Ten for 10: Funds to buy and hold for a decade

I recently asked myself a tough question. If I could buy only ten funds and had to hold them through thick and thin for ten years, what would they be?

What follows is my answer. I take responsibility for the choices, but I’m grateful to Rory Maguire at Fundhouse, our fund selection partner for the Select 50, who challenged my suggestions and checked the list for hidden biases or exposures that might come back to bite me.

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First, though, I should say what this list is not. It is not a recommendation that’s necessarily relevant to your personal circumstances - it is not advice, and if you are looking for that please do seek out a suitably qualified adviser (either through Fidelity’s Advice service or elsewhere). Learn about Fidelity’s Advice Service.

It is also not a portfolio that would be suitable for someone looking to de-risk their portfolio in preparation for the purchase of an annuity. Although I am 61, I continue to invest with a longer time-horizon and an equity bias because: (a) I live in hope that I can enjoy a long and healthy (un)retirement, so one of my goals is to keep one step ahead of inflation; and (b) I have put aside other money to protect me if, for whatever reason, stock market returns turn out to be disappointing for an extended period of time. I have a ‘rainy decade’ fund.

However, this list of funds is not a ‘throw caution to the winds, go-for-growth’ portfolio either. I have attempted to create some balance and diversification because none of us have a crystal ball. We don’t know what the future holds and, if I have learned anything over the years, it is that big bets and sleeping well at night do not go hand in hand.

This portfolio is a reflection of my personal circumstances and choices. So please take it as such. We are all different when it comes to our financial needs and wishes. I have divided my selections into five pairs of funds, focused on: growth, value, defensiveness, the big question of whether the US continues to lead the pack and, finally, the changing world that we will experience over the decade to come.

In presenting the list, I also have nothing to say on the relative weightings of the funds. That is a personal decision for any individual investor. I would personally favour an equal weighting across all ten funds because, as I often say, I don’t have a crystal ball.

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Growth

Rathbone Global Opportunities

This fund, managed by James Thomson, has been a staple of my portfolio for many years since I first recommended it as part of my annual fund picks in 2016, and again the following year. It has performed well, although there is no guarantee that it will continue to do so, and there have been some tricky periods along the way.

This is a fairly concentrated fund which seeks to invest in future winners that will grow faster than the broader market. Because of this ‘growth’ bias, the investments in the fund can be more expensive than average and this introduces some risk and the potential for volatility. In 2022, for example, the fund endured a meaningful setback. But James likes to own companies with proven business models. He recognises that with such a concentrated portfolio (40-60 companies) he can’t gamble on outcomes.

• Learn more about Rathbone Global Opportunities

Brown Advisory US Smaller Companies

Given the ten-year time-horizon of this list, I’m looking to introduce a focus on smaller companies which have the potential to grow over time. I think this is a prudent approach, given how larger companies have dominated the performance of the US market in recent years. Valuations are typically less stretched for smaller companies, so this feels like a lower risk way of gaining an exposure to the US stock market.

This fund is a fairly concentrated portfolio of well-governed companies with durable growth prospects. Its manager, Chris Berrier, is very experienced, having joined Brown in 2005 and been the fund’s sole manager for more than ten years. As with the Rathbone fund, there is a recognition that, with a fairly concentrated portfolio, risk management is paramount - considerable effort is made to balance excitement about growth prospects with limiting downside risk.

• Learn more about Brown Advisory US Smaller Companies

Value

Fidelity Global Dividend

This is another long-term holding in my personal portfolio. Dan Roberts has been running the fund since 2012, and I have been an investor pretty much from the outset. Dan has delivered strong performance despite an underweight to the US, which has been the best-performing market through that period. He has a low-turnover, high-conviction style. That might be expected to lead to volatility, but it has been a relatively smooth ride.

Dan’s approach is focused on valuation and visibility. He looks for companies with high and growing levels of cashflow. He favours a margin of safety and the ability for stocks to enjoy a re-rating. He also seeks to find companies with transparent business models and financial statements, where he can be confident of persistent returns. There is a bias towards Europe, which provides balance with some of the other holdings in this list.

• Learn more about Fidelity Global Dividend

Dodge & Cox Worldwide Global Stock

The investment approach of this global fund is to perform detailed, original research and to build a portfolio based on the conviction that comes from that work. The company has substantial research resources, the management team is experienced, and they have worked together a long time. That’s important when building a high conviction fund with long holding periods.

The fund is a value fund - it prefers to invest in a fair company at a good price rather than a good company at a fair price. But it is pragmatic, so it will own a growth stock if it can buy it at a cheap price alongside more traditional contrarian value stocks. Fundhouse’s analysis finds a consistent application of the investment process and evidence of skill.

• Learn more about Dodge & Cox Worldwide Global Stock

Defensive

iShares Physical Gold ETF

When investing over a medium to long time-horizon like ten years, it makes sense to pay attention to the risk that inflation will erode the purchasing power of your money. While equities have been a good hedge against rising prices, another good diversifier and inflation-proofer over the years has been gold. Gold can also be a safe haven at times of geo-political uncertainty, so I always like to have some of it in my portfolio. Investing via an ETF is a low-cost way of buying this insurance policy.

• Learn more about the iShares Physical Gold ETF

International Public Partnerships

Infrastructure investments are another way of introducing diversification and balance into an equity heavy portfolio. In the decade ahead there will be a constant need to maintain and renew the physical fabric of the world we live in. The new Labour government quite rightly views this as an important contributor to its growth agenda. Even without big projects like a third runway at Heathrow or the Lower Thames Crossing, there will be a constant need for new schools, hospitals, roads and railways not to mention clean energy infrastructure as we push to a lower carbon future.

The great thing about investing in these assets is that they provide a long-term income stream, often government backed. International Public Partnerships is an investment trust that offers exposure to this theme, with a couple of added benefits. It has a high yield, having increased its dividend every year since 2006. And it currently trades at a big discount to the value of its net assets. Please note the yield on this trust is not guaranteed.

• Learn more about International Public Partnerships

Continued US leadership or reversion to the mean?

iShares S&P 500 Equal Weighted ETF

A key question looking ten years into the future is the extent to which the US stock market will continue to lead the world in performance terms. The last decade has been a period of US ‘exceptionalism’ in which an overweight to the world’s biggest stock market has been a profitable decision.

The dominance of a handful of big technology-focused stocks - the Magnificent Seven - has resulted in a highly concentrated S&P 500, which is vulnerable to a rotation away from these highly valued stocks. I think a prudent way of mitigating this risk, while retaining an exposure to the world’s most dynamic economy, is via an equal weighted index tracker. As its name suggests, this assigns equal importance to the smallest stock in the benchmark as the largest.

• Learn more about the iShares S&P 500 Equal Weighted ETF

Fidelity Special Situations

If markets rotate not just out of the biggest US stocks but out of the US market more generally, it may be because investors decide that the gap between valuations on Wall Street and in the rest of the world has become too wide. The UK stock market is one of the most extreme examples of this divergence with shares in London trading at little more than half the multiple of earnings enjoyed by those in New York.

There are some good reasons why the UK should be out of favour, notably the relatively poor productivity of the UK economy. But it’s worth noting that the UK stock market should not be seen as a proxy for the UK economy. Many great UK companies earn a high proportion of their earnings overseas.

A well-managed, active fund like Alex Wright’s Special Situations could be a good way of tapping into the UK’s valuation advantage. Alex is a seasoned investor, and he has been running this fund for a long time. He benefits from a big pool of researchers and adopts a contrarian approach which suits his temperament and has been honed over a few market cycles. He has a consistent strategy and Fundhouse finds evidence of stock selection skill.

• Learn more about Fidelity Special Situations

The changing world

Fidelity Global Technology

The one thing we can guarantee about the world in ten years’ time is that it will be different from today’s. Just consider what has happened since 2015, much of which was wholly unpredictable back then. Nothing is certain, but what seems very likely is that technology will continue to evolve rapidly and will be an increasingly important part of our lives. A medium to long term investment strategy that ignores the potential of technology would be unusual.

The Fidelity Global Technology Fund has around 100 investments, selected using a bottom-up approach designed to identify high-quality companies with sustainable growth prospects that are trading at attractive valuations. The manager, Hyun Ho Sohn, looks for: growth companies focused on innovations or disruptive technologies; cyclical opportunities with strong market positions; or special situations that are mispriced with recovery potential.

I am encouraged by the large underweights in the fund to the big US tech stocks like Nvidia, Apple and Microsoft. The fund is also underweight mega-cap stocks. It feels like a way of investing in technology without the headwind of high technology sector valuations.

• Learn more about Fidelity Global Technology

Lazard Emerging Markets

Despite the remarkable resilience of the US economy, it would be strange to have a ten-year view of the world that ignored the potential of emerging markets which are likely to grow at a higher rate than the developed world over that time period.

This fund is managed by a long-standing manager, James Donald, supported by an experienced team. His investment process is strong, with a methodical approach to portfolio construction and risk management.

He looks to buy good quality companies at reasonable discounts, and where there is a line of sight to improving fundamentals. The fund has stuck to these principles, owning companies that are cheaper than the market but with better fundamental prospects.

• Learn more about Lazard Emerging Markets

Important information - 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. 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 no guarantee that the investment objective of any Index Tracking Sub-Fund will be achieved. The performance of the 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 shares in the International Public Partnerships investment trust is listed on the London Stock Exchange and their price is affected by supply and demand. The investment trust can gain additional exposure to the market, known as gearing, potentially increasing volatility. The Key Investor Information Document (KIID) / 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. Please note that the funds mentioned here and the Select 50 are not a personal recommendation for you. 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.