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5 listed funds to outperform a falling market


With the S&P/ASX 200 now down around 20%, and markets getting cheaper by the day, right now is the best time in a long time to buy stocks. However, it also might be a good time to consider investments that can provide some diversification if stock prices continue to fall. Here are five funds to consider:

  • Blue Sky Alternatives Access Fund Limited (ASX: BAF) holds a diversified portfolio of alternative investments managed by Blue Sky Alternative Investments Limited (ASX: BLA).

Blue Sky has $1.35 billion in assets under management and a solid 8-year track record of returning 15.4% p.a. after fees achieved across private equity, real estate, real assets, and hedge funds.

BAF is currently invested across Blue Sky funds in each of these areas, providing exposure to an interesting mix of underlying assets ranging from student accommodation to early stage companies, and water entitlements. BAF achieved pre-tax returns of 16% in 2015, and has held up quite well year to date.

  • Watermark Market Neutral Fund Ltd (ASX: WMK) is a listed investment company which avoids exposure to market movements by holding a balanced portfolio of long and short equity positions. Investment returns in a market neutral fund rely on the skill of the manager as opposed to the direction of the market. Watermark’s portfolio returned 20.7% in 2015. It is now trading at approximately a 5% discount to its underlying assets, and paying a dividend of around 5%.

Watermark’s market neutral fund has a relatively short history, however its Australian Leaders Fund (ASX: ALF) has delivered impressive returns of 14.4% p.a. since 2004.

  • Future Generation Investment Company Limited (ASX: FGX) provides investors with exposure to a range of Australian fund managers allocated between three broad equity strategies – long equities (currently around 49.5%), absolute bias (24.2%), and market neutral (17.1%). The remainder is currently held in cash (9.2%).

The managers charge no fees, and Future Generation makes an annual donation of 1% of its assets to a range of charities. Investors have access to some high quality fund managers which would otherwise be difficult and costly to invest with, and also contribute to supporting Australian charities.

The allocation to absolute bias and market neutral strategies, and the ability to hold cash, means that the fund’s performance will be less determined by the market’s direction than a typical stock fund. Future Generation’s investment portfolio returned 15.2% in 2015.

  • Future Generation Global Investment Company Limited (ASX: FGG) also offers diversified exposure to a range of fund managers, but with an international focus.

As with the domestic fund, the managers charge no fees, and Future Generation makes an annual donation of 1% of its assets to a range of charities.

Allocations are currently to long equity (53.7%), absolute bias (35%), quantitative strategies (6.5%) and cash (4.8%).

Future Generation’s global fund listed last year and enthusiastic investors pushed the price up to well above the value of its underlying portfolio. It has since retraced a little, however, (as with any listed investment company) I would check the price against the fund’s net tangible assets before buying.

  • For something slightly less exotic, consider holding some cash or fixed interest investments. The Vanguard Australian Fixed Interest ETF (ASX: VAF) holds a diversified portfolio of mostly AAA rated Australian government and corporate bonds.

Bond yields are currently notoriously low, but the ETF’s year to date return of 1.2% shows that when market volatility strikes, they are a useful component of a diversified portfolio.

Year to Date Returns


Source: Google Finance

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Motley Fool contributor Matt Bugden holds shares in Blue Sky Alternatives Access Fund Limited, Watermark Market Neutral Fund Ltd, Future Generation Investment Company Limited, and Future Generation Global Investment Company Limited. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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