify the portfolio and mitigate risk”.

Hutchison said that over the years, the fund has proved its worth in delivering “a smoother outcome than traditional multi-asset offerings, with shallower drawdowns”.

Over 10 years the four FE fundinfo Crown-rated fund made 45.5% total returns, ahead of the sector average (26.2%) but below its benchmark.

Performance of fund vs sector and benchmark over 10yrs

Source: FE Analytics

M&G Global Macro Bond

Another open-ended option recommended for low-risk investors was the $2bn (£1.5bn) M&G Global Macro Bond, picked by Rory Maguire, managing director of Fundhouse, who highlighted this fund partly because of the tenure of its manager, Jim Leaviss.

Leaviss has run the fund since 1999 “and is an experienced investor”, according to Maguire, something which should come in handy “navigating this tricky bond market”.

Bonds are currently expensive, given how low interest rates are, despite the recent hikes. But they are a classic portfolio diversifier against more risky asset classes such as equities. Given the longer maturity time on some bonds they can be an ideal buy, hold and forget about option.

If bonds continued to fall, Maguire said Leaviss should be able to expertly navigate this “and I expect him to protect some of the downside using his flexibility and experience”.

But if bond markets become cheaper, this is an ideal market for Leaviss’ contrarian style “who should be very willing to take more risk and enable clients with a long-term view to compound their wealth,” Maguire added.

Although the fund has outperformed its sector over the long term – shown in the graph below – it fell to the third quartile of the IA Global Mixed Bond sector over the medium term, something Maguire acknowledged but said was “to be expected” because of its contrarian way of investing.

Performance of fund vs sector and benchmark over 10yrs

Source: FE Analytics

The director said that the “future is what matters” and thinks the M&G team “are well set to navigate bond markets now that fundamentals are driving markets rather than central banks.”

RIT Capital Partners

Moving away from the open-ended space the next portfolio was picked by Charles Stanley’s chief analyst, Rob Morgan. He highlighted the £3.8bn RIT Capital Partners trust, an ideal holding for those concerned about inflation in the long run.

The trust aims to outperform inflation while limiting the ups and downs usually associated with investing in the stock market “a goal that resonates with many investors with one eye on the downside”, Morgan said.

Inflation has become a growing concern for investors who have increasingly sought out beneficiaries from, or hedges against, it.

The trust’s core holdings include managed funds and individual stocks, which are supplemented by bonds, absolute return funds, investments in private companies, plus “the ability to add downside protection through derivatives”, Morgan said.

He added that the trust has a “great record” delivering a total return of 134.8% over 10 years, ahead of the IT Flexible Investment sector’s 66.1%. “It maintains an edge with its access to specialist managers and private-equity deals,” he analyst said.

But, under recent market conditions the trust has struggled, dropping down to the fourth quartile in the past six months as it is positively correlated to global equities.

Morgan admitted that it was not as defensive as other ‘total return’ options but it still held up better than the majority of the market due to its value tilt.

“The managers calculate that since its 1988 listing the Trust has participated in 74% of the market upside but only 39% of the market declines,” Morgan added, an “appealing” asymmetry of returns.

JPMorgan Multi Asset-Growth and Income

Next was one for income-seeking investors chosen by James Carthew, head of investment companies QuotedData. He picked the JPMorgan Multi Asset Growth and Income, also from the IT Flexible Investment sector.

It targets a total return in excess of 6% per year over rolling five-year periods, all while keeping volatility to about two-thirds that of an equity portfolio, while also growing its dividend at least in line with inflation. It currently has a dividend of 3.84%.

Approaching it fifth birthday next month, the trust has made higher returns than the sector, making 24.6% since launch.

Performance of fund vs sector and benchmark since launch

Source: FE Analytics

Personal Assets Trust

Last up was the Personal Assets Trust, which has capital preservation as its core. This is the fundamental goal of all Troy Asset Management portfolios as well as keeping volatility low, a strategy championed by FE fundinfo Alpha Manager Sebastian Lyon.

Its holdings are split between blue-chip equities (39%), gold (9%) US index-linked bonds (32%) UK short-term money market instruments (20%) with the remainder in cash. The fund’s equity portion in particular, which is focuses on high-quality companies, has the ability to generate strong cashflows consistently over time.

Jason Hollands, managing director of Bestinvest, said: “While this won’t shoot the lights out in a bull-market, it has delivered steady returns and has been very defensive in periods of market turbulence.”

Indeed the five crown-rated fund has lagged both its sector and FTSE All Share benchmark (94.4%) in the past decade, a period when equity markets were, generally, on the rise. It still delivered positive returns during that time (61.6%) and has held up well in the recent equity dip.