July 23, 2014

Five lessons investors can learn from the World Cup

The World Cup is nearly upon us and here we have five reasons that investors can learn from the mechanics of the sporting invent when building an investment portfolio. Nick Peters, Portfolio Manager of Fidelity Solutions shares his tips:

1.    Include a ‘goalkeeper’ for a safe pair of hands

“The goalkeeper is the last line of defence on the football pitch. But just as your team’s net needs protecting, so does the capital in your portfolio. When saving for the long term, consider including funds which can provide this element of safety, for example, M&G Optimal Income. Increasing your exposure to ‘store of value’ assets – like bonds or cash – can reduce the overall volatility of your savings, which gives extra security over time.”

2.    Remember your mid-field: hold some flexible funds

“Any good football team must have a strong mid-field to support both attack and defence. When it comes to saving, it’s wise to include funds which can shift between riskier growth strategies and more cautious approaches. Over time, funds with flexible managers have the potential to outperform during different points in the economic cycle, keeping risk under control and mitigating the bumps in the market. For example, Vincent Devlin, Portfolio Manager of BlackRock Continental Europe Fund, adapts his style between growth and value approaches, based on bottom-up idea generation and a top-down view of the markets.”

3.    Don’t rely on previous seasons’ performance when choosing your star strikers

“Just as the stars of the Premier League can be struck out with sudden injury or suffer periods of poor performance, so can star fund managers. Looking at a manager’s previous performance can give you an indication of their style or investment bias, but it’s not a reliable indication of their returns to come. Instead of relying on track records, do some research on how these managers have tended to behave at different times in an economic cycle, or how they aim to manage risk over time – these are the sorts of things we look for in the Fidelity Undiscovered Talent fund.”

4.    Look to the transfer market for reinforcements

“No matter how effective your portfolio might look today, future changes to the funds you hold can impact your savings. A football team is in trouble if their star striker sustains an injury or transfers – and your portfolio is exposed to similar problems if one or more of your funds is adversely impacted by a fund manager leaving, or by dramatic market movements. Keep track of the funds you hold as well as alternative options, so you understand the choices available if you decide to let go of one of the funds you hold. Of course, your circumstances might change too – and your financial goals with them – so review your portfolio regularly to make sure you’re getting the most out of the market at a risk level to suit you.”

5.    Not a born manager? Let professionals line up your team

“When it comes to investing, it’s not just the individual funds you hold that count – it’s the way they fit alongside each other in your overall portfolio. Savers should be careful to balance growth funds with those providing a degree of safety, and navigating the world of asset classes, sectors and managers can be daunting. Instead, many investors opt for multi-manager strategies, or ‘funds-of-funds’, which allow investment experts to spread your money effectively across different funds from across the industry. At Fidelity, we offer a range of PathFinder funds, where our team of investment experts use their experience, resources and personal relationships with managers to assess the benefits of different approaches – and pull funds together into one place. Once you’re clear about the level of risk you’re willing to take, these types of funds can be a good option for those less confident in making decisions about particular funds.”

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