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After a dismal first half of the year, investors will be looking for fund managers who can cope with the difficult market circumstances. It is time to think once again about some of the balanced funds that did well earlier in the decade.

One manager I have mentioned before in this column is Ruffer Investments. It did extremely well in the bear market of 2000-02 thanks to the long-term pessimism of its founder Jonathan Ruffer. Inevitably, that meant the firm faltered in the more bullish conditions of 2003-06. But the group has come back into its own over the past year, thanks to the credit crunch.

Over the 12 months to end May, Ruffer’s Total Return was fourth out of 100 funds in the cautious managed sector. I suspect that strong relative performance will have been sustained in June, since the price of the fund’s accumulation shares rose slightly, at a very difficult time for equity markets. A quick look at the portfolio finds that the fund has a heavy weighting in index-linked bonds (particularly the US government’s offerings, which have a higher real yield than the UK version) along with some safe haven allocations to Swiss government bonds and gold.

The Ruffer fund will not make clients rich. But since launch in September 2000 the fund has delivered returns of 120 per cent, compared with just 30 per cent for the FTSE All-Share so it has performed a very useful job in this frankly awful decade for markets (the worst for US stocks, in nominal terms, since the 1930s).

A more recent offering (in the sense that it was relaunched in April 2004) is Newton’s Absolute Intrepid fund. It has a rolling target of beating cash by 4 per cent a year over a five-year period and is managed by a shrewd veteran called Iain Stewart. The Intrepid fund has returned around 70 per cent since launch, beating the 50 per cent or so achieved by the FTSE World index. More to the point, it has made a minimal loss this year when equity markets have been showing negative returns in the double digits.

As at the end of May, Mr Stewart was playing things fairly cautiously with cash holdings of more than 36 per cent within the fund. In the equity portion of the portfolio, he had no exposure to media, barely any to real estate or general financials, and a big underweight position in banks. The defensive plays of telecoms and pharmaceuticals made up a quarter of the fund.

Then there is Personal Assets Trust (for full disclosure, I have shares in this fund and in a quoted Ruffer vehicle) where Ian Rushbrook had up to 80 per cent of the trust in cash last autumn and still, on the basis of a 26 June declaration, has 50 per cent of the fund in liquid assets today. It might seem odd to pay a manager a fee for such a high cash weighting, but the aim of the fund is capital preservation and the fund is easily outperforming the All-Share this year.

What is good about these types of funds is that they have some flexibility. The problem with specialist funds is that, if they have a Chinese equity mandate, they must buy stocks in Shanghai, regardless of whether that market looks like a bubble. But the likes of Mr Stewart and Mr Ruffer can act in loco parentis for the investor, switching out of markets they consider overvalued.

Of course, asset allocation is a difficult art. The chances are that managers who are good in bearish conditions will underperform in bullish ones and vice versa. But one of the secrets of long-term investing is the art of avoiding disasters, those 50 per cent hits to the portfolio from which it is almost impossible to recover. Having a cautious fund in the portfolio is a form of protection against such devastating losses.