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 three months, we review the Select 50 list of our favourite funds. Often this will result in no change to the list because the funds on it are chosen with care and we would not expect the line-up to alter much in the short term.

But we are constantly on the lookout for ways to deliver good investment outcomes. That might be through the addition of new investment opportunities or by switching into similar funds that represent better value. This quarter, along with our fund selection partner Fundhouse, we have done both.

Improved investment choice

We have added two new funds to our list. The first is in response to the changing interest rate environment, which has created an opportunity for investors to secure an attractive income at relatively low risk in a number of different ways. One of these is via money market or cash funds and so we asked Fundhouse to look across the market at what is available.

The fund we have chosen is the Legal & General Cash Trust. L&G has a portfolio management team that’s experienced in money market investing, with a good track record through periods of market stress. The fund is conservatively managed, prepared to forego yield to ensure protection on the downside. It is actively managed, investing in short-term deposits, certificates of deposit, sterling government bonds and liquid debt instruments with maturities of less than a year.

One of the main reasons that the Legal & General fund has been chosen over peers is the clear evidence of performance during crises. There was no loss during the global financial crisis and the fund performed well during Covid. These are the exact scenarios when you would hope that money market funds would come into their own.

The L&G Cash Trust is competitively priced with an ongoing charge of just 0.15%.

The second addition to Select 50 this quarter is the Vanguard Global Small-Cap Index Fund. This is an index tracking fund that invests worldwide in smaller companies, providing a broad global exposure.

We decided to add this fund to the list to enhance the smaller company investment opportunity. The Vanguard fund complements the small cap exposure offered by the Edinburgh Worldwide Investment Trust and we expect it to be less volatile. More of a plain vanilla fund, if you like. 

The Vanguard fund invests very widely, across around 4,400 companies globally, and we like the investment process employed and how it tracks the market’s performance. With an ongoing charge of 0.29%, the fund is also comparatively good value for a small cap fund.

Value for money

The cost-effectiveness of the funds on the Select 50 is an important consideration because fund fees can act as a drag on performance over time. Cost is particularly important when it comes to passive investing where, by definition, a higher fee cannot be justified by claims of deeper analysis or skilful stock-picking.

In light of this, Fundhouse has conducted a value for money analysis of all the passive funds on Select 50. This led to a small number of changes to the list, where we found comparable funds at a more attractive price.

Two of these were swaps within the range offered by one provider. We identified better value for money in the iShares ESG Overseas Corporate Bond Index Fund (UK) than in the iShares Global Corporate Bond UCITS ETF. The ongoing cost is just over half that of the fund it replaces.

We replaced the iShares Global Government Bond ETF with the iShares Overseas Government Bond Index Fund (UK) for the same reason. In both cases the ongoing charge is 0.11% instead of 0.2%.

The third like for like swap in this quarter’s review also replaces an ETF with an index fund. One of the attractions of ETFs is their relatively low cost, but they are not always cheaper than a comparable index fund, so it is important to look at both when choosing a passive option.

We are replacing the Vanguard FTSE All-World UCITS ETF, a global equity tracker, with the Legal & General Global Equity Index Fund. Again, the primary driver here is cost, the index fund charging 0.15% against the 0.22% ongoing charge of the ETF.

And finally, our review highlighted one fund where we felt the charge was not justified and we did not feel the need to replace it on the list. We don’t believe the HSBC MSCI Far East ex Japan UCITS ETF represents good value with an ongoing charge of 0.45%, which is high for a passive fund.

With three other Asian equity funds on Select 50, as well as a broader emerging market equity ETF that captures much of the emerging Asia exposure in the HSBC ETF, we don’t see a need to replace it.

Please do remember, however, that when we remove a fund from the list, we are not recommending selling it. There is a high degree of competition for places on our list of preferred funds. If there is a reason why we think a fund should no longer be held, we will be clear about that.

The pick of the platform

This quarterly update may have piqued your interest in Select 50. If you are not familiar with the list, or maybe haven’t looked at it for a while, why not take a look here.

As the name suggests, there are approximately 50 great investment options on the list, spread across a wide range of different asset classes and geographical regions. There are bonds, equities and alternative investments such as property, infrastructure and gold.

We have grouped the equity funds in five regions and there is an excellent selection of global funds. In each case, where possible we propose both active and passive options as well as growth- and value-focused choices. If we think an investment trust is the best approach, perhaps for liquidity reasons, then that is what we offer.

We are really proud of Select 50 and believe it offers our investors great choice and value for money.

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Select 50 is not a personal recommendation to buy funds. Equally, if a fund you own is not on the Select 50, we're not recommending you sell it. You must ensure that any fund you choose to invest in is suitable for your own personal circumstances. The value of shares in cash and money market funds may be adversely affected by insolvency or other financial difficulties affecting any institution in which the fund's cash has been deposited. 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. 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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