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The third quarter was eventful to say the least. It featured major financial institutions failing or requiring government assistance in the US (Fannie, Freddie, AIG, Wachovia), Europe (Fortis, Dexia), and the UK (Bradford & Bingley). We are, to be blunt, in the midst of a financial crisis of historic proportions and have seen major developed market indices swing around by more than 8 per cent in a day, and the MICEX in Russia move by as much as 23 per cent in a day.

The quarter was marked most of all by extreme volatility in the financials sector but, on a three-month basis, it was actually slowing global growth and a resulting massive slump in resources shares that hurt the most. Investors shunned risk, and funds that favoured large caps over small caps, defensive sectors such as health care and biotech, and high-quality government debt over corporates and high-yield issues fared much better than peers that did not.

Given this environment, it's worth seeing how Balanced Managed funds held up. More specifically, which protected capital, and which did not?

We'll put “winners” in quotes here because unless you had a large bet on the US dollar, invested heavily in biotech or healthcare, or were substantially short the market, you probably lost money. Only three funds beat a simple combination of 50 per cent MSCI World and 50 per cent Lehman Sterling Aggregate Bond index. This is partly down to the MSCI World having a large US exposure in a period when the dollar surged against sterling, but it isn't very encouraging for a sector that is described as “balanced”.

The top-five funds in the period were CF Arch Cru Balanced, Troy Trojan, CF Miton Special Situations, Fidelity Moneybuilder Balanced, and JP Morgan Balanced Total Return. That doesn't mean that they are the best funds - three months of performance can't tell you that. Of these, CF Miton Balanced is as at least worth a look from cautious investors. Its TER of 2.5 per cent is high for our tastes, but it does offer multi-asset exposure and has done a very good job of balancing returns and risk through time. We find Fidelity Moneybuilder Balanced's low TER of 1.18 per cent much more appealing, but we haven't seen enough of what the recently appointed equity sleeve manager Matt Siddle can do yet to have a strong view on his capabilities.

The worst performers in the quarter contain few surprises. MFM CFS Opportunities rode its large stake in micro-cap issues to a staggering 22.5 per cent loss. The rest of the bottom four are: Scottish Friendly Managed Growth, CF BWH International, New Star Balanced, and CF OPM Balanced Managed. The New Star offering appears to have been hurt by a low allocation to US equities and from a holding in Bill Miller's Legg Mason Value, which had heavy exposure to hard-hit financials, within its US stake. Although not in the bottom five, one of the sector's better long-term performers, Neptune Balanced, was hurt in the quarter by exposure to Russia and resources issues. We think highly of Robin Geffen's ability to navigate risky areas, but the exposure clearly makes the fund less appropriate for investors seeking stability.