The best funds for volatile times

After a four-year period of largely uninterrupted equity growth, the outlook for shares is rather choppy around $2.1trn was knocked off the value of equities worldwide last week in response to the first signs of a global credit crunch. In these troubled times anyone investing in funds should be looking for a safe pair of hands at the helm; "you want a grizzled veteran rather than a fresh-faced youth", as Mark Dampier of Hargreaves Lansdown put it in The Times. The reason is simple: many younger fund managers have known nothing but good times and "may not know what to do when the bad times come along". So who are the managers who can see you through a tricky patch and which funds look like the best bets?

At MoneyWeek, we have pointed out on several occasions that, with large-cap firms largely untouched by private-equity bid speculation, their shares are currently offering good value. As markets panic and the credit crunch worsens, well-funded, stable companies paying decent dividend yields are once again coming into fashion. Unsurprisingly, then, income-based funds are among The Times's top picks.

However, you can't just jump into the first equity income fund you like the look of. As independent financial adviser Bestinvest points out in the FT, only two of the 96 funds in the sector F&C UK Growth & Income and Marlborough UK Equity Income have actually outperformed the FTSE All-Share's 9.6% return in the year to date. This is partly because mid-caps, which have done well up until now, do not feature heavily in equity income funds. But even so, Dampier tells the FT that "there are no more than 15 funds that are worth considering".

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One is the Invesco Perpetual Income Fund (tel: 0207 626 3434) run by Neil Woodford, a "champion at navigating funds through turbulence". Woodford achieved a 19.5% return in 2000 and 2.2% in 2001, at a time when the FTSE All Share lost 5.9% and 13.2% respectively. According to the FT, "he is already positioned for the next downturn". Dampier also likes the PSigma Income Fund (01484 600525), another high-dividend yield seeker, mainly because of the 30-year track record of its manager, Bill Mott, "one of the safest pairs of hands in the business".