When looking back at the market's gyrations over the past 3 months there would appear to have been three clear stages: Falling for a month from the highs reached in the middle of February, bouncing back for a month from the lows of 23 March, and since then some semblance of stability as the market moves in a broadly sideways direction (albeit with considerable underlying volatility).

In hindsight, probably the most surprising factor was that it took until mid-February for investors and some fund managers to recognise the potential damage caused by the global pandemic. Not all investors or funds of course, as some were clearly ahead of the curve, but plenty were not.

As investors are now painfully aware, the ASX200 fell almost 21% in March, and that figure would have been closer to -27% had the last week of the month not included the start of the recovery.

April's market recovery of almost 9% still saw the ASX 200 down 16% since the start of the year, and over 9% lower than 12 month ago. By comparison, absolute return funds listed on www.fundmonitors.com have fallen just over 8% year-to-date on average, and slightly under 3% over 12 months.

As we always point out, the term "average" is dangerous: YTD individual performances range from -80% to +25%, while over 12 months the figures are not that much different: -78% through to +30%. Drilling down into the details always reveals reality. Many of the funds that would have appeared in "Top 10" tables to 31 December last year are at the other (wrong) end of the scale by the end of April this year.

Equally, what the volatility has shown clearly is that diversification across funds and strategies is vital when looking to avoid downside risk and loss of capital. And not just diversification of names or managers - selecting funds with low correlation is vital, particularly in negative or volatile markets. So too is including funds which offer real downside protection - either through manager skill, or diversification of strategy.

During the bull market of the past few years some defensive funds and strategies have struggled to attract the attention of investors and the obsession for high headline returns. Finally, funds such as Gyrostat (12 months: +15%), ARK Global (12 months: +25%), and Levitas (12 months: +16%), to name just a few, are being recognised as true diversifiers in a well-balanced, low correlation portfolio of actively managed funds.

So where to from here?

While some managers consider the worst is over, many others, possibly along with the mood of many investors, are more cautious, concerned about a second leg down in the market, an extended recession, and/or a second wave of infections. Hedge Clippings remains in this camp, but either way, up or down, diversification across funds with low correlations to each other would seem appropriate in these uncertain times.