Three boring fund ideas for extraordinary times

Diversification: safety comes not from one investment but many… 

The first line of defence against uncertainty and volatility is diversification. Owning different sectors, geographies and asset types – like shares and bonds – can help to reduce risk by ensuring you’re not overly reliant on one area of your portfolio. Or, on a particular set of circumstances. 

If one of your investments is performing poorly: another could be making up for it, meaning a less bumpy ride overall. Over the long term, each one can still contribute towards performance – assuming they’re well chosen – thereby improving the return achievable for a certain level of risk.

In today’s context, investors should check their portfolios aren’t completely dominated by the theme of big tech and AI, including tracker funds which are heavily-skewed towards large US stocks. As companies in the same sector can be interlinked in terms of their fortunes, incorporating a broader range of investments into the mix should make sure a portfolio isn’t flying on just one engine.

Bonds: an offset to potential stock market turmoil

It could make sense for more cautious investors to take a second look at bonds to help counterbalance against portfolios dominated by equity markets.

While shares represent a slice of ownership for individual businesses, bonds are the debt obligations of a company, organisation or nation that provide a fixed return – provided they remain creditworthy. Bonds therefore typically attract investors looking to take some risk with their money in exchange for a higher return than cash.

Importantly, bonds can do well when interest rates are cut faster than expected because the economy is slowing, which is generally when shares in more economically sensitive companies perform less well.

At the moment, bonds offer the prospect of decent returns. And they could represent an important sanctuary for investors should the economic clouds darken.

There are lots of ways investors can gain access to bonds. A broad corporate bond fund worth considering is the Vanguard Global Credit Bond Fund which takes a global approach to the asset class. 

The fund offers a diversified portfolio of global corporate bonds with a focus on developed market investment grade securities which generally come with lower credit risk, However, the fund does have scope to buy into high-yield bonds, investment grade emerging market bonds and other asset classes. Benefiting from Vanguard’s worldwide fixed-income research capability – credit and sector selection are likely to be the primary drivers of relative performance with interest rate sensitivity kept close to that of the benchmark.

When selecting the hedged unit class, it removes the risk of currency movements eating away at returns for UK investors, meaning this fund can make a simple but effective building block for the fixed interest component of a portfolio. Inflation and interest rate sensitivity will be an ongoing risk, however, given the limited tools to adjust that driver.

Beyond the Mag 7: diversifying equity exposure

A portfolio dominated by big tech risks flying on a single engine – which is fine unless the fuel runs out. Fortunately, it’s easy to reduce the concentration risk of the major indices by targeting areas out of the limelight but where steady progress is likely. 

A defensively-minded global equity fund or a global equity income fund targeting resilient, dividend-paying stocks could be a good complement to the racier, growth-dominated elements of a portfolio. 

For instance, JO Hambro Global Opportunities offers a blend of offense and defence with the managers focused on quality and value. A lack of exposure to Nvidia, Apple, Amazon, Meta, Broadcom and TSMC make the fund a more defensively-minded diversifier to a global tracker. As well as a concentrated portfolio, where stock picking has a significant impact, the approach aims to preserve capital. If insufficient attractive opportunities are identified, the managers are prepared to hold some cash. 

They stick to developed markets, seeking shares in good-quality businesses where there’s underappreciated durability of earnings and cashflow. The fund is neither growth or value biased, instead exploring what the managers refer to as the ‘forgotten middle’ – where quality growth and value styles intersect. We would, however, expect the fund to lag behind when big tech is leading the charge.

Meanwhile, Trojan Global Income focuses on quality and resilience as a priority with a preference for businesses with minimal earnings volatility and low capital intensity. The fund has three key aims: provide an attractive and growing income in real terms, minimise the risk of permanent capital loss, and allow capital to compound through long holding periods and high levels of concentration. 

Managers James Harries and Tomasz Boniak tend to lean towards repeat-purchase consumer goods companies, platforms, enterprise digital spend, and other areas thought to offer dependable earnings progression and income. It will likely exhibit lower volatility versus the global equity income peer group average, as well as global funds more broadly, so it could blend well with more economically sensitive or growth-oriented elements of a portfolio, helping bolster overall performance in times of market stress. 

How should you select a fund?

Remember, any investment you choose should meet with your own personal circumstances and objectives, taking into consideration your existing portfolio.

Find out more: Eight tips on how to choose an investment fund