Hargreaves Lansdown’s five funds to watch for 2023

The past year has been a challenging year for investors around the world as rampant inflation, rising interest rates, war and political instability shook stock and bond markets.

While inflation in the UK and US may have peaked, it is still expected to remain elevated in the first half of 2023.

And with central banks continuing to raise rates, and the UK Although it was already thought to be in a recession, it seems that investors are in for another difficult year.

But what are the funds that can benefit from these difficult times? Do-it-yourself investment giant Hargreaves Lansdown has put forward five fund ideas for investors to check out.

A difficult year for the markets

The UK FTSE 100 has held up and has remained largely flat so far, but the US S&P 500 is down nearly 20 percent and many popular stocks have fallen individually by much larger amounts – former stock darling Ocado is down 60 percent this year .

A sharp sell-off in UK bond markets in the wake of September’s disastrous mini budget and rising interest rates has also hit so-called safe havens. But while funds investing in bonds have struggled this year, the situation has improved in recent weeks, with UK bond market jitters easing after the start of Rishi Sunak’s tenure as prime minister.

The past year has also seen a resurgence in value investing, as investors move into previously unloved sectors such as banking and energy due to concerns about rising interest rates and inflation.

This style of investing is based on looking for stocks whose price does not seem to match the company’s fundamental value, either based on its sales and earnings or the dividends it pays.

It has provided investors with some shelter from volatile markets.

Kate Marshall, principal investment analyst at Hargreaves Lansdown, says value investing could still bring rewards next year, while some bond funds that offer a more defensive approach could help investors weather the storm.

“While there are reasons to be pessimistic, we believe global markets still offer opportunities for investors looking for long-term growth, income or both,” she said.

Below, Hargreaves Lansdown picks five funds that they believe are more conservative or have the potential to provide some stability in tougher times.

1. Pyrford global total return

The team behind the Pyrford Global Total Return Fund has three main goals. Their first is not to lose money over a 12 month period. Their second is to deliver returns in excess of inflation over the long term, and third to do so with low volatility – less significant ups and downs in value than a fund that invests entirely in equities.

Inflation is running high, making it a difficult hurdle to clear in the short term. Even more difficult when both the equity and bond markets, which the fund focuses on, are so turbulent.

We think Pyrford’s team could beat inflation over the longer term and offer some protection in the meantime compared to many other funds.

The team invests flexibly, but keeps it simple by focusing on a mix of equities, government bonds and cash. The stocks can generate long-term growth, although they can be volatile in the short term. The bonds and cash are expected to perform differently and bring some stability to the fund.

2. Schroder Managed Balanced

Schroder Managed Balanced also invests in a mix of assets, including global equities and bonds. While the amount invested in stocks and bonds will change over time, this fund is in the IA Mixed Investment 40-85 percent equity sector, meaning it has the flexibility to invest between 40 and 85 percent of the fund to invest in stocks. It also tends to invest more of the fund in company stocks than total return funds.

Schroder Managed Balanced is a ‘fund of funds’. The managers primarily invest in funds managed by other talented Schroder fund managers, although they may also invest outside of the Schroders range where appropriate. Collectively, these managers invest in hundreds of different companies and bonds. This means that the portfolio offers sufficient diversification.

Schroders’ highly experienced Asset Allocation team favors equities when the economic environment is positive. But in times of stress, they shift to more diversified assets, such as bonds and cash, with the goal of minimizing losses. The managers also invest in alternative market areas and theme funds.

3. M&G Global Macro Bond

Different bond funds use different investment styles, with some taking a more defensive approach that can provide some ballast in turbulent markets.

Jim Leaviss, the manager of this fund, starts with his “big picture” macroeconomic view, envisioning economic growth, interest rates and inflation worldwide. He then has the freedom to invest in different types of bonds issued in different currencies to generate a combination of income and growth over the long term.

We believe experience is essential for a manager of this type of fund and Leaviss is one of the most experienced bond fund managers in the UK.

The fund invests in global government bonds, investment grade corporate bonds and riskier high yield and emerging market bonds.

The fund may invest more than 35 percent in securities issued or guaranteed by a member state of the European Economic Area or other countries listed in the fund’s prospectus. The manager’s freedom to buy bonds issued in different currencies means that fluctuations in exchange rates can add or reduce value.

4. Jupiter Income

We like the Jupiter Income fund, which invests in companies that the managers believe are undervalued by the broader market. This focus on companies that don’t appeal is called “value investing.” This style has struggled in recent years and means the fund can fall out of favor during certain periods of the market cycle.

The value investing style has the potential to outperform as interest rates and inflation rise, and the style returned to prominence in 2022. However, this is not a guide to future performance. The manager invests in a fairly small number of companies, so each investment can affect performance for better or worse, which can increase risk.

The costs of the fund are taken out of capital, which could help increase income but reduce some of the growth potential.

5. Legal and General International Index

The Legal & General International Index tracks the performance of a range of global markets, as measured by the FTSE World ex UK Index. It currently consists of about 2,200 companies, which means it offers a lot of diversification.

The fund focuses on sectors such as technology, financials and consumer-related sectors, although the composition of the index may change over time.

While the fund is diversified across global markets, it is heavily weighted in US companies that make up about two-thirds of the fund. This is determined by the underlying index that the fund tracks. Other countries and regions represented in the fund include Japan, Canada, Europe, Australia and Taiwan, but not the UK.

Legal & General has been managing index tracker funds for over 30 years. It is also one of the largest providers of tracker funds. That means it has the resources and expertise to track indices as closely as possible, and the scale to keep costs to a minimum.

The company is also committed to encouraging good business practices in the companies in which it invests. It engages proactively with companies and uses proxy voting rights to highlight important issues such as environmental, social and governance (ESG) issues.