There’s only one thing worse than a lack of choice - and that’s too much of it.
The Fidelity Select 50 Balanced Fund was launched four months ago. I’m joined by Ayesha Akbar, the manager of the fund to talk about progress so far.
Tom: Ayesha let’s start with the name, why Select 50 and what do you mean by Balanced?
Ayesha: Well, Select 50 because we’re picking ideas from Fidelity’s Select 50 fund list, which is essentially our high conviction list of active managers that we expect to perform over the longer term in asset classes such as equities, fixed income and alternatives and balanced because we’re trying to provide diversified exposure across many asset classes so the fund will roughly have on average, 50% of its assets in equities and 50% in more defensive asset classes such as fixed income or cash.
Tom: So what are you trying to achieve with the fund and what sort of investor might it appeal to?
Ayesha: The fund is designed to provide long term capital growth by investing in a variety of asset classes and it’s really designed for people who think active managers can add value, provided they’ve chosen well and want it to be put into a portfolio by investment experts.
Tom: It sounds like the fund has a kind of pick and mix approach. How do you go about picking managers for the fund?
Ayesha: Well the picking base of the managers really is the task of our manager research team. These are 12 analysts whose day job it is to scour the entire investment universe looking for managers that they believe will be able to outperform over the longer term across various asset classes including global equities, fixed income and alternatives and they do this by combining quantitative and qualitative research, both to understand where that previous performance has come from and to make sure they can monitor and make sure that that performance will continue in the longer term and the result of all this analysis, the boiling down into a list of our highest conviction ideas across various asset classes.
Tom: So that’s the picking part of the equation if you like. What about mixing it all together into a portfolio?
Ayesha: So the starting point is that we want this fund to provide balanced exposure so there will be a mix of asset classes in the portfolio at any one time. So the question really is how do I go about altering that mix and that essentially boils down to two things. The first is that I have to make an assessment of where I think markets will be over the shorter term and the medium term and I can for example increase the exposure to equities, the riskier side of the asset classes if I think the prospects for stock market performance is good.
On the other hand I can increase the exposure to fixed income or to cash if I think that safety is the predominant feature that we have to be worried about and that’s essentially how I’m making the allocation decisions at the top level in the portfolio.
The second thing is to understand how to mix the managers that we’re using together. It isn’t enough just to put outperforming managers, but we really want to understand how those managers are going to behave in different environments. So it really is about understanding how they react to different market scenarios and that means understanding how they approach their investments. And the idea is to put managers together in a balanced format so that they represent the asset classes that they’re invested in.
Tom: So you also mentioned there the market environment, so the fund has been running for four months now. How has the market environment been and how has a balanced fund fared in that market backdrop?
Ayesha: It’s been a very interesting start to the year for sure. So we’ve had markets go up, we’ve had some asset classes do very well. We’ve had some asset classes not do very well and then we’re seeing this reversal so markets that weren’t doing very well have suddenly started to come back as well. So in that environment you have had a lot of volatility as well and it’s been a really good environment actually for a balanced fund because we’ve had exposure to all the asset classes whether they’ve been going up or going down and because diversification gives you an element of capital protection the fact that volatility has been high has meant that we’ve been able to preserve a little bit of capital. So it’s early days yet but the Select 50 Balanced Fund is behaving as we’d expect.
Tom: Let’s look forward a little bit now. Would you anticipate making significant changes to the fund or is it steady as she goes?
Ayesha: This should be a relatively stable fund. These are managers that we have high conviction in, that we believe will perform over the longer term, so we’re not anticipating too much change. That said we’re always on the look out for the ability to take advantage of opportunities and to manage risk and therefore there will be some changes that we’re making in the portfolio at any one time but that’s very much depending on what the specific circumstances are but generally by and large this is steady as she goes.
Tom: So a good start. Ayesha, thanks very much indeed.
Ayesha: Thank you.