Worst Year Ever for Bonds: Fund Picks to Weather the Storm

Written by: Joseph Hill | Hargreaves Lansdown

  • 2022 could end up being the worst year on record for bonds
  • A well-constructed multi asset fund can help to smooth market volatility
  • When there’s uncertainty, leave it to the experts to blend bonds and shares

With equity and bond markets suffering a torrid year, investors could be forgiven for wondering what role each should play in a portfolio.

Traditionally, fixed-income securities have presented less risk and volatility to investors, providing some ballast for difficult times with limited upside. But the combined impact of high inflation, rising interest rates, and expectations of a recession has been devastating for bonds. This year could end up being the worst year on record. The losses have been extreme, particularly for an asset class that’s supposed to offer some stability to investors’ portfolios.

And equities which provide portfolios with growth potential have suffered too. Rising interest rates have made it more expensive to companies and consumers to borrow. So, worries about future company earnings downgrades and a squeezed consumer with less spending power have driven significant share price falls in some cases. Tech companies with high growth expectations for years into the future have felt the pain more than most.

This is when active managers earn their money

In difficult and volatile times with so much going on and uncertainty lingering, it’s difficult for investors to keep track of emerging risks and opportunities. That’s why we think there’s value in leaving it to the experts. Investing in a mixed asset fund offers access to a carefully crafted, ready-made investment portfolio run by experts in their field. We think there are some talented managers who’ve demonstrated an ability to navigate this environment well.

Three HL fund picks for an uncertain environment

1. Pyrford Global Total Return

Led by manager Tony Cousins, the team try to grow investors' wealth modestly over the long run, without all the significant ups and downs of investing fully in the stock market. While it won't shoot the lights out, we like their long-term, disciplined investment philosophy, which has been in place for many years. The team have a good record of sheltering capital in market falls but don’t expect it to keep up with rising markets.

2. Troy Trojan

Lyon likes to keep things simple, a quality we like. Capital preservation is key, he aims to shelter investors' wealth just as much as growing it. Avoiding large losses has been an important characteristic of the fund and it has tended to come into its own and hold up well in weaker markets. Given its cautious approach. It’s not likely to keep up when share markets are performing strongly though.

3. Schroder Managed Balanced

The fund provides exposure to a broad range of assets including global shares and bonds. Collectively it’s invested in hundreds of different companies and bonds, offering a high level of diversification in one convenient investment. The fund could form the core of a portfolio aiming to deliver long-term growth or add some stability to a portfolio mostly invested in shares.

Related: Why I’m Buying These “Boring” Stocks