My World Cup investment dream team

Published by Darius McDermott on 04 June 2018.
Last updated on 13 June 2018

Football

Picking an investment fund from the 3,000 or so available can seem a daunting task. Choosing a group of funds for an investment portfolio even more so. But there are some simple tips you can follow and, for those who’ll be watching the FIFA World Cup, there are some similarities to putting together your fantasy football team.

First, you need to think about your attitude to risk. A football manager’s career can be extremely short if the results are not to the fans’ liking. But, as that manager, do you play it safe or take risks in the hope of more spectacular rewards?

When investing, take care not to be so cautious that you stand no chance of meeting your investment goal. Likewise, there is no point choosing volatile assets if the rise and fall in value of your investments keeps you awake at night.

Second, consider your time horizon: can you bide your time, making smaller inroads towards your investment goal? Are you behind and need to attack? Or do you want to defend now and protect what you have accrued over the years?

Just as relying on a single player to carry a team can be risky, you shouldn’t rely on just one investment. What if it underperforms? Have a diversified portfolio, with some investments that are the core, some to protect your pot of money if markets fall, and some attackers, ones that are riskier but can provide good returns over time. I’m often asked how many funds should be in a portfolio. I’d say up to five funds if you have under £30,000 to invest, no more than 10 if you have £30,000 to £100,000, and 15 to 20 for larger sums.

Here’s my World Cup-inspired adventurous portfolio – my attacking First XI, in a 1-3-4-3 system:

The midfield

My starting point is Investec UK Alpha, a well-diversified core fund. It has at least 50% invested in FTSE 100 companies, with the rest in medium and smaller-sized UK businesses.

I would add Threadneedle European Select, which invests predominantly in large European companies that can defend their margins, and Matthews Asia Pacific Tiger, which also invests in high-quality companies for the long term and is run by a well-structured and well-resourced specialist team.

My final choice is Lazard US Equity Concentrated, which typically holds no more than 20 to 25 US companies, ranging from the fairly small through to the very large. Although a concentrated fund, it represents a core market.

In defence

In goal would be Premier Defensive Growth. It aims to deliver consistently in all market conditions by investing in assets that offer a predictable return.

My other defensive assets include BlackRock UK Absolute Alpha and Jupiter Absolute Return, which can make money from both rising and falling share prices, and TwentyFour Dynamic Bond*, which invests across the range of fixed-interest assets and has one of the highest yields in its sector.

In attack

To add some excitement to a long-term portfolio, I’d choose Fidelity China Special Situations, a trust that invests in small and medium-sized firms in China and Hong Kong.

Aberdeen Latin American Equity, run by its renowned emerging markets team, and Baillie Gifford Shin Nippon, which invests in Japanese smaller companies where the manager sees growth opportunities, are my other attackers.

Performance figures for Darius’s investment dream team since the last World Cup in 2014
Aberdeen Latin American Equity 25.82%
Baillie Gifford Shin Nippon PLC 199.38%
BlackRock UK Absolute Alpha 19.14%
Fidelity China Special Situations Plc 143.31%
Investec UK Alpha 37.58%
Jupiter Absolute Return 13.12%
Lazard US Equity Concentrated* 26.30%
Matthews Asia Pacific Tiger 67.31%
Premier Defensive Growth 6.43%
Threadneedle European Select 53.74%
TwentyFour Dynamic Bond 17.00%

Source: FE Analytics. Total returns in sterling. Data from 13 July 2014 to 2 May 2018. *This fund was made available to UK investors on 25 February 2016, so performance is from this date to 2 May 2018.

They think it’s all over...

Once you’ve put your portfolio together, don’t then forget about it. While constant disruption and tinkering with the team is a bad idea, you may need to substitute a fund now and again to make sure your investments stay on track.

We always say that reviewing your portfolio at least once or twice a year is about right.

Finally, keep an eye on costs. I’m firmly of the opinion that cheapest does not mean best. I’m quite happy to pay a bit more for a fund I think will outperform the market more often than not. But, at the same time, there is no point paying high fees for an investment that consistently disappoints.

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Mr McDermott’s views are his own and do not constitute financial advice.

* Indicates a member of Moneywise’s First 50 funds list for beginner investors. For more information see: Moneywise.co.uk/first-50-funds

Darius McDermott is managing director at Chelsea Financial Services and FundCalibre.

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