Select 50: the year in review

Select 50 is a curated list of funds that our investment selection partner Fundhouse believes offer good long-term investment opportunities. They maintain and monitor the list for us and review its constituents once a quarter. The funds all go through a rigorous due diligence process that involves regular face to face meetings as well as desk-based research and screening.

In this article, we are going to review the changes in the list over the past year. We will also take a look at how the funds currently on the list have fared in 2024 and attempt to draw some conclusions from their performance, although this is not a guide to how they will perform in future.

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It’s worth pointing out that the funds are not selected on the basis of short-term performance but are chosen for the quality of their managers and the investment approach they bring to running the funds. The list also deliberately spans a wide range of asset classes, geographies and investment styles.

Not all of these will perform well at the same time. Fundhouse recommends holding these investments over a long period to allow the quality of the managers and their approaches to rise above the inevitable ups and downs of the market and changing investment preferences - for growth or value focused funds, for example.

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We recommend using Select 50 in tandem with our quarterly Investment Outlook and other ongoing investment commentary. Picking the right funds is just one part of managing an investment portfolio - making the right asset allocation decisions is important too, and the divergence in returns across asset classes and geographies so far this year illustrates this well.

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We hope the list can provide investors with a useful list of funds that have gone through rigorous analysis - it is a starting point for self-directed investors but should certainly not be seen as a personal recommendation. If you are looking for advice that’s relevant to your personal financial circumstances, you should seek out a suitably qualified adviser - through Fidelity or elsewhere.

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The ins and outs of Select 50 in 2024

At the start of the year Select 50 had 50 funds, of which 36 were actively managed and 14 were passive index trackers. 

During the first quarter of the year, it was announced that Jeremy Podger would be retiring after a long and successful career as a portfolio manager. This was a personal loss to me, because Jeremy has long been a fantastic source of investment wisdom. It was also a loss for Select 50 because Fundhouse decided that much of their conviction about the Fidelity Global Special Situations Fund that he managed was a personal vote of confidence in the manager. In February it said it would be dropping Global Special Sits from the list.

Not every quarterly review results in changes to Select 50. But in the July update a number of changes was announced. There were five removals and three additions. Together with the loss of Global Special Situations that reduced the list to 47 funds.

The most high-profile change resulted from another retirement - of Jim Leaviss, the manager of the M&G Global Macro Bond Fund. As with Podger, Fundhouse felt that the outlook for this fund was too closely linked to its very experienced manager. 

Another change during the summer was the decision to drop the Edinburgh Worldwide Investment Trust after a long and in-depth review that left Fundhouse with too many concerns about the execution of the trust’s strategy by Baillie Gifford, its manager.It is worth pointing out that since the fund was removed from the list, it has performed well, more than recovering its losses since I named it as a higher-risk fund pick at the start of 2023. Patience is very often a virtue in investment, and we are clear that removal from the list should not necessarily be seen as a recommendation to sell an existing holding. 

Other changes in the busy July review included three replacements of funds with new investments in which Fundhouse had greater conviction. Comgest Growth Emerging Markets was replaced by Fidelity Sustainable Emerging Markets. Comgest Growth Europe was replaced by Barings Europe Select. T Rowe Price US Smaller Companies Fund was replaced by Brown Advisory US Smaller Companies.

In our final quarterly review in October, there was one further change. This one was forced on us by the takeover of the Balanced Commercial Property Trust by Starwood Capital. This agreed deal was triggered by a review of the trust’s options in light of its wide discount to net assets - something the trust shared with many other real estate trusts.

Currently, Select 50 has 46 funds. That is within our agreed range, but Fundhouse is looking to bring the list back up to the target of 50 funds in due course.

Lessons from 2024

The performance of the funds on Select 50 has broadly reflected wider trends. The best-performing market this year has clearly been the US, and this was also reflected in the strong rise in global markets, which are dominated in value terms by big US companies.

I believe that some of the best managers in Select 50 are to be found in these two categories. Both Dan Roberts (Fidelity Global Dividend) and James Thomson (Rathbone Global Opportunities) managed to outperform their peer groups but even they failed to keep up with the best performing global fund over the past year - the Legal & General Global Equity tracker fund, which was one of my fund picks for 2024.

The performance of the L&G index fund illustrates how important it has been to have an exposure to the big US technology stocks, known collectively as the Magnificent Seven. They dominated markets throughout 2024. Beating the market was a huge challenge for active managers this year, as is well demonstrated by the Brown Advisory US Sustainable Growth Fund, which delivered an impressive 27.7% return over one year but still lagged its large growth company benchmark. Please remember past performance is not a reliable indicator of future returns.

The importance of a handful of large companies to the overall index returns made this a good year for passive investments but good active managers still managed in some cases to deliver market beating returns. A good example of this was Alex Wright’s Fidelity Special Situations Fund, which achieved an 18.3% return compared with 10.9% for the UK market as a whole. In Japan, the Schroder Japan Trust had a similar outperformance of the overall Japanese market. 

Even with the help of Select 50, picking the right funds is not a simple matter, however. In the UK, both the other two actively managed funds - FTF Martin Currie UK Equity Income and Liontrust UK Growth - failed to match either the market or the two passive funds on our list which track respectively the FTSE 100 and FTSE 250.

Picking the right asset classes also mattered in 2024. Our selection of bond funds performed in line with fixed income benchmarks in most cases this year, but overall returns were disappointing, and well behind those in the equity markets. Likewise, our alternative investments (infrastructure, real estate and absolute return funds) were largely disappointing. The one notable exception was gold, where investors did well whether they invested in the metal itself (via the iShares Physical Gold ETC) or in gold miners (via the Ninety One Global Gold Fund).

• Check out the performance of all Select 50 funds

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Select 50 is not a personal recommendation to buy or sell a fund. Shares in investment trusts are listed on the London Stock Exchange and their price is affected by supply and demand. Investment trusts can gain additional exposure to the market, known as gearing, potentially increasing volatility. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall. Eligibility to invest in a SIPP or ISA and tax treatment depends on personal circumstances and all tax rules may change in the future. Withdrawals from a SIPP will not normally be possible until you reach age 55 (57 from 2028). This information is not a personal recommendation for any particular investment.  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.