“Brexit is going to be hanging over investors, fund managers and the country for a considerable period of time.” says Peter Fitzgerald, co-manager of the Aviva Investors Multi Strategy Target Return Fund, part of the Fidelity Select 50.
Over two years on from the referendum, investors in the UK are waiting for firm evidence of what a post-EU world will look like for Britain and Northern Ireland. But the final deal itself is not the end of uncertainty, says Fitzgerald: “The reality is that there will be a number of years after the implementation of a deal when it is put into practice. The question you must ask yourself is - how much of this is already priced in?”
While investors might be focusing on the effect on the UK economy of Brexit negotiations, Fitzgerald is more concerned about the potential for the situation to add to existing international trade tensions.
With a view to protecting capital, the manager explains how he is navigating the situation: “We’ve actually got a portfolio that would probably be slightly more cautious today than we would normally have because of the uncertainty generated particularly around Donald Trump and his stance with regard to trade. So, while we do have elements of the portfolio that are exposed to the global economy, we also have positions such as long dollar positions that are really there to protect us in case these trade tensions turn into a proper trade war.”
This attention to protecting the downside informs the ‘risk-reducing returns’ section of the portfolio, in which investment ideas are made to mitigate markets entering turbulent times or the managers getting decisions wrong.
Fitzgerald is pragmatic in his explanation: “We spend as much time thinking about the risk as we do thinking about the potential returns we can make; we have a real focus on portfolio construction and risk management. If we do get things wrong, and as portfolio managers we hate to admit it but we do get things wrong from time to time, or we enter difficult periods in the market our real objective is to protect capital. We believe that really sets us apart from others who focus almost exclusively on the return side rather than protecting capital if things go wrong.
Further to this, the manager employs a blend of traditional asset classes including equities, bonds and real estate investment trusts (REITs) along with more value-based opportunities, aiming to grow investors’ capital.
Fitzgerald looks at all investment opportunities on a two to three-year timeframe, with companies in Europe and further afield currently attracting his attention. He explains: “We think there are opportunities in some of the European small and mid-cap companies because Europe has been, as we see it, unfairly de-rated and unloved. We think there is opportunity in some areas in Japan, where you see low interest rates - that can be quite interesting if you can find REITS, for example, generating a yield of 3-4%. And we also think there are opportunities in some emerging markets but one needs to be very selective there, rather than allocating blindly to that part of the world.”
The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. Select 50 is not a personal recommendation to buy or sell a fund. This fund uses financial derivative instruments for investment purposes, which may expose the fund to a higher degree of risk and can cause investments to experience larger than average price fluctuations. There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.