Should investors take the super-cautious route? "When inflation is significantly higher than a 10-year gilt yield, that makes gilts unattractive to us," Mr Chatfeild-Roberts said. The new Merlin fund will have a 5.25pc initial fee and an annual fee of 1.25pc. Cautious funds have proved extremely popular this year as savers have sought shelter from the economic storm. The Investment Management Association recorded inflows of £1bn into the sector in the first half of the year. Mark Dampier of Hargreaves Lansdown said that while he understood investors' nervousness of equity markets, investing cautiously was not without difficulty. An extra-cautious stance can be expensive. If you've got limited exposure to equities, how will you achieve any kind of return?" he asked. As he pointed out, funds-of-funds by their very nature have significantly higher charges than most unit or investment trusts. Investors may be willing to pay these fees if they are getting superior performance, but on a more cautious remit this will be far harder to achieve. Mr Dampier added: "John Chatfeild-Roberts is one of the best fund-of-fund managers around, but it will be a difficult balance to strike." Tim Cockerill of Ashcourt Rowan agreed. He said that with hindsight it was easy to see that this approach would have been great over the past five years - but he questioned whether it would deliver returns over the next five-year period. "It's hard to see economic growth picking up this year or next, interest rates will remain very low, there are some big risks out there and volatility could spike up," he said. Traditional safe havens are very expensive - reflecting the fact that investors are very nervous - and it's easy to make a case for them falling in value by a substantial amount. So much of the 'low risk' return of the past five years has come from fixed interest but those same returns aren't going to be there in the future because yields are now so low. Mr Cockerill said even cautious investors should not discount equities completely. It is a view shared by Chris Burvill, who runs the Cautious Managed fund at Henderson. Sentiment is depressed - but so are companies' valuations and so too, in some sectors, such as financials, are companies' earnings forecasts. History decrees that now is the right time to buy equities; you do not want to buy when the market is buoyant," he said. Equity exposure will help fund managers to make a real, inflation-beating return, which "safer" assets such as cash and gilts cannot manage. Mr Dampier recommended a suite of funds for investors looking to minimise volatility. Rather than just opting for one cautious fund, blending a number of funds with different investment strategies can smooth returns. The Standard Life Gars (Global Absolute Return Strategies) fund uses derivatives to "short" particular assets in order to smooth returns. Gars was the fifth most popular fund on the Cofunds platform last month. Mr Dampier tipped Gars, saying that cautious investors should put a premium on capital preservation. "Investors sometimes fail to understand percentages - if you lose 50pc of a fund's value, you then have to double your money just to get back to your original value," he said. That's why funds like Gars are good for cautious investors. They do not capture as much of the upside if the market rallies, but will not lose as much cash if the market falls. Mr Dampier recommended that cautious investors hold Gars alongside Newton Real Return and Troy Trojan. Sebastian Lyon, who runs the Trojan fund, has a hefty 21pc weighting in cash and a further 12pc in gold - but also uses international equities to produce steady positive returns. The fund has produced a return of 37pc in the past three years, and 7.4pc over the past 12 months. Brewin Dolphin's John Moore said investors nervous of stock markets should add "uncorrelated" investment strategies to their portfolios. "Eclectica's Absolute Macro fund offers some genuine non-correlation with equity markets," he said. Its anti-euro position seems well thought out, as was its anti-China position a while back, and at the least [this fund] should provide a hedge against the negative effect of those two issues. Ashcourt Rowan said the Baillie Gifford Diversified Growth fund was a good example of a lower-risk multi-asset fund that has performed well for some years.