Five funds to watch in 2019
This is a largely UK-focused fund with investments in non-cyclical consumer services companies, which means it could perform well if markets decline further. Schroder Income also has the benefit of holding a number of large-cap UK firms with global operations, which stand to benefit if sterling weakens.
Dividend growth-focused funds tend to exhibit lower volatility than growth-orientated funds, so this fund could potentially be better insulated from a sharp market downturn.
In recent years there has been a considerable dividend yield premium over government bond yields when viewed in a historical context. This allows the reinvesting of dividends to make a favourable difference over time due to the power of compounding.
Merian Gold and Silver
This fund provides exposure to both gold and silver bullion, as well as gold and silver listed securities. This strategy typically performs well when precious metals appreciate or during a bull cycle. Silver typically outperforms gold when both are rallying, providing a further boost to returns compared to gold-only funds.
Gold has also maintained its purchasing power over the long-term despite short-term volatility. One reason that gold should have a place in a diversified portfolio is that it tends to respond positively to events that cause the value of fixed income and equities to fall.
It should provide a supportive backstop if market sentiment wanes further from here.
Royal London Sterling Extra Yield Bond
This is a highly diversified portfolio which focuses on bonds that are supported by stable income streams. This fund should be somewhat protected during times of market turbulence. In recent months uncertainty surrounding economic growth and low interest rates have highlighted the attractions of income-generating assets.
The manager of this fund has over 35 years’ experience, and is well seasoned to deal with market fluctuations and interest rate risk.
First State – Global Listed Infrastructure
Infrastructure typically has stable, defensive and inflation-protected cash flows and capital growth opportunities. Exposure to infrastructure could prove important as we move into a more challenging economic outlook.
This fund performs best in relative terms when markets are falling because of the economic insensitivity of the underlying holdings and the attractive yields on offer. Regulated returns in this sector generally benefit from falls in bond yields.
If there is economic uncertainty we could see a ‘flight to quality’, as investors buy high quality bonds. This could push bond prices up and yields down, which would benefit the fund.
This fund offers a specialist area of the global equity market that is largely under researched and can be used as a low risk diversifier within an equity portfolio.
Baillie Gifford Positive Change
An increasing number of investors think about sustainability and ESG (environmental, social and governance) issues when it comes to their investments, especially as more millennials begin to invest.
This relatively new fund from Baillie Gifford invests in companies whose products or behaviour makes a positive impact in one of four areas: social inclusion and education, environment and resource needs, healthcare, and quality of life.
It is thought that companies that deal with large social and environmental issues also have significant growth potential. Consequently, this could provide potential for sustainable returns to investors over the long term.
This fund arguably offers a vastly different proposition by implementing positive screening processes rather than the negative screening that many traditional sustainability funds use.