The ‘sleep at night’ investment funds

Important information - the value of investments and the income from them can go down as well as up, so you may get back less than you invest.

The reaction of the world’s stock markets to renewed conflict in the Middle East reminded us that shares can indeed, in the words of the ubiquitous warning, ‘go down as well as up’. If you would like to remain invested in stocks and other financial assets but minimise the risk of severe falls in turbulent times, certain funds aim to achieve just that.

• Read: Iran conflict: markets and money questions answered

The names of funds that target smoother returns may give a clue to their purpose; look for terms such as ‘total return’, ‘absolute return’ or ‘multi-asset’, or for fund sectors such as ‘flexible investment’ or ‘mixed investment’. You may also see ‘low volatility’ in a fund name, especially among exchange-traded funds (ETFs). Several funds and investment trusts (funds structured as listed companies) are known for their ‘wealth preservation’ remit; one even states its aim as to ‘protect and increase (in that order)’ the long-term value of its shares. 

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‘Sleep at night’ funds in the Select 50

Our Select 50 list of recommended funds includes one portfolio that explicitly targets low volatility, Pyrford Global Total Return. A glance at its performance chart suggests that the fund has indeed risen in a steady manner with no serious falls over the past 10 years. Its worst annual decline was 1.6% in 2018. However, progress has also been rather pedestrian; it has turned an initial investment of £1,000 into £1,486 over the past 10 years. This is often the trade-off you make with these funds: the gentle ride and absence of severe falls are at the expense of the bigger gains some funds will make when markets are benign. 

Our select list also includes one fund in the ‘mixed investment 0-35% shares’ category, Ninety One Diversified Income. The fund’s investment objective is to ‘limit volatility (the pace or amount of change in its value) to lower than 50% of that of shares of UK companies … [it] invests in a broad range of assets around the world’. It has turned £1,000 into £1,423 over 10 years; there was a two-year period in 2022-23 when it traded below a previous peak.

Another Select 50 fund to have delivered a relatively steady gain over the past 10 years is Fidelity Global Dividend, which has avoided severe drops while it has turned £1,000 into £2,913.

• View our Select 50: our favourite funds - selected by experts

‘Wealth preservation’ funds

Several investment trusts seek to deliver positive returns whatever the markets are doing. The Personal Assets Trust, for example, stresses that its aim is to ‘protect and increase (in that order) the value per share for the funds of shareholders over the long term’. An ‘open-ended’, non-listed fund run on broadly similar lines by the same management company is the Trojan Fund. Both have avoided severe declines over the past 10 years. 

Another multi-asset wealth preservation trust is Ruffer Investment Company. However, it has been considerably more volatile than Personal Assets and the Trojan fund in recent years. Some of the difference can be explained by the trust’s willingness to allow its shares to diverge more widely from the portfolio’s actual value. Ruffer also runs the open-ended Ruffer Absolute Return Fund.

Capital Gearing also aims to preserve wealth and make steady returns. The trust benefits from the extremely long tenure of co-manager Peter Spiller, at the helm since 1982. However, the shares stand lower than in summer 2022. The same management company runs the CG Absolute Return Fund.

The experienced investment trust research team at Investec, the bank, said last year, at the time of the tariff crisis, that the wealth preservation trusts had ‘both a strategic role in improving portfolio diversification and undoubted tactical value as global financial markets navigate what threatens to be a very challenging few months’.

A ‘DIY’ diversified portfolio

Most of the funds mentioned above (the exception is Fidelity Global Dividend) are widely diversified – they own a range of different assets, such as shares, bonds and precious metals. You could construct your own diversified portfolio by investing in funds in each of those areas. 

You could, for example, match a global stock market fund such as Legal & General Global Equity Index with a bond fund such as Vanguard Global Short-Term Bond Index and a gold fund such as the iShares Physical Gold ETC. You could add further diversification with a property fund such as iShares Environment & Low Carbon Tilt Real Estate Index or an infrastructure fund such as First Sentier Global Listed Infrastructure. All these funds are on the Select 50. One variation would be to choose a global tracker that has less exposure to America than the L&G fund’s 65.1%; one example, from outside the Select 50, is the Invesco MSCI World Equal Weight ETF, whose US exposure is 41.6%.

‘Low-volatility’ ETFs

Another approach is to buy, via a fund, shares with a history of low volatility. A variety of ETFs allow you to invest in a portfolio of such shares at low cost. Examples include the iShares Edge MSCI World Minimum Volatility ETF (global stocks), the iShares Edge S&P 500 Minimum Volatility ETF (American stocks), the iShares Edge MSCI Europe Minimum Volatility ETF (European stocks) and the iShares Edge MSCI EM Minimum Volatility ETF (emerging market stocks).

Cash funds

You can expect zero volatility from these funds and, at least for now, a positive return even after inflation – something that was not available in the years after the financial crisis when interest rates were kept at very low levels. Also known as ‘money market’ funds, they are not zero-risk because the assets they invest in are not covered by the statutory protection scheme, but they are certainly very low risk.

• Fidelity’s cash and money market funds

More of our latest articles: 

• Read: 4 charts every investor needs when markets fall
• Read: Gold: five of your questions answered
• Read: How far will interest rates fall?
• Read: What Warren Buffett said - and did - during market turmoil

Past performance is not a reliable indicator of future returns

Source: Morningstar from 31.12.20 to 31.12.25. Excludes initial charge.