Important information: 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.
Back in 2018, Fidelity research found there was considerable demand for a vehicle that would grant investors easy exposure to our experts’ favourite funds. In particular, interest was driven by engaged investors who ‘enjoy looking after their investments and spend time ensuring they get it right’, but don’t want to do it all alone.
As a result, we launched the Select 50 Balanced Fund, a medium-risk portfolio investing predominantly in our experts' Select 50 list of favourite investments. The fund aims to produce long-term capital growth from a globally-diversified range of assets.
In celebration of its three-year anniversary, Fidelity Investment Director, Tom Stevenson, caught up with the fund’s manager, Ayesha Akbar, to understand her investment process and to discuss her outlook for the coming year.
Akbar invests predominantly in what our experts think make for the best investments. The Select 50 comprises all different kinds of fund - ranging from fixed income to equities and alternatives (e.g. commodities and property), spanning all different geographies from North America to Emerging Markets.
But rather than simply mirroring the performance of Select 50 funds, Akbar actively picks and chooses holdings she feels work together best to achieve her aims. To give her the full flexibility to do that, she can hold up to 20% of assets outside the Select 50.
For Akbar, all this means that “portfolio construction is absolutely key”. She likens it to the difference between a house and a pile of bricks.
“You could have the best, highest quality bricks around, but unless you put them together well, you’re not going to end up with a house that’s robust enough to stand the ravages of time or the weather. Essentially, that is what we are doing. The funds are the bricks and we have to put them together.”
Fixed limits on her fund allow 30-70% of holdings to be allocated to equites, and 20-60% to bonds (as well as 0-20% in cash). This allows her to capture the potentially greater upside on offer through equities while using bonds to protect against their downside. Currently she’s operating with medium risk, with 45.4% of the fund allocated to shares, and 32.3% to bonds.
But she’s also happy to make use of alternative investments. She explains: “We’re looking for uncorrelated returns to equities and fixed income and this all contributes to smoother returns.” By diversifying across asset classes, Akbar prevents her fund from relying on any one’s success. Were equities to struggle, other asset classes should step in to soften the blow.
Akbar explains how she goes about selecting funds for the portfolio. Hers is a three-part process. First, she looks for managers that demonstrate a “solid, repeatable investment process”. She wants to understand how managers select their stocks and to ensure it’s a process she can trust.
Second, she assesses the people involved. Here, she’s not looking so much at the fund’s manager, but its team of analysts. It’s no good relying solely on a manager, who may move on at any point - she needs to understand the people behind the figurehead.
Third, she looks at performance as “evidence of the track record”. That is, are the fund’s objectives borne out in the results? And if they are, what exactly is driving that performance? Akbar and her team will look to understand whether a fund’s success derives from luck or skill - if the former, she won’t be investing.
Looking forward with “cautious optimism”
Akbar is hopeful about market prospects through 2021. She envisages certain industries springing back from their previous malaise when/if the pandemic is brought under control.
In particular, she’s thinking about which geographies stand to benefit most from a recovery. She’s hopeful for Emerging Markets, which could do well as global economies begin to gather steam.
Encouragingly, she’s also keen on the UK. She notes that the UK has struggled under the twin burdens of COVID and Brexit, but with both hopefully soon behind us, she feels our home market has a lot of ground to make up.
Important Information: 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. The Fidelity Select 50 Balanced 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. Currency hedging is used to substantially reduce the risk of losses from unfavourable exchange rate movements on holdings in currencies that differ from the dealing currency. Hedging also has the effect of limiting the potential for currency gains to be made. The Fidelity Select 50 Balanced fund investment policy means it invests mainly in units in collective investment schemes. There are just a few fixed limits for the three core elements in the fund. These are 30% to 70% for shares, 20% to 60% for bonds and 0% to 20% for cash. 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 a Fidelity adviser or an authorised financial adviser of your choice.
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