How to beat the market while still playing it safe: The top ‘boring’ investment

When the going gets tough, the tough can rest assured that the most boring funds in their investment portfolio will protect them from the worst of it.

Racy, high-growth funds that back exciting tech stocks often get a lot of attention, but it is crucial not to forget the importance of including some Steady Eddies in your portfolio too.

Cautious funds may not shoot the lights out when the stock market is soaring, but can protect you during turmoil.

Darius McDermott, managing director at FundCalibre, says: ‘Excitement has its place when you’re investing, but in a world of geopolitical chaos, supply chain disruptions and AI upheaval, investors’ appetite for boring, predictable funds that can weather the storm is growing.’

A boring fund is one designed to be cautious and protect your investment, as well as deliver growth.

By holding a mix of shares, bonds and other assets, these funds won’t be the top performers when stock markets are surging but should shelter you when they take a tumble.

Managers give such funds different labels and operate them in a variety of ways, but the common thread is an aim to reduce volatility.

So-called Volatility Managed funds were the fourth most popular fund category in April, according to the latest figures from industry body the Investment Association, as investors looked for ways to manage their risk levels.

Some £555 million was poured into these funds, which aim to limit the impact of market fluctuations and provide a smooth ride.

That’s hardly surprising after Donald Trump’s ‘Liberation Day’ tariffs announcement sent stock markets tumbling, only for his partial reversal with a 90-day pause to send them back up again.

But if you are thinking longer term and want a stable part of your portfolio that you can rely on through thick and thin, what should you look for?

Ukraine’s 25th Sicheslav Airborne Brigade fire a rocket launch system towards Russian troops

How to choose a boring fund

Choosing a boring fund is just like selecting any other investment: see how it has fared against other similar funds over time; check its investment objectives and how it fits in with your other holdings; and look into the portfolio to see where it puts its money.

Consistency is key. You want a fund that can deliver slow and steady returns year in, year out – be wary of those that have one stellar year and struggle the next.

Laith Khalaf, head of investment analysis at AJ Bell, says: ‘Over the long run, a full-blown equity approach can be expected to deliver higher returns, but in times of turmoil more boring funds come into their own.’

Number-crunching by AJ Bell looked at the performance of the boring funds that have been available to investors since the onset of the Covid pandemic at least. It defined ‘boring’ as predominantly those that appear in one of three cautious fund categories according to the Investment Association.

These are Targeted Absolute Return, which are funds designed to deliver growth in all market conditions; Volatility Managed – funds designed to have limited volatility; and Mixed Investment 20-60 per cent Shares – which are funds that have a relatively small proportion of their portfolio in shares as these tend to be volatile.

The top performers during pandemic panic

A ward for Covid patients at King’s College Hospital in London in 2021. As the Covid pandemic took hold in 2020, global stock markets plunged – but some investment funds did well

As the Covid pandemic took hold in 2020, global stock markets plunged. Between February 4 and the start of the UK lockdown on March 23, the average investment fund lost 21 per cent. The worst performer was down 56.8 per cent.

But 156 funds delivered a positive return during this first bout of Covid volatility.

Short-term government bonds and short-term money market funds did well as people looked for a safe haven.

Some ten cautious funds generated a positive return.

Trium ESG Emissions Improvers fund proved to be the top cautious performer, up 17.5 per cent during the period.

Some of the broader-focused cautious funds that performed best include those in the Mixed Investment 20-60 per cent Shares sector. These have a greater focus on assets such as gold, bonds and property, which may hold up better when markets are down.

Among these, Mr McDermott likes Orbis Global Cautious fund, which ‘has delivered positive returns every year for the past five and brings genuine diversification’. It invests in stocks such as Siemens Energy and Kinder Morgan. It has returned 27.3 per cent over three years. He adds: ‘They may not be flashy, but multi-asset funds offer valuable flexibility, helping them adapt to rapidly changing markets. Their goal is to deliver consistent, incremental returns.’

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