Investors should consider defensive strategies such as Troy’s Trojan fund as well as those offering exposure to gold and bonds when preparing portfolios for a ‘second wave’ of the coronavirus pandemic, according to Willis Owen’s Adrian Lowcock. 
While some parts of the world including the UK are currently easing the lockdowns put in place to slow the outbreak, it is clear that the pandemic is far from over. The World Health Organization yesterday said that 230,370 new coronavirus cases were recorded over the previous 24 hours – which represents a record rise in global cases.
The bulk of these cases were in the Americas (142,992) as the US, Brazil and Mexico are currently at the epicentre of the pandemic, although 33,173 cases were recorded in south-east Asia, 18,804 in Europe and 17,884 in Africa.
Lowcock, head of personal investing at Willis Owen, said: “Widespread central bank stimulus and government support have driven the stock market rally over the last few months, but the crisis might be not be over. Whilst expectations for a V-shaped economic recovery remains the most popular, it is also the most optimistic.
“There are concerns that the gradual easing of restrictions may have to be reversed. A second lockdown would have more serious economic consequences and impact the profitability of companies, even though policymakers appear committed to delivering whatever stimulus is needed to get us through this crisis.”
Performance of asset classes in 2020
Source: FE Analytics
When it comes to portfolio construction, Lowcock said investors need to remember the importance of diversification in challenging market conditions. Not all asset classes move in lock-step and some assets can protect portfolios when stock markets are falling.
“How much diversification you have is up to you but as a rule of thumb, it’s good for a portfolio to have somewhere between 10 to 20 funds to give exposure to every major asset class and differing investment styles”, he added.
A second tip is to focus on the long term. The events of 2020 have shown that market turning points can be sudden and dramatic; Lowcock said investors are often best off if they drip-feed money into the market, rather than trying to time it with bold portfolio moves.
His final point of advice was the need to keep calm as market sell-offs tend to be “indiscriminate and driven by fear”. However, they can offer a buying opportunity for patient investors who have avoided panicking.
Given the above, Lowcock highlighted three funds that investors might want to consider when preparing portfolios for a second wave.
Absolute return - Trojan
Absolute return strategies aim to deliver a positive return regardless of market conditions. While this sounds ideal for diversifying portfolios, funds in this space have had limited success.
Performance of fund vs sector and index in 2020
Source: FE Analytics
However, Lowcock likes FE fundinfo Alpha Manager Sebastian Lyon’s £4.9bn Trojan fund. It resides in the IA Flexible Investment sector but like all the funds run by Troy Asset Management has capital preservation at its core.
During 2020 so far, the fund has made a top-quartile total return of 5.29 per cent with a maximum drawdown of 7.45 per cent (compared with 32.73 per cent for the FTSE All Share).
“The Trojan fund aims to preserve capital, though this is not guaranteed,” Lowcock said. “It has a flexible approach and invests in a wide range of assets including government bonds, corporate bonds, shares, private equity, precious metals and cash.”
The fund has an ongoing charges figure (OCF) of 1.02 per cent.
Gold – BlackRock Gold & General
Gold is seen as a classic safe haven and tends to perform well when equities or bonds are falling. This has been the case in 2020, when investors flocked to yellow metal as the coronavirus crisis took hold.
Performance of fund vs sector and index in 2020
Source: FE Analytics
“While gold is currently trading near a record high, the sheer scale of monetary stimulus globally suggests it could set a new high this time around,” Lowcock said.
“BlackRock Gold & General invests worldwide in leading gold miners. Managers Evy Hambro and Thomas Holl have a disciplined approach, focus on valuation analysis and look for companies with the best exposure to commodity prices within an acceptable level of risk.”
The £1.5bn fund has made a 42.60 total return over 2020 to date, with a maximum drawdown of 21.91 per cent. It has a 1.17 per cent OCF.
Bond – M&G Global Macro Bond
Lowcock’s final fund pick for a second wave is a bond fund, reflecting fixed income’s traditional role as a diversifier from stocks.
“The fixed interest element of a bond can underpin total returns, though company defaults are still a risk. Government bonds have historically performed well in times of market stress, helped by government quantitative easing programmes,” he said.
Performance of fund vs sector in 2020
Source: FE Analytics
He likes the £1.3bn M&G Global Macro Bond fund, which has a ‘go-anywhere’ approach across global fixed-income markets. “Manager Jim Leaviss positions the fund aggressively to where he sees the best opportunities,” Lowcock added.
The fund is up 11.95 per cent over 2020 to date, putting it in the first quartile of the IA Global Bonds sector. Its maximum drawdown has been just 1.45 per cent, which is the second lowest in the 185-strong peer group.
M&G Global Macro Bond has a 0.78 per cent OCF and is yielding 1.17 per cent.