We recognise that many investors prefer to buy funds rather than individual company shares and often miss out when various investment experts give their top picks for the year ahead as these tend to solely focus on equities.

As such, we’ve asked Ryan Hughes, head of active portfolios at AJ Bell, to select four of his favourite funds with the criteria that they need to suit the anticipated market environment in 2019.

Hughes has worked in various fund-related roles for nearly 20 years and now oversees all actively managed investment solutions and fund research at AJ Bell.

ONE FOR CAUTIOUS INVESTORS

Janus Henderson UK Absolute Return (B5KKCX1)

Finding cautious areas to invest over the next 12 months may well prove to be challenging particularly with corporate bonds remaining unappealing given the potential for interest rates to increase.

Equally, UK equities may well be challenging given Brexit issues so the flexible approach of the Janus Henderson UK Absolute Return fund could be useful. The fund has achieved 3.15% annualised trailing returns over the past five years, according to Morningstar.

With the ability to be both long and short (benefiting from share price increases and decreases respectively), if equity markets continue their recent volatility into next year, protecting capital may be a greater consideration than outright growth.

If that is the case, managers Luke Newman and Ben Wallace have proven before that they have the skillset to profit when markets become difficult.

While it’s not a cheap fund with a 1.06% ongoing cost, if the managers manage to deliver a positive return when the markets are down, they will have earned their fees.

ONE FOR BALANCED INVESTORS

Newton Global Income (B8BQG48)

Given the uncertainty heading into 2019 with signs of an economic slowdown taking place in many parts of the world, focusing on a fund with a proven and repeatable investment process may be a sensible move.

The Newton Global Income fund has a simple approach that looks at large companies which offer a dividend yield of 25% greater than the FTSE World Index and then selling them when that yield has come back in line with the market.

Focusing on high quality, cash generative companies – current large holdings include Cisco, Unilever (ULVR) and Diageo (DGE) – tends to offer defensive characteristics when markets become volatile.

Importantly the strategy over time looks to deliver steady long term returns underpinned by the dividend yield which is in the region of 3%.

Over the past five years the fund has achieved 12.23% annualised trailing returns, according to Morningstar, versus 10.6% from the benchmark MSCI World High Dividend Yield index.

The fund is tried and tested with manager Nick Clay very experienced which makes this fund a solid core holding for an investor with a medium risk appetite.

The code for the version which pays out dividends in cash on quarterly basis is B8BQG48 while there is also a version which rolls up dividends so you automatically own more fund units, under the code B7S9KM9.

ONE FOR ADVENTUROUS INVESTORS

Polar Cap Global Insurance (B5339C5)

Insurance never sounds like the most exciting of investment ideas but in many ways that’s precisely the appeal.

It’s a sector that often goes under the radar but insurance companies have a fantastic ability to generate cash regardless of the economic environment, as we all know through our ever increasing insurance premiums.

Polar Cap Global Insurance is highly unusual in focusing on this area but the team are experts in this specialist field and this comes through in the quality of management.

The strategy has relatively low correlation with global equities, and actually benefits from rising interest rates unlike many sectors and therefore adds useful diversification to an existing portfolio of traditional equities.

Some of the top holdings include Marsh & McLennan, Chubb and Alleghany. The portfolio currently has a bias towards US-listed stocks which represent 69% of all holdings. However, it is free to look across the international insurance sector.

The fund has achieved 14.42% annualised trailing returns over the past five years, according to Morningstar, versus 9.63% from the MSCI World/Financials index.

ONE FOR INCOME SEEKERS

Troy Trojan Income (BZ6CQ17)

UK equities have been well and truly out of favour not just with UK investors but with overseas investors too. This has seen many traditional UK equities sell off to the point when many are yielding well above long term levels such as GlaxoSmithKline (GSK), British American Tobacco (BATS) and Vodafone (VOD).

The Troy Trojan Income fund is managed by Francis Brooke. He takes a long term approach with an aversion to capital losses which gives a focus on companies that others are shunning. As a result, this UK equity income fund with a strong long term record is now yielding over 4%.

Should Brexit take a turn for the worse, this fund is defensive and may offer some protection from any sharp equity falls in the UK market.

By Ryan Hughes, head of active portfolios, AJ Bell

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