Funds to weather a double-dip recession

Published by Andrew Pitts on 28 September 2010.
Last updated on 29 September 2010

Andrew Pitts

If you're worried that the much-mooted double-dip recession will be accompanied by a nasty fall in asset prices, you'll want reassurance that your fund manager has a track record of coping with volatility.

In this respect I'm a fan of investment trusts because they have advantages over unit trusts and open-ended investment companies (OEICs) in good times and bad.

Investment trust managers can gear up, or borrow money, with the aim of generating a higher return than the cost of the loan. Gearing is great in good times, but magnifies losses in bad times too.

New Ucits III funds can achieve something similar by using derivatives to soup up their returns, but they will also charge you a higher annual management charge (AMC) or performance fees, or a combination of the two. 

However, investment trusts, which have a fixed number of shares in issue, will continue to have one clear advantage over their open-ended cousins: they don't need to sell into a falling market to meet redemptions from unit-holders who get cold feet.

In addition, many investment trusts have more leeway to move into lower-risk assets, particularly cash, when times get tough. That's another big reason investment trusts are relative winners over longer time frames.

Investment trust selections

My current investment trust selections for cautious investors encompass several popular sectors. Globally, I like Ruffer Investment, Edinburgh Dragon in the Asia Pacific region and Utilico Emerging Markets.

Closer to home, my picks are Keystone and Standard Life UK Smaller Companies, and BlackRock Greater Europe for continental exposure.

However, many private investors are not comfortable with investment trusts. There are plenty of well-managed open-ended funds, but it's a pretty big universe and relying on past performance alone won't necessarily help you find one.

Digging further into a fund's past performance record can help indicate what future performance might be in another recessionary environment.

To help you on your way, I filtered nine popular sectors for equity-based funds that scored top marks for generating a consistent return over three years, were top quartile in their sector over three years, and had maintained a first or second quartile ranking in the year to 1 August.

They also scored highly for capital preservation, which means they have been good at avoiding the worst of any market fallout.

The full list can be found at But a number of funds have caught my eye. In Asia Pacific and emerging markets, I like Aberdeen Asset Management's Asia Pacific and Emerging Markets.

For a more global remit, try CF Adam Wordwide, McInroy & Wood Smaller Companies and Morgan Stanley Global Brands, while stay-at-home investors could consider Unicorn Asset Management's Outstanding British Companies and UK Income funds.

Meanwhile, SLI UK Smaller Companies gives exposure to fast-growing smaller companies.

The track record of these funds and trusts shows they'll be best placed to avoid the worst of the bad times and capitalise on the good – as and when they arise.

Andrew Pitts recommendations:

Asia Pacific excluding Japan funds

Aberdeen Asia Pacific A 

First State AsiaPacSust A £

First State Grtr Cna Gth A£

First State AsiaPacLdrs A £ 

First State Asia Pac A £ 

Europe including UK

Threadneedle Pan European C1

Global emerging markets

Aberdeen Em Mkts A 

First State Glo Em Mkts A £

First State GloEmMktsLead A £

Global growth

McInroy & Wood Smaller Comp

Morgan Stanley Glo Brand A £

Ecclesiastical Amity Intl A

M&G Global Growth A 

CF Adam Worldwide 

Margetts Grey Intl Equity 

Baring Global Growth GBP 

Jupiter Merlin Wldwd Pf 

Margetts Intl Strategy 

NatWest International Growth

Royal Bank of Scotland Int Gth


M&G Japan A

Royal London Japan A

Jupiter Japan Income 

Pru Japanese Trust 

Japanese Smaller Companies

M&G Japan Small Cos A 

UK all companies

Unicorn Outstdg Brit Cos R 

Royal London UK Mid-Cap Grth

Rensburg UK Mid-Cap Growth

Cazenove UK Opps B 

CF Charles Stanley Equity


Jupiter Growth & Income

Liontrust First Opportunities

Threadneedle UK Mid 250

CF Walker Crips UK HiAlpha 

Jupiter UK Special Situations

NatWest Growth

Royal Bank of Scotland Growth

Fidelity UK Aggressive 


Marlborough UK Leading Cos

CF Walker Crips UK Growth 

AXA Framlington UK Sel Opps

IFDS BS UK Flagship A 

UK equity income

Schroder Income

St James Equity Income 

Unicorn UK Income A 

BlackRock UK Income 

CF Walker Crips Eq Inc 

CF OLIM UK Equity 

Royal Bank of Scotland Income

AI UKR UK Equity Income SCA

NatWest Equity Income

Threadneedle UK Eq Income C1

CF TY Eq Inc 

Neptune Quarterly Income A 

UK smaller companies

SLI UK Smaller Cos Ret 

AEGON UK Smaller Companies A A

Marlborough Special Situations

As at 1 August 2010

Andrew Pitts is the editor of Moneywise's sister magazine Money Observer

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