As we approach the later stages of the market cycle, Gary Potter, co-head of multi-manager at BMO Global Asset Management, believes it is crucial to hold a number of funds in your portfolio that display a low correlation to mainstream asset classes, such as equities and bonds.

While Potter and the team remain cautious on markets, they highlight a few parts of the market which look defensive. These asset classes also offer investors the prospect of diversification and an attractive income.

“We like things that are uncorrelated and can stand on their own two feet in whatever environment,” he said.

As the significant sell-off in markets during the fourth quarter of last year showed, correlations can quickly rise when markets come under pressure – and Potter is concerned that further volatility could lie ahead.

“There are assets around where the asset-base powers the 5-7 per cent yield per annum. That is fine in a world where asset returns are probably going to come down and not go up,” he added.

If you are looking to make your portfolio even more diversified, here are three funds that are held across BMO’s multi-manager range which could be worth considering:

Darwin Leisure Property

This £590m fund invests in UK camping and caravan parks and aims to provide investors with stable returns over the long-term. According to FE Analytics, the fund has returned 27.3 per cent over the past three years, which compares to 16.9 per cent by the average fund in the FO Property Europe sector.

Over the past five years, the strategy has posted an annualised performance of 9.5 per cent – above its 8 per cent target.

SQN Asset Finance Income

This listed fund which invests in equipment leasing and asset finance. It aims to provide investors with a regular income and capital growth over time. Over the past 12 months its share price has risen by 8 per cent, which compares to 1.9 per cent by the average investment trust in the Association of Investment Companies’ leasing sector.

Amedeo Air Four Plus

This is another listed fund which acquires, leases and sells aircrafts to airlines such as Emirates, Etihad and Thai Airways. Over the past three years Amedeo Air Four Plus, which has a market cap of £617m, has seen its share price rise by 18.5 per cent. It offers investors an impressive dividend yield of 8.6 per cent.