Bull and bear pairs: nine high-risk and low-risk fund couplings

Making the case for the bulls are anticipated interest rate cuts, an economy that appears to be on a stable footing and low unemployment.

Making the case for the bears are relatively high stock valuations, looming elections and the chance that recession may not be avoided.

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With plenty to be positive about and numerous risks on the horizon, it makes sense to have a foot in both camps – and it’s a strategy that has merit throughout the market cycle.

“Pairing funds is a great way to invest,” says Fairview Investing director Ben Yearsley.

He adds: It doesn't matter whether it’s a style pairing (growth and value) or market cap (small and large), what you’re looking for is funds with different drivers.”

Below, wealth managers and analysts suggest nine bull and bear pairs for exposure to different regions.

Adventurous: Edinburgh Worldwide
Cautious: Ruffer Investment Company

Ewan Lovett-Turner, head of investment companies research at Deutsche Numis, suggests Edinburgh Worldwide Ord (LSE:EWI) as an adventurous global pick. While its growth style and focus on smaller companies fell out of favour as interest rates rose, the outlook may be brighter.

“The largest holding is an unquoted position in SpaceX, an exciting company that has seen rumours about its Starlink satellite constellation and communications business floating when earnings stabilise,” he says.

The fund provides “highly differentiated exposure”, primarily to healthcare and technology such as a company making adjustable intraocular lenses and a quantum computer developer.

He pairs this with Ruffer Investment Company Ord (LSE:RICA), which has a capital preservation mandate and an “impressive” record of consistent growth with low volatility.

“The managers are wary of market concentration and have built a portfolio of ‘ugly duckling’ assets that they believe can turn into swans. These include growth assets such as UK and Chinese equities, as well as protections bought at multi-decade lows such as gold and the yen,” adds Lovett-Turner.

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Adventurous: BlackRock Global Unconstrained Equity
Cautious: Personal Assets Trust

James Igoe, head of Redmayne Bentley’s Manchester office, suggest another global pair in the form of the BlackRock Global Unconstrained Equity Fund and Personal Assets Ord (LSE:PNL) Trust.

Alister Hibbert manages several funds at BlackRock including Igoe’s suggestion and the BlackRock Strategic Equity Hedge fund.

As Hibbert takes out short positions, seeking to profit from share price falls, in other funds he manages, Igore says this gives the BlackRock Global Unconstrained Equity fund “vital intelligence” in order to “compound their conviction” in the sectors and shares they are positive on.

Personal Assets seeks to preserve investors’ capital. “The approach is conservative with attention paid to downside risks,” adds Igoe. “All board members are shareholders in the trust.”

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Adventurous: Fidelity Index US
Cautious: Polar Capital Global Insurance

Fairview Investing’s Yearsley plumps for two very different funds for US exposure, which he deems suitable for virtually every portfolio.

Fidelity Index US tracks the tech-heavy S&P 500. “With the Magnificent Seven at the top, you’re getting pretty impressive earnings but also a stark reaction when earnings disappoint,” he says.

“Interestingly, the only non-tech stock in the top 10 holdings is Berkshire Hathaway Inc Class B (NYSE:BRK.B) – one of the biggest insurance conglomerates and surprisingly only a small position in Polar Capital Global Insurance.”

The fund buys specialist insurance companies, such as reinsurers and catastrophe insurers, and typically has about 70% in the US.

“It’s delivered double digits year in, year out,” says Yearsley. “The managers reckon share prices follow book value and think 16% book value growth is reasonable for the next few years. You don’t need to be an AI stock to deliver stellar returns.”

Adventurous: Fidelity Special Situations
Cautious: WS Lindsell Train UK Equity

For adventurous exposure to the UK, Kamal Warraich, head of fund research at Canaccord Genuity Wealth Management, opts for Fidelity Special Situations, a contrarian value strategy with a structural bias towards small and mid-cap (SMID) companies.

It blends this with WS Lindsell Train UK Equity, which adopts a buy-and-hold approach to high-quality companies. Manager Nick Train likes durable franchises that can compound at sustainable rates over time. “This typically biases the portfolio to defensive assets, notably within the consumer staples sector – a profile that has typically led to downside protection and lower volatility than peers,” says Warraich.

“Fidelity’s tendency to capture value rotations and SMID-cap rallies complements Lindsell Train’s defensive profile and together, this blend has the potential to generate strong risk-adjusted returns throughout the cycle.”

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Adventurous: Liontrust Special Situations
Cautious: Royal London Short Duration Credit

Redmayne Bentley’s Igoe likes the cross-market cap exposure afforded by Liontrust Special Situations, which is run by an “extremely successful long-term investor” in Anthony Cross.

“The portfolio valuation remains compelling at 12 times earnings, as does the multi-cap mix of holdings, which gives investors exposure to oversold small-cap positions as well as large-cap bellwethers,” he says.

He pairs this higher-risk proposition with the lower-risk profile of a short-duration bond fund - RLBF II Royal London Short Duration Credit. “The fund’s average duration is three to five years, which is compelling given short-term credit yields,” adds Igoe.

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Adventurous: The European Smaller Companies Trust
Cautious: BlackRock Continental European Income

The analyst team at interactive investor suggests a trust and fund pairing for European exposure. Fund analyst Alex Watts likes The European Smaller Companies Trust PLC (LSE:ESCT), run by Janus Henderson’s Ollie Beckett.

“Its focus on smaller companies, elevated gearing and contrarian streak can make for a volatile performance profile, but despite trading at a notable discount, the team has consistently delivered benchmark and peer-beating returns,” he says.

Fellow fund analyst Tom Bigley suggests pairing this with BlackRock Continental European Income, a Super 60 pick focused on quality companies with sustainable and growing dividends.

“The fund’s quality bias and style-agnostic approach means returns differ from most equity income peers, which tend to have a value bias,” he says. “The approach leads to a steadier return profile and outperformance during periods of market weakness, with strong risk-adjusted returns compared to peers and the benchmark.”

Cautious: abrdn Asian Income
Adventurous: VietNam Holding

James Carthew, head of investment companies at QuotedData, suggests an Asia-Pacific pair: the riskier VietNam Holding Ord (LSE:VNH) and the more cautious abrdn Asian Income Fund Ord (LSE:AAIF).

He points to the “impressive” 10-year track record of the Vietnamese equity trust, having “delivered returns that are a multiple of local and regional indices”, and the exposure it offers to one of the fastest-growing economies in Asia.

“Its success reflects a thriving manufacturing sector. Its domestic economy is being transformed too as its cities grow, consumers have more disposable income, and companies embrace modern technology,” says Carthew.

Meanwhile, abrdn Asian Income pays a covered dividend from a portfolio of quality companies with strong balance sheets and sustainable earnings.

Carthew adds: “The requirement to pay a dividend gives the portfolio a value tilt, but the managers favour sectors that offer structural growth. Fortunately, as they pay dividends, it can still have a reasonable allocation to Asia’s technology giants such as Taiwan Semiconductor Manufacturing Co Ltd ADR (NYSE:TSM) and Samsung Electronics Co Ltd DR (LSE:SMSN).”

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Adventurous: JPMorgan Japanese
Cautious: CC Japan Income and Growth Trust

Anthony Leatham, head of investment trust research at Peel Hunt, looks to the Japanese equity sector, which has delivered a wide range of performance outcomes in recent years. Investors could benefit from taking a mix of approaches and pairing JPMorgan Japanese Ord (LSE:JFJ) with CC Japan Income & Growth Ord (LSE:CCJI), run by Chikara Investments, he says.

The JPMorgan trust targets innovative, high-quality growth companies. Its forthcoming merger with JPMorgan Japan Small Cap Growth & Income (LSE:JSGI), expected to conclude this month, could result in a combined entity with net assets of £1 billion.

“As well as benefiting from increased scale, liquidity and cost efficiency, the board also intends to review its dividend policy and consult with major shareholders,” he says.

The Chikara trust targets quality-growth businesses across three categories: dividend growth, stable yield and special situations. It has an unbroken record of consecutive annual dividend increases since launch in December 2015.

“The trust screens well with consistent outperformance and average NAV [net asset value] volatility that is lower than the peer group,” adds Leatham.

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Adventurous: Stewart Investors Indian Subcontinent Sustainability
Cautious: FSSA Global Emerging Markets Focus

In emerging markets, FundCalibre managing director Darius McDermott pairs a well-diversified fund with a more focused one.

Stewart Investors Indian Subcontinent Sustainability invests in companies that have major operations in India, Pakistan, Sri Lanka and Bangladesh, with most investments being in India.

“The strategy has a unique but highly effective process, with a heavy emphasis on stewardship and long-term investing,” says McDermott. “The management team has delivered impressive performance over a long time.”

FSSA Global Emerging Markets Focus has a much larger universe. From some 36,000 stocks, it selects 40-45 best ideas.

McDermott points out: “Each holding is a quality company that can show sustained and predictable growth and to ensure the portfolio remains well-diversified, no single country weighting can be more than 30%, and frontier country weights are limited to 10%.”

At a sector level, no more than 40% can be invested in any one sector or 50% for consumer products and financials due to the number of opportunities these present.