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.
The Fidelity team tasked with regularly reviewing funds on the Select 50 list applies a two-part process which focuses first and foremost on funds’ investment merits, before a secondary assessment of customer benefits like discounts.
Following the summer review, these five funds were added to the Select 50.
When selecting companies, manager Aruna Karunathilake runs firms through a scoring system, taking into account business fundamentals, current market valuation and a firm’s franchise quality. From there, Karunathilake monitors these scores, helping him to decide which to add and subtract from the fund accordingly.
He explains: “The turnover of the fund is a function of the change in these scores - if nothing changes I sit on my hands and several holdings such as Unilever, Diageo & Ferguson have been in the fund for the best part of a decade. However, if things change then I do not hesitate to act.”
Ongoing Brexit uncertainty and the emergence of the coronavirus have seen these scores gyrate more than normal this year, so fund turnover has picked up from around 30% to 50% as a result.
One stock whose score has prompted a downgrade in the fund recently is catering group Compass. Karunathilake explains: “Despite being an extremely well-run business, I can’t help but think that restaurants are among the worst hit given the extra cost and lower revenue they will face in a socially distanced world.
“Though it was difficult to sell the stock after such a long time that is exactly what my scoring system is designed to do - make logical decisions based on thorough analysis without letting emotion interfere.”
Seasoned small and mid-cap investor Nick Williams heads up the Barings fund, supported by co-managers Colin Riddles, Rosemary Simmons and William Cuss.
The team seeks to own higher quality companies with above average profitability and defensive business models that are trading at valuations in line with the market, or below.
Our European fund analyst Oliver Jarman highlighted the strong bottom-up stock selection behind the team’s approach and noted Williams’ experience in building a robust portfolio and close attention to risk management.
The team works together to ensure reasonable diversification across individual companies and sectors, currently holding just short of 100 names with five European countries present in the fund’s top ten investments.
German digital firm Scout24 appears among the fund’s top names. Operators of online property platform ImmoScout24, the company currently attracts 14 million users per month.
Also in the top ten names are specialty chemicals distributor IMCD and industrial truck manufacturer Kion Group.
The Comgest portfolio is run by an experienced and diverse group of investors in Alistair Wittet, Arnaud Cosserat and Franz Weis. The managers have a long track record of working together, with the partnership originally developing through their Pan European fund and now providing a seasoned backbone to the Europe ex-UK strategy.
The managers specifically look for sustainable high earnings growth profiles in European companies, aiming to invest in those firms demonstrating strong cash flow generation and robust balance sheets. The team has a long-term mindset, usually owning stocks for at least five years, with Jarman highlighting their discipline in sticking to their investment philosophy and the characteristics they believe are important.
The trio applies a high conviction, growth-focused approach here, typically owning between 30 and 40 stocks at any one time. This concentration is also present in the fund’s sector exposure with management often taking significant positions - 30% of the fund is currently devoted to health care, with 23.2% exposed to IT and almost 16% in consumer staples.
Given the high conviction style - the top ten assets currently account for 43% of the fund - investors with a long-term horizon and those willing to accept markedly different performance from the market may be attracted to the strategy.
“We think that typically bond investors are looking for three things: low risk, a decent income, and a low correlation with equities,” says co-manager Tim Foster.
Foster has been steering the fund since 2017, initially joining industry stalwart and veteran Fidelity manager Ian Spreadbury and more recently working alongside co-manager Claudio Ferrarese upon Spreadbury’s retirement.
Low volatility, a reasonable income over the cycle and low correlation with equities are the main tenets of the fund, as the manager seeks to provide a one-stop shop for those looking for a fixed income solution.
But what about the ‘strategic’ label? Foster explains, “It really refers to that total return focus over the cycle. So we’re not so much aiming to outperform the benchmark as we are looking to deliver on our three objectives.”
Taking advantage of the label, the managers have considerable flexibility in the types of assets they can employ to meet their goals. A ‘go-anywhere’ fund, all bonds are open for selection.
On top of the basic mix, the managers can vary the asset allocation within the fund, with a view to adding value further to the initial blend.
The flexibility afforded to the fund, thanks to the lack of benchmark constraints, highlights the strategy’s distinction from that of traditional bond funds. Foster believes the specific goal of performing differently from equities means the fund can act as a diversifier for equity-heavy portfolios.
The strategy behind the Robeco fund is based upon a systematic process applied by the firm’s quantitative investing group and targets exposure to companies with lower risk characteristics.
To define what lower risk means to the company, Robeco focuses on those companies with below average share price volatility and lower probability of default.
As such, the fund aims to provide investors with an element of protection if the market sees a sharp sell-off.
When it comes to stock selection, the strategy makes use of a ranking system, taking into account current market valuations and share price momentum for all companies up for consideration. This ensures management does not overpay for defensive characteristics and helps avoid companies on a negative trajectory in terms of profits or share price.
The fund is likely to outperform the broad market in negative market environments but is also likely to lag fast-rising markets, particularly where the performance is driven by more volatile or cyclical stocks.
As such, investors may see the portfolio as a useful diversifier when held alongside other aggressive strategies carrying higher risk profiles.
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. 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. 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. Select 50 is not a personal recommendation to buy or sell a fund. 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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