At the risk of sounding like a broken record, it is becoming increasingly important to remain well diversified as we head through 2018. 
Nobody has a crystal ball at the best of times and, given that several economies are likely to taper monetary policy, asset valuations remain toppy and the US president can shift market behaviour in just 280 characters, it is perhaps more important than ever to protect your money on the downside.
As investors will know, this is no mean feat at the moment. Every regional equity index ended 2017 on double-digit gains and bond yields – while having risen in the UK and the US during the second half of last year - are still at historic lows.
How can investors spread portfolio risk when regional equity markets are so expensive and the downside risk to bonds is as high as it has perhaps ever been?
In the below article, I take a look at three specialist equity funds which offered greater downside protection than the broader global equity index during the throes of the financial crisis, and which could be handy diversifiers when included as satellite holdings within a wider portfolio.
BlackRock Gold & General
First up is the BlackRock Gold & General fund, which invests in gold mining equities alongside other precious metal shares.
Launched back in 1998, the investment vehicle is a household name among those looking to hedge their equity exposure through the yellow metal. It has been headed up by Evy Hambro since 2009 and co-managed by Tom Holl since 2015, although both managers are well-supported by a team of gold specialists.
The team's investment philosophy is very much value-driven and focuses on metrics such as discounted cash flow analysis and balance sheet strength. It also keeps a keen eye on liquidity, currency and country-specific risk.
Its selection process results in a portfolio of between 50 and 80 stocks at any one time, and the managers aim to generate alpha relative to their peers through careful stock and sector selection within their given risk parameter.
Over the last five years, the £1.1bn fund is down 23.07 per cent and has a maximum drawdown – which measures the most money lost if bought and sold at the worst possible times – of 57.79 per cent, which suggests it is not suited to the faint-hearted investor.
However, gold and precious metals are inherently cyclical and therefore higher-risk as an asset class. The fund should provide some much-needed asset class diversification when held alongside stocks and bonds.
Polar Capital Global Insurance
Another option could be the Polar Capital Global Insurance fund, which invests in non-life insurance companies – a sector which we deem to be very specialist and often undervalued.
One reason investors may wish to have exposure to the insurance sector is its defensive characteristics; everything around us is insured and this tends not to change regardless of whether we are in an economic boom or bust.
Nick Martin, who heads up the fund alongside Alec Foster, manages the vehicle as a pool of underwriting capital on the behalf of the fund's shareholders. He focuses on growth in tangible book value per share as opposed to earnings, as these can be volatile and dependent on extraneous factors.
Martin and Foster also place great emphasis on meeting with individual management teams; the duo maintain a concentrated portfolio of between 30 and 35 stocks which they aim to hold over the long term.
In our view, the duo have some of the best knowledge and experience within the sector – this is shown through the fund's performance track record (although this is of course no guide to future returns).
Over five years, the £1bn fund has returned 130.46 per cent compared to its MSCI World/Insurance benchmark's return of 120.04 per cent (to 16 January 2018). It has done so with a maximum drawdown of 5.81 per cent.
First State Global Listed Infrastructure
First State Global Listed Infrastructure could provide both diversification benefits and an attractive stream of income as part of a wider portfolio, given it currently yields 3.33 per cent. In fact, had an investor placed £10,000 into the fund five years ago, they would have received £1,860.04 in income alone (to 16 January 2018).
Managers Peter Meany and Andrew Greenup adopt a seven-stage process to stock selection, which ultimately leaves them with a portfolio of around 40 stocks. These include screening, fundamental research, a value ranking model, a quality ranking model, security selection, macroeconomic risk management and portfolio construction.
The duo have a keen focus on capital preservation and, in order to achieve this, also focus on fundamental value and making direct contact with companies.
Some of the largest individual holdings within their portfolio include the National Grid at 8.6 per cent, US energy infrastructure firm Kinder Morgan at 6.1 per cent and Australian toll road network Transurban Group at 5.9 per cent.
Investors should note that, recently, Meany and Greenup shifted the portfolio towards more economically-sensitive assets. We think this is a good idea, given that it should insulate the fund from the impact of rising interest rates.
Over five years, the £2.6bn fund has seen gains of 96.1 per cent compared to its benchmark's return of 84.26 per cent. It has a maximum drawdown of 10.18 per cent over this time frame.
Darius McDermott is managing director of FundCalibre. All views are his own and should not be taken as investment advice. All views are his own and should not be taken as investment advice.