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.

Each year since 2016, I have highlighted a handful of investments from our Select 50 or Fidelity Funds that I know well. These are funds which I hope will do well in the year ahead, but more importantly they are funds which I believe will be good long-term investments and which I intend to include in my own portfolio as core holdings.

I’ve invested in all my fund picks over the past eight years, holding them in my ISA and SIPP, and sticking with them in most cases long after the year in which I bought them. This is important because in some cases the benefit has accrued over many years.

At the start of 2016, for example, my recommendations included the Rathbone Global Opportunities Fund. This investment performed well that first year, but more importantly it has continued to appreciate in the years since.

It’s important to note that it has done so while also experiencing some periods of underperformance. 2022 was a bad year for the fund but it bounced back last year. The key has been sticking with it through the ups and downs.

Something else to point out about those 2016 picks is the importance of not putting all your eggs in one basket. The performance of the Rathbone fund has been significantly better than the other three recommendations that year - the SLI Ignis Property Feeder fund, now run by Abrdn, the Fidelity MoneyBuilder Dividend Fund and the Schroder Tokyo Fund. Picking which of the four would be the winner over eight years looks easy now, but it is only so with the benefit of hindsight.

2023 - still learning

The last two years have not been easy, at least in the short run. 2022 was a tough year for investors, with shares and bonds both falling as investors started to price in the impact of an unprecedented interest rate tightening cycle. Then many people, myself included, positioned themselves at the start of 2023 for recession and an easing of monetary policy, neither of which materialised.

In fact, the economy held up much better than expected last year, inflation was slow to fall, although it did more rapidly in recent months, and interest rates stayed higher for longer. A narrow segment of the stock market performed well (big growth stocks) but the rest of the market lagged. The bond rally that I expected on the back of falling interest rates was postponed.

With the benefit of hindsight, the Dodge & Cox Worldwide Global Stock Fund was too defensive a choice for global equity exposure, although it performed reasonably well. The Pyrford Global Total Return Fund was also too cautious a choice and the Colchester Global Bond Fund only came good towards the end of the year. I was also too early into the high-octane recommendation of the Edinburgh Worldwide Investment Trust. It has risen by more than 20% since October but remains underwater for the year as a whole.

What next?

So, as we enter 2024, my base case is that the economic scenario I expected a year ago could arrive 12 months late. The lag between the implementation of tighter interest rate policy and its impact on the economy is variable and seems to have been prolonged this time around. Economies are arguably less exposed to rising interest rates because of the greater prevalence of fixed rate mortgages. Higher levels of savings during the pandemic may also have provided a cushion for many people in the years since. It feels, however, that a downturn, even if a mild one, is on its way.

Inflation is now falling more rapidly, and the case for maintaining high interest rates is weaker. The peak in rates looks to have been reached and the falls which were expected last year should happen in 2024, although I would expect rates to remain reasonably high through the first half of the year. Central banks will be wary of undoing their hard work by easing too quickly.

At the same time, the rally in the final two months of 2023 has already captured some of the benefit of easier policy. Bond yields have already fallen some way from their peak and the valuation of shares has risen. Markets have done their job of anticipating the future.

This is the backdrop to my fund picks for 2024. A difficult economic environment with more supportive interest rates and valuations that are not stretched but are by no means cheap. My picks are defensive, aim to capture the high income now available across many asset classes, but also allow for the possibility that markets rally quite hard as policy eases. I hope I have covered all the bases.

The first pick is the Fidelity Cash Fund. This is a very conservatively managed fund, with a focus on safety, liquidity and diversification, designed to deliver consistent returns. The distribution yield is currently just above 5%. Investors benefit from Fidelity’s long experience in managing money market investment strategies and from a robust credit research process. The purpose of this pick is to capture what might be the final few months in which investors can enjoy high income with negligible risk to their capital.

Moving up the risk scale, and with a view to capturing both relatively high income with the added kicker of a capital gain as interest rates start to fall this year, the M&G Global Macro Bond Fund is the second pick for 2024. This is a flexible fund that can invest across multiple regions and lend to a range of borrowers. This broad remit means that investment experience is vital and the manager, Jim Leaviss, is one of the most experienced at M&G. He is supported by an experienced analyst team.

The third pick this year is the first of two global equity funds. The Fidelity Global Dividend Fund is one of Fidelity’s most consistent performers and should provide a good balance of growth and income. It is a fund that I have held in my portfolio for many years. Dan Roberts is a meticulous investor, with long experience, and he is supported by an extensive team of analysts. As interest rates fall, I expect the reliable yield offered by a global equity income portfolio to become increasingly attractive to investors.

The final pick is simplicity itself. The L&G Global Equity Index Fund benefits from Legal & General’s strong index-tracking capability and is a low-cost option for investors looking for a plain vanilla exposure to global equities with a long-term horizon.

As always, I will invest in all four of these funds myself.

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment depends on individual circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55 (57 from 2028). Select 50 is not a personal recommendation to buy or sell a fund. All funds invest in overseas markets so the value of investments could be affected by changes in currency exchange rates. The M&G Global Macro Bond, L&G Global Equity Index and Fidelity Global Dividend funds 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. The M&G Global Macro Bond Fund and Fidelity Global Dividend Fund invest in emerging markets which can be more volatile than other more developed markets. The Fidelity Global Dividend Fund invests in a relatively small number of companies so may carry more risk than funds that are more diversified. The M&G Global Macro Bond Fund invests in bonds where 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. Due to the greater possibility of default an investment in a corporate bond is generally less secure than an investment in government bonds. The fund also invests in sub-investment grade bonds which are considered riskier bonds. They have an increased risk of default which could affect both income and the capital value of the Fund investing in them. There is no guarantee that the investment objective of any Index Tracking Sub-Fund will be achieved. The performance of the L&G Global Equity Index sub-fund may not match the performance of the index it tracks due to factors including, but not limited to, the investment strategy used, fees and expenses and taxes. The L&G Global Equity Index Fund has, or is likely to have, high volatility owing to its portfolio composition or the portfolio management techniques. The value of shares in the Fidelity Cash Fund and the L&G Global Equity Index Fund may be adversely affected by insolvency or other financial difficulties affecting any institution in which the fund's cash has been deposited. An investment in a money market fund is different from an investment in deposits, as the principal invested in a money market fund is capable of fluctuation. The Key Information Document (KID) for Fidelity and non-Fidelity funds is available in English and can be obtained from our website at www.fidelity.co.uk. 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 one of Fidelity’s advisers or an authorised financial adviser of your choice.

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