Agility, calm and balance

There are more than a few similarities between selecting a successful football team and putting together an investment portfolio that will meet your financial goals. As a recent note from UBS put it, both require a combination of agility, calm and balance.

Investors have certainly needed to be agile in recent years, as the response to the financial crisis has changed the rules, distorting markets with quantitative easing and now threatening to send the pendulum swinging back again as monetary conditions tighten. Calm is always a requirement for successful managers and investors. This year it’s more necessary than ever as volatility returns after 2017’s relatively benign conditions. Balance, though, is the key to a successful portfolio just as it is necessary in football. Diversification across asset classes and geographies will smooth the investment journey and raise the odds of lifting the trophy.

The three principal requirements for investors are growing your capital, generating an income from it and making sure that you don’t lose the money you have already built up. These mirror the roles of a football team’s strikers, midfielders and defenders. In the graphic below, I’ve set out my starting eleven, picked from the Select 50 (which is listed in full later in this report).

Starting between the sticks, the goal-keeper must have the safest pair of hands. This makes cash the obvious choice. It may pay a derisory income right now but, with markets proving much less predictable this year than last, some dry powder is required in any portfolio.

My back four is focused on capital preservation and diversification. With inflation rearing its ugly head again this year, I’ve included the best hedge against rising prices via the Investec Global Gold Fund. Schroder Tokyo is included in the defensive line thanks to the yen’s safe haven status and the relative cheapness of Japanese shares at the moment. Jupiter Strategic Bond provides a flexible fixed-income player while the Fidelity Select 50 Balanced Fund holds both equities and bonds to smooth what could be a bumpier ride this year.

At the heart of my midfield is the Lindsell Train UK Equity Fund. The UK is the world’s most international market and the fund’s focus on quality and low turnover provides stability in this key position. Bridging the gap between the capital preservers in defence and the match-winners up front, the half-backs are
also required to deliver the income that’s hard to find in today’s low-interest-rate world. I’ve picked Invesco Perpetual Global Equity Income to provide that. On the other flank, I’ve got Fidelity Global Special Situations Fund to offer geographical diversity and stock-picking.

To lift the trophy, we will need some flair up front. Providing the goal-scoring potential is a trio of classy strikers. Starting on the Eastern wing, the Old Mutual Asia Pacific Fund is a skilfully-managed fund with a good track record. Fidelity Emerging Markets provides a nod to the tournament’s Russian hosts. Finally, my skipper on the left wing is Rathbone Global Opportunities, providing exposure to the top-performing technology sector as well as having the biggest US weighting in the starting eleven.

China A-shares: in from the cold

Source: Thomson,Reuters Datastream, as at 5.6.18, price return in local currency

Past performance is not a reliable indicator of future returns. When investing in overseas markets, changes in currency exchange rates may affect the value of your investment. Investments in emerging markets can be more volatile than other more developed markets.

China joined the global trading system a couple of decades ago but its financial markets have been more of a closed book to overseas investors. That’s all changing now and we should expect to become much more familiar with the likes of Fuyao Glass or China Yangtse Power. Now China has moved another step closer to the investing mainstream with the acceptance by stock-index-compiler MSCI of 234 A-shares into its emerging market indices.

It’s a watershed but not a revolution. MSCI is treading carefully to start off with, using just 2.5% of the companies’ market value in its calculations. This rises to 5% in August and, in time, will move to full inclusion. When that happens, Chinese shares will no longer be punching below their weight in global markets.

Can invest is not the same as should invest, of course. China’s A-share market will for some time remain the Wild East of investment. This is good and bad news. Volatility makes investing in Shanghai risky, but it also creates opportunities. With shares routinely falling heavily for no apparent reason investors with boots on the ground can pick up bargains.

We would recommend tackling the new China opportunity via well-managed regional or emerging market funds while it remains an exciting but immature market. Ian Heslop’s Old Mutual Asia Pacific Fund and Nick Price’s Fidelity Emerging Market Fund are good options.

O’Higgins and income investing

The focus of the Investment Outlook since our first issue nearly five years ago has been on asset allocation and the Select 50 as a way of playing the top-down investment themes highlighted in the report. With the progressive roll-out of our new share-dealing service, I’m keen to focus also on investing in
individual shares.

One of the principal attractions of the UK stock market today is the relatively high dividend yields offered by many of its leading shares. The FTSE 100 index yields nearly 4% today and the average yield arguably understates the opportunity because there are plenty of shares yielding quite a bit more. Currently, about a fifth of the FTSE 100 yields more than 5%, which is attractive in today’s low-interest-rate environment. Do remember, though, that high yields can be an indication that investors are sceptical about a company’s ability to actually deliver that level of income.

A share selection approach which has long interested me is focused on yield. Devised by an American fund manager called Michael O’Higgins, it is a contrarian approach that seeks to find out-of-favour shares. At the heart of the O’Higgins method is the belief that larger companies are less likely to fail completely, stacking the odds of a decent return towards a portfolio built from leading stocks such as those in the FTSE 100.

From the starting universe, O’Higgins then suggests picking the ten highest-yielding stocks on the grounds that a high income is the biggest and most consistent contributor to total return. Finally, he narrows the shortlist of shares to the smallest five to reflect the fact that it is easier to grow a smaller business.

When I passed the FTSE 100 through these yield and size screens, I came up with the list of shares in the following table. Please note, I’m not recommending that you buy these stocks (I don’t know anything about your personal circumstances or the suitability of these for your portfolio). But if you are interested in finding out more about these companies you can do so via our new share-dealing service at

Source:, June 2018

Select 50 Balanced - a promising start

As our World Cup portfolio illustrates, balance is a key component of any successful investment portfolio. It is now four months since the launch of the Select 50 Balanced Fund, a fund explicitly designed to provide investors with a one-stop diversified portfolio that includes exposure to both main asset classes (bonds and equities) as well as the main geographical regions.

It is far too early to be thinking about the performance of the fund (which launched at 100p and, at the time of writing, trades at 103p) but what I have noticed since February is the stability of the fund price. The more volatile conditions so far in 2018 have provided a stern test of the Balanced Fund’s ability to deliver a smoother ride. So far, so good.

Watch out for my interview with manager Ayesha Akbar in our latest MoneyTalk video. In the meantime, if you are interested in finding out more about the Select 50 Balanced Fund, visit

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