10 low-risk investments for beginner investors

Experts pick their top low-risk funds

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Risk Reward Graph

If you're just about to dip your toe into the investment waters you may not have the confidence to take-on high-risk, complex investments just yet, so here are 10 low-risk funds to consider as you start your investment journey.

There are no investments that are totally risk free and if you want a reward you must be prepared to take some risk; the higher the risk, the higher the reward.

Justin Modray, founder of Candid Financial Advice, said investors should not pick just one fund.
'A single fund is seldom a sensible one-stop for cautious investors, it is better to combine several different asset types that are unlikely to all move in the same direction at the same time,' he said.

Fund picks:

AXA Framlington Managed Balance

Richard Peirson has been the manager of this fund for over 25 years and in the last three years has returned 36.3%.

Adrian Lowcock, head of investing at AXA Wealth, said while Peirson has responsibility for the UK stock selection he relies on wider company input for overseas investments.

"Pierson takes a 'keep it simple' approach and looks for growth at a reasonable price," said Lowcock.

"The fund is suitable for more cautious investors due to its diversified approach. Although outperformance is often driven by exposure to mid-sized and smaller companies, although this is strictly limited to 20% of the portfolio."

CF Woodford Equity Income

Run by veteran fund manager Neil Woodford, this fund launched last June, and has returned 3.6% over the past three months.

Modray said this is "potentially higher risk" as it invests in the stockmarket but "Woodford has an excellent proven track record of growing capital over five to 10 years".

"His focus on income also tends to give the fund a natural defensive bias, with substantial holdings in tobacco and pharmaceutical companies that might be expected to weather stockmarket storms better than most," he said.

Fidelity Strategic Bond

This fund invests in corporate bonds, a type of debt issued by companies that pays a 'coupon' or interest rate, and aim to return the capital loaned at a certain time in the future. Bond have their own degree of risks but are generally seen as safer than investing in shares.

The Fidelity Strategic Bond fund is managed by Ian Spreadbury and returned 25.3% over the past three years.

Modray said investing in bonds can "be a good hedge against stockmarkets" for investors who don't want to fully commit to equity investing.

"I like the fact the manager has the flexibility to invest in a very wide range of bond-type investments, which many help reduce downside if bond markets struggle," he said. "The manager tends to be more cautious than some other strategic bond pickers."

Standard Life Global Absolute Return Strategies

This fund invests in a mixture of equities and bonds along with 'derivatives' – which are investments that hedge risk – to create "a highly diversified portfolios", said Lowcock.

The manager Guy Stern has returned 18.3% over the past three years.

"The fund can profit from either rising or falling markets," said Lowcock. "While the fund is complicated its aim is straightforward – to provide a positive investment return in all market conditions over the medium term."

Fidelity Moneybuilder Balanced

Darius McDermott, managing director of FundCalibre, said this fund has "consistently outperformed" since its launch in 1995. Over the past three years, fund managers Ian Spreadbury and Michael Clark, have returned 33.3%.

McDermott said the fact the fund is 35% invested in "fixed income" assets – such as bonds – means it is "designed to help reduce volatility and smooth out returns".

"The bond element of the portfolio is deliberately very conservative as government bonds have the least correlation with equities," he said. "It is therefore unlikely that both portions of the portfolio will do poorly at the same time and this helps to even out returns and reduce volatility.

"The outperformance typically comes when the market falls. Also, most equity investments are in large companies to reduce volatility."

Schroder Managed Balanced

Manager Johanna Kyrkland has returned 35.9% over the past three years by using "shrewd asset allocation decisions to drive performance", said Lowcock.

The nature of the fund means the manager has a selection of different investment strategies that targets specific investment styles and themes.

"The fund invests in a wider range of assets including global equities, bonds and cash. Typical equity exposure is 50% to 85% and must not exceed the latter. As such investors should expect the fund to protect in falling stock markets whilst benefit from rising equity markets," said Lowcock.

Henderson Multi Manager Income & Growth

This fund has the ability to invest in other funds with the aim of picking the best managers to create an income yield higher than the FTSE All Share as well as capital growth. The fund is managed by a whole team and returned 24.6% over the past three years.

"Given the diversified nature of the underlying investments, the limit on the equity allocation and the emphasis on providing an income, this fund is around half as volatile as the UK stockmarket," said McDermott.

M&G Corporate Bond

The manager of this fund, Richard Woolnough, takes a 'top-down' view, meaning the economic outlook will determine what company debt he invests in, while his investment team study the individual companies and sectors. The fund has returned 25.3% over the past three years.

'M&G's in-house team of credit analysts provide bottom-up analysis of the corporate bond market, which complements the fund manager's top-down views," said McDermott. "This fund is significantly less risky than the UK stockmarket, which is consistent with the nature of the underlying investments."

Henderson Cautious Managed

This fund has been managed by Chris Burvil since 2003 and in 2012 Jenna Barnard and John Pattullo came in as joint managers. In the past three years the fund has returned 32.3%.

"The fund invests in both equities and bonds, with no more than 60% ever invested in the former.," said Lowcock. "The aim is to generate a mix of income and growth. The fund looks to provide participation in rising equity markets but with a view to protecting capital in falling markets"

Kames Investment Grade Bond

This fund focus on both income and growth equally and is run by Euan McNeil and Stephen Snowden, who have returned 35,2% over the past three years.

McDermott said they aim to make money by "exploiting changes in the credit worthiness of companies" and by predicting interest rate changes.

"The team has the flexibility to change its position quickly across global bond markets," he said. "The fund also has an emphasis on liquidity – retaining the agility to buy and sell holdings quickly. The fund typically invests in high quality fixed-income securities so historically has had a much lower risk profile than the UK stockmarket."

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