The past couple of months have been a sobering time and have caused many investors to reassess their appetite for risk.On the back of som very strong growth seen in many markets in recent years, these corrections are not altogether surprising but it is a mixed picture. Investors in some emerging markets funds have values that are still higher than their 2006 starting prices. The one thing all these markets do have in common is volatility. For any clients seeking a more balanced approach to investments, there are a number of routes they could take. One of the winning sectors in the offshore market over the last few years has been deferred distribution funds. This is a concept that some advisers have turned to as they have shunned with-profits. In the UK, distribution funds have often fared well in difficult market conditions, due mainly to their diversification. In the offshore environment, the income can be reinvested into accumulation units but clearly the income underpin is part of the attraction of these investments. Some providers have now created these funds in multi-currency options, with the underlying assets being held in the base currency of the fund. The fact that the fund will not produce a natural income should not cause a problem as one of the features of an offshore bond is that it is a non-income-producing asset. Managed defensive funds are a newer concept than distribution funds and have also proved popular in the UK. These allow a fund provider to leverage off its strength in asset allocation and give the manager more scope to manage the fund actively in a way that many distribution fund managers cannot. The objective of these funds is to aim for capital preservation while giving the manager freedom to invest where they see greatest opportunity. The offshore managed fund sector is fragmented in terms of providers and it is not easy to find a mainstream manager with a similar fund offering across the three main currencies of sterling, the dollar and the euro. This range of funds should be attractive to a number of adviser markets. The concept is predominantly lower risk, offering packaged investment solutions. Manager of managers is now a well developed market. Unfettered fund of fund sales in 2005 were 2bn and, according to the Investment Management Association, there was 10.2bn under management by the end of the year. Fund of fund managers can make a team of dedicated experts available for advisers’ clients. They will use both qualitative and quantitative methods to check and monitor the performance and management of funds held within the portfolio. One of the main drivers of performance on all diversified funds is asset allocation and a strong track record in this area will be important. Increased performance can be added by selecting well managed funds within the desired sectors. There are also a number of manager of manager propositions available within offshore bonds. Different from fund of funds, the investment mandates for particular sectors within the fund are given directly to fund managers to run. Many advisers are now using discretionary manager agreements which are normally associated with the higher-net-worth end of the market. This is where an adviser can utilise a discretionary manager within a tax wrapper. Through this model, the client can have a bespoke portfolio of collectives with their own portfolio manager assigned to them to give an ongoing relationship. The offshore bond can be a particularly attractive route where capital gains tax allowances for a UK investor are already being fully utilised or where there may be a tax benefit because of international tax planning. Most major stockbrokers are seeing opportunities to enhance their clients’tax position while maintaining control of the assets under management. However, customers need to be aware of the following when looking at investing offshore. Particular attention needs to be paid to the total expense ratios on funds they are buying. Surveys have revealed that, on average, charges on offshore funds tend to be higher than those on onshore funds. This is due to a variety of reasons, such as the cost of operating funds, which may be less efficient from a tax perspective, and this is ultimately passed on to the investor. Another issue that can cause confusion is where a fund management company has an offshore version of a popular UK fund. Investors need to compare the funds carefully as often the risk profile is different. Although the objective of the fund in the brochure is the same, the fund may have fewer holdings, higher charges or be run in a different way, usually more aggressive.