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Fund Options for Cautious Investors

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Starting investing early has helped Anitta Aminoff on to the property. At just 26, she has recently bought her first home in London with her fiancée.

“I have kept a small investment portfolio for around 10 years. My father advised me to invest, even when I only had small sums to put aside each month,” she says.

Intitally she followed her parent advice on her investments, but more recently Anitta has started to make more decisions for herself, using ideas put forward by her fund supermarket Chelsea Financial Services. Anitta describes herself as quite risk averse and doesn't like the idea of her investments falling in value, but so far her choices have been quite successful. 

Even now she has achieved her goal of getting on to the property ladder, Anitta, who works for a global firm in project management, still puts a monthly sum into her Isa. She says: “Hopefully this will help us move up the property ladder in the next 10 years.” 

Alongside this she also invests in a pension, where deductions are taken directly from her salary. Here she takes a bit more risk as she views her pension as a longer-term investment than her Isa. 

Cautious Fund Choices 

Anitta largely invests in Absolute Return funds in her Isa. These are typically cautiously managed funds that often have a lower exposure to equity markets and aim to deliver a positive return across the market cycle. To do this many of these funds invest in derivatives and other tools that allow them to "short’ markets" and, in theory, make money when prices fall.

While these funds may limit losses and shore up savings in market downturns, they will lag more adventurous funds in bull markets. However, it is important to note that despite the name, these "absolute" returns are not guaranteed and some funds in this sector have failed to deliver in recent years.

Anitta has been pleased with the performance of her holding in Janus Henderson UK Absolute Return, which has a Bronze Morningstar Analyst Rating. She especially liked that the fund performed well in the last recession: “It also protected my money at the end of 2018 when the market was down a lot, which was reassuring.”

Indeed, the fund's managers aim to add value through long-term fundamental research and via shorter-term trading opportunities. “They take long positions in firms that can deliver earnings growth in excess of market expectations over the medium and long term, while shorting stocks where earnings are priced in, or where the terminal value is impaired," says Morningstar analyst Fatima Khizou. “[This fund’s] experienced management duo and disciplined investment approach continue to make it a worthy long-biased choice in the absolute returns space." 

Over the past three years the fund has delivered annualised returns of 1.65%, and 2.76% over the past five years.

Alongside this fund, Anitta also invests in TwentyFour Absolute Return Credit, another fund that aims to deliver positive returns through different market cycles. However this fund does not invest in equities at all, and is purely a portfolio of bond and fixed interest investments. Anitta says this reflects her more cautious stance and allows her to “hedge her bets a bit more”.

Long-Term Investing

Anitta does take a little more risk with her pension and currently her largest holding is in the Royal London UK Equity Income fund. She says: “This fund has a great long-term track record, and as a company Royal London are doing a lot of good things on sustainable investment, which I like.”

This fund has a Silver Morningstar Analyst Rating and a four star performance rating, reflecting its strong returns relative to peers in recent years. Morningstar analysts rate its manager Martin Cholwill as being highly experienced and "consistently employing a proven approach". 

Cholwill has more than 35-years’ investment experience and has been managing UK equity-income strategies since 1996. Morningstar analysts add: “Cholwill makes good use of this experience to assess companies’ prospects in a pragmatic way.”

The fund’s strategy is “relatively straightforward but sensible” according to Morningstar, and focuses on delivering an attractive yield and competitive total return. “He targets companies with strong free cash flows that provide the opportunity for rising dividend payouts.”

Anitta has not had any “out-and-out disasters” in her investments to date, but some funds have underperformed. For example, she invested in JPM Global Macro Opportunities. Rated Neutral by Morningstar analysts, Anitta says the fund “had really great performance for year, but that was it” and she decided to sell after a while.

“It was a good learning opportunity for me," she says. "Fortunately I have quite a well diversified portfolio, so if one or two funds underperform it doesn’t hit the overall valuation too much, and I can take steps to address the issue.”

Anitta is interested in sustainable investments but has not in recent years significantly altered her investment strategy to reflect this. 

She adds: “Issues like Brexit might have affected some investors. But as I’ve always been risk-averse this hasn’t been a particular problem for me.

“However, with the UK market down at the end of the last year, and a degree of uncertainty remaining I feel it’s a good time to take a bit more risk on my pension fund. I hope that, long term, taking risk now will pay off.”