Low, medium or high – which way should risk investors go?

Rob Burdett, co-head of multi-manager at F&C Investments:

Low risk – Morgan Stanley Diversified Alpha Plus

This fund deliberately targets uncorrelated macro views to provide an overall mix that is likely to give a far smoother return than many funds. Investment decisions still need to be strong and the team behind this fund have proven themselves over time. With bonds looking less of a safe haven than usual, a different approach such as this appeals.

Medium risk – Artemis Strategic Assets

Targeting equity returns with bond risk, this fund managed by William Littlewood looks well placed to deliver in the variable conditions we have around the world right now. We like the fact that William designed the fund brief along the lines he was running his own money.

High risk – Rathbone Global Opportunities

James Thomson recently celebrated 10 years on this fund with second place in the sector. It is a go (almost) anywhere, bottom up, thorough stock-picking fund looking for undiscovered gems. James focuses on calculated risks for high returns, with 20 per cent reliable defensives to offset the more volatile exciting growth stories.

Ian Aylward, head of multi-manager research at Aviva Investors:

Low risk – Marshall Wace Developed Europe TOPS

This fund has low levels of equity market beta but many offsetting long and short European equity positions. Such a construct does especially well when stock dispersion rises and fundamentals assert themselves. The TOPS engine collects stock recommendations from the finest of the sell-side community and analyses it in complex ways to arrive at ideas to go short that are expected to fall in value and ideas to go long that are expected to rise in value.

Medium risk – Pimco

Capital Securities

This is a niche fund focusing upon the esoteric area of fixed income instruments issued by banks. As a result of deleveraging and Basel III regulations, banks are having to increase the amount of capital they hold and increase their leverage ratios. This is resulting in a deep and varied number of subordinated bond issues within the Tier One and Tier Two categories with a multitude of complex nuances with regards to triggers. Regardless, demand for income remains high and banks are well on the way to repairing themselves and being attractive investments again.

High risk – BlackRock Emerging Europe

Being heavily exposed to Russia, the valuation readouts on this region, and hence the fund, are low (at roughly 11x). While perceptions of Eastern Europe are of poor governance and questionable capitalism, everything has its price and the region is now one of the cheapest globally. This is in spite of the many decent stocks with good managements that exist there. Manager Sam Vecht has a proven ability to identify decent stocks in this challenging region.

Sheldon MacDonald, senior investment manager at Architas

Low risk – Ignis Absolute Return Global Bond fund

This fund targets a 6 per cent return with a low volatility. Investing in rates, inflation, foreign exchange and volatility assets. The approach is macro-oriented, but utilises proprietary forward rate analysis to find opportunities. The managers have successfully navigated both rising and falling sovereign bond markets and continue to provide good diversification within multi-asset portfolios.

Medium risk – Jupiter Global Convertible Bond fund

Convertibles are a ‘halfway house’ between equity and debt, providing upside exposure with downside protection. This is a solid and conservative fund and the research process is preoccupied with identifying quality to avoid any blow-ups. It is run by experienced managers who control the delta (equity exposure) actively and have successfully positioned the fund in recent years.

High risk – Fidelity Emerging Markets fund

Emerging markets are the traditional high-risk choice, but this fund offers a slightly more conservative way to invest in the space. Fidelity’s approach seeks companies with growing and sustainable earnings over an 18-24 month horizon. This leads to a portfolio with a quality bias relative to its peer group and lower volatility than the broader index.

David Hambidge. director of Premier Multi-Asset Funds

Low risk – Kames Absolute Return Bond

This fund looks to produce both an absolute return while also outperforming cash over rolling three to five-year periods, irrespective of market conditions. Volatility has been very low since the fund’s launch in September 2011, and to help achieve this, the manager is able to invest in a wide range of global debt instruments.

Medium risk – Charlemagne Magna Emerging Markets Dividend fund

Emerging market valuations appear attractive once again following several years of lacklustre returns. While the sector is normally considered higher risk, the volatility of this fund is considerably lower than the index. And investors can also enjoy a healthy dividend, of currently roughly 4.7 per cent, while they wait for a recovery to take hold.

Higher risk – F&C European Small Cap fund

This fund invests in European mid-sized and smaller companies with the manager focusing on high quality businesses, with the price paid being a key factor in the success of any given investment. European smaller companies have produced strong returns in the last few years, although this fund is nimble enough to exploit further opportunities from a sector that is generally a happy hunting ground for good stockpickers.

Bambos Hambi, head of fund of fund management at Standard Life Investments

Low risk – Standard Life SICAV Absolute Return Bond Strategy

We have actively sought to reduce duration across our portfolios given the current interest rate environment. This fund also provides the managers with the scope to invest globally and manage duration between -3 and +5 years. This strategy is not without risk, in the event of the yield curve flattening, but we feel that this flexibility will be important at some point in the cycle.

Medium risk – Artemis European Opportunities

During 2013, we gently added to our exposure in European equities primarily through a new investment in Mark Page and Laurent Millet’s fund. While they tend to favour growth companies they have demonstrated over several years their ability to generate positive relative returns across all market cycles. Joining Artemis appears to have increased their ability to generate alpha.

Higher Risk – Schroder Tokyo

Andrew Rose is a prudent and experienced investor in Japanese equities but it nevertheless remains a high-risk asset class. Prime minister Shinzo Abe’s first two arrows helped produce stellar returns in 2013 for investors and this momentum is likely to continue. However the third arrow, structural reform, will be more important to long term economic growth as well as being harder to implement.