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Lower risk investing

July 2018

Categories: Investing strategies

Investing your money always involves an element of risk but investors have a wide variety of both higher risk and lower risk investments to choose from.

At times of economic or market uncertainty ‘defensive’ stocks typically increase in popularity.

Defensives offer investors some protection against falling markets because they do not fall as far or as fast as other stocks. Ideally, they wouldn’t fall at all – or, at best, they increase in value as investors seek solace from market volatility and switch from speculative to defensive businesses.

Usually they have been found in sectors and industries such as utilities, consumer goods, pharmaceuticals and tobacco. What they have in common are relatively stable revenue streams, with demand for their products and services largely unaffected by the state of the wider economy.

For this reason, they are sometimes also known as ‘non-cyclical’ stocks and it is important to remember that while they are spared the full impact of a market correction they will generally not experience a significant upswing in demand when the economy recovers.

As well as defensive stocks, certain asset classes like bonds and gold are also seen as being safe places to ride out periods of market volatility.

Two different types of fund will make use of these safe haven investments to generate returns for investors with the aim of also protecting against loss.

Absolute return funds come in several different guises, but their aim is the same: to deliver a positive (‘absolute’) return in all market conditions. Some use a blended portfolio of bonds to achieve it, some will invest in the stock market, while others will use a range of different assets. Almost all will go ‘short’ on individual securities – i.e. they will use financial instruments to profit from the fall in the price of an asset – as well as investing in the normal way.


Examples of absolute return funds

JPM Global Macro Opportunities

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Schroder UK Dynamic Absolute Return

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7IM Real Return

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Threadneedle UK Absolute Alpha

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What is a multi-asset fund?

The term 'multi-asset fund' refers to a vehicle which invests across several asset classes and fund managers. The aim is to ensure that investors are not exposed to the market gains or losses of any individual asset class - say, for example, equities – thereby limiting risk and volatility.

A key advantage of a multi-asset fund is that it enables you to diversify at relatively low cost. Investors can put their money in just one fund and achieve a reasonable level of diversification without having to pay fees and charges on multiple funds.


Examples of multi-asset funds include

Hawksmoor Vanbrugh

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Premier Asset Multi-Asset Distribution

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Author: Tom Sieber Categories: Investing strategies