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Written by: Kate Marshall | Hargreaves Lansdown
- Pyrford Global Total Return – aiming to deliver inflation-beating returns over the long term
- Schroder Managed Balanced – diversification is core
- M&G Global Macro Bond – experience in the bond market
- Jupiter Income – where next for dividends?
- Legal & General International Index – global reach at a low cost
Each year brings new challenges and 2022 was no exception. Investors have once again faced an entirely unpredictable mix of events, including rising inflation, higher interest rates, political instability, and war.
While there are reasons to be pessimistic, we believe global markets still present opportunity for investors seeking long-term growth, income, or both. As there is the potential for market volatility in the near term, we have picked a selection of fund ideas that we think are more conservative or have the potential to offer some stability during tougher times.
1. Pyrford Global Total Return
The team behind the Pyrford Global Total Return Fund have three key aims. Their first is not to lose money over a 12-month period. Their second is to deliver an inflation-beating return over the long term, and thirdly, to do this with low volatility – fewer significant ups and downs in value than a fund invested entirely in shares.
Inflation is running high, which makes it a tough hurdle to beat in the short term. Even tougher when both stock and bond markets, where the fund is focused, are so turbulent. We think the team at Pyrford could beat inflation over the longer term, and in the meantime could provide an element of shelter compared with many other funds.
The team invests flexibly but aims to keep things simple by focusing on a mix of shares, government bonds and cash. The shares could generate long-term growth, though they can be volatile in the short term. The bonds and cash are expected to perform differently and bring some stability to the fund.
2. Schroder Managed Balanced
Schroder Managed Balanced also invests in a mix of investments, including global shares and bonds. While the amount invested in shares and bonds will change over time, this fund is in the IA Mixed Investment 40-85% Shares sector, which means it has the flexibility to invest between 40-85% of the fund in shares. It also tends to invest more of the fund in company shares than total return funds do.
Schroder Managed Balanced is a 'fund of funds'. The managers primarily invest in funds run by other talented Schroder’s fund managers, although they can also invest outside of the Schroders range where necessary. Collectively, those managers invest in hundreds of different companies and bonds. This means the portfolio offers plenty of diversification.
Schroders' highly experienced Asset Allocation team tend to favour shares when the economic environment is positive. But in times of stress, they shift to more diversified assets, such as bonds and cash, aiming to minimise losses. The managers also invest in alternative areas of the market and thematic funds.
3. M&G Global Macro Bond
Different bond funds use different investment styles, and some take a more defensive approach that could provide some ballast in turbulent markets. Jim Leaviss, this fund’s manager, starts with his 'bigger picture' macroeconomic outlook, forming a view on economic growth, interest rates and inflation globally. He then has the freedom to invest in different types of bonds, issued in different currencies to generate a combination of income and growth over the long term. We think experience is vital for a manager of this type of fund and Leaviss is one of the most experienced bond fund managers in the UK.
The fund invests across global government bonds, investment grade corporate bonds, and higher-risk high yield and emerging market bonds. The fund may invest more than 35% in securities issued or guaranteed by a member state of the European Economic Area or other countries listed in the fund’s prospectus. The manager’s freedom to buy bonds issued in different currencies means movements in currency exchange rates can add or detract value.
4. Jupiter Income
We like the Jupiter Income fund, which invests in companies that the managers believe are undervalued by the wider market. This focus on out-of-favour companies is called ‘value investing.’ This style has struggled in recent years and means the fund can fall out of favour through certain periods of the market cycle.
The value investment style has the potential to do better when interest rates and inflation are rising, and the style came back into favour in 2022. This isn’t a guide to future performance though. The manager invests in a fairly small number of companies, so each investment can influence performance for good or bad which can increase risk. The fund’s charges are taken from capital, which could help boost the income but reduce some of the potential for growth.
5. Legal & General International Index
Legal & General International Index tracks the performance of a range of global markets, as measured by the FTSE World ex UK Index. It's currently made up of around 2,200 companies, which means it offers plenty of diversification. The fund is focused on sectors such as technology, financials, and consumer-related sectors, though the makeup of the index can change over time.
While the fund diversifies across global markets, it’s heavily weighted in US companies which make up around two thirds of the fund. This is determined by the underlying index the fund is tracking. Other countries and regions represented in the fund include Japan, Canada, Europe, Australia, and Taiwan – but not the UK.
Legal & General has been running index tracker funds for over 30 years. It’s also one of the largest providers of tracker funds. That means it’s got the resources and expertise to track indices as closely as possible, and the scale to keep charges to a minimum. The firm is also committed to encouraging good corporate practices among the companies it invests in. It proactively engages with businesses and uses proxy voting rights to highlight important matters like environmental, social and governance (ESG) issues.