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.
Every six months, Fidelity’s analysts review the Select 50 choice of favourite investments and add funds they feel deserve a place on the list. After the recent winter review, five new funds have been added.
As ever with the Select 50, it’s best not to view the funds in isolation, but to consider their place within a well-diversified portfolio of investments. Front and centre of our analysts’ minds when they make their changes is how the funds work alongside others within their category.
Artemis UK Select Fund
The Artemis UK Select Fund looks across the UK for the ‘best ideas’. This is a fund which concentrates on the strength of the companies themselves, irrespective of their place within their respective benchmarks. This means it’s also size-agnostic - the fund will invest in companies of all sizes if they exhibit the right characteristics of earnings growth and cash generation.
This draws the managers to companies that appear undervalued, lending the fund a ‘value’ bias, meaning it’s more likely to perform at times of rapid economic growth and lag when the wider economy is weaker.
A key differential for this fund is its ability to hold ‘short’ positions on companies it expects to underperform. ‘Shorting’ involves the managers borrowing a stock, selling the stock at market value, then buying the stock back at (hopefully) a lower price to return it to the lender. Investors short stocks they believe will fall in value, so they can buy back the stock at a lower price than that at which they previously sold it.
Shorting is inherently riskier than the more conventional ‘long’ positions most funds take - as such the fund will tend to hold far more long than short positions. At time of writing, that balance stands at 47 vs 6, respectively.
Currently, top names in the portfolio include 3i, a FTSE 100 private equity company, as well as British American Tobacco and Barclays. Financials, a classic value sector, make up 34.6% of the portfolio at time of writing, with consumer services close behind at 25.1%.
More on Artemis UK Select Fund
Aviva Multi-Strategy Target Return
The Aviva Multi-Strategy Target Return Fund aims to deliver positive returns - an average 5% per year above the Bank of England base interest rate - with only half the volatility of equities. In other words, it looks to give investors a smooth run regardless of the prevailing market conditions.
To do this, the managers adopt a multi-asset approach that allows them to invest across assets like equities, bonds, commodities, currencies and derivatives.
The idea here is just the same as individual investors who hold different assets within their portfolio which offer uncorrelated returns - by diversifying across asset classes, it’s more likely that at least some parts of the fund can continue to perform when others falter.
The fund also invests across global geographies, ranging from the United States to Emerging Markets. Diversification really is key to this approach, offering a one-stop shop to a basket of different investment opportunities.
The managers’ investment process is driven more by ‘strategy’ than stock-selection. That is to say, they base investment decisions around their overall outlook for markets and economies. In their view, this provides a nimble approach which means they can adjust their portfolio to play on short-term market developments.
Fidelity Emerging Markets Focus Fund
The Fidelity Emerging Markets Focus Fund, managed by Alex Duffy, looks to capture the most promising growth opportunities across global Emerging Markets.
He operates with a clear bottom-up focus, meaning he looks at individual stocks and their fundamentals, before he considers the wider economic backdrop. This draws him to a relatively concentrated portfolio of stocks - at time of writing the fund holds 41 companies - that Duffy understands well.
He looks for companies with high levels of corporate governance, strong balance sheets, and a willingness to share capital with shareholders.
This fund has a clear quality-growth bias, meaning it favours companies whose earnings can continue to rise over time, and should prove resilient in market downturns. The fund is also benchmark agnostic, meaning its performance can differ significantly from similar funds in the region.
All this means it could work well as a differentiator from other more value or benchmark focused Emerging Market funds.
Jupiter UK Special Situations
The Jupiter UK Special Situations Fund is a UK fund with a clear value focus. This means the manager, Ben Whitmore, looks for companies he feels are trading at a discount to their true value. He’s drawn to the sort of out-of-favour, cheap stocks that the rest of the market has overlooked, but in which he sees opportunity.
To find these opportunities, he screens for cheap companies and looks at their 10-year average earnings. After this, a prospective company is treated to intense fundamental analysis, to ensure the cheap price tag isn’t reflective of the stock’s underlying quality.
The fund tends to be relatively concentrated, usually holding around 30-50 stocks with a 40% weighting given to the top 10. Currently the manager holds 39 stocks, with BP, Aviva and GlaxoSmithKline occupying the top three positions respectively.
Whitmore’s approach is that of a classic value manager. That means investors may have to endure periods of underperformance when the market favours growth companies, while it should do best during periods of recovery.
Principal Global Investors Funds - Finisterre Unconstrained Emerging Market Fixed Income fund
The catchily titled Principal Global Investors Funds - Finisterre Unconstrained Emerging Market Fixed Income fund (or Principal Finisterre Emerging Market Fund, for short) looks to invest in all kinds of debt across the Emerging Market universe to provide investors with both income and capital growth.
The managers adopt a ‘total return’ strategy which means they’re unconstrained by benchmarks or tied to certain assets within the fixed income universe. They’re free to act on their convictions and adjust their portfolio to suit changing conditions within the market.
It’s an approach that sees them try to capture market momentum as well as uncover the deepest value opportunities. They see theirs as an “all-weather” approach that should perform well in any market condition and exhibit relatively low volatility throughout.
Emerging Markets are an interesting space for bond investors right now, with much of the developed universe offering paltry yields by comparison. This means the fund could serve as a good compliment to many bond investors’ portfolios, which tend to be tilted towards developed markets over emerging.
Investors should note that the views expressed may no longer be current and may have already been acted upon. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Select 50 is not a personal recommendation to buy or sell a fund. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. 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. The Artemis UK Select Fund, Fidelity Emerging Markets Focus Fund and Jupiter UK Special Situations Fund invest in a relatively small number of companies and so may carry more risk than funds that are more diversified. They also use financial derivative instruments for investment purposes, which may expose the funds to a higher degree of risk and can cause investments to experience larger than average price fluctuations. 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.
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