Select 50: quarterly update

Every three months, we sit down with our fund selection partner, Fundhouse, to review the Select 50 - our favourite funds, selected by experts. Following our latest update, we removed five funds and added three new ones. The changes were effective from 1 August 2024.

The latest review saw more switches than usual - often the list remains unchanged after the quarterly update - so here we set out the rationale for the latest changes.

Removals

M&G Global Macro Bond Fund

Jim Leaviss, chief investment officer for public fixed income at M&G and lead manager of this fund, announced at the beginning of July that he would be leaving the company to pursue a new career in academia. He had been at M&G for 27 years and was instrumental in building up its fixed income investment capability.

Leaviss’s departure is a loss to the team and the company. And, for this fund in particular, his exit is a negative development. The Macro Bond Fund has a wide remit and managing a flexible bond mandate is one of the more complex disciplines in fund management, demanding a wealth of experience. While the replacement managers have worked with Leaviss for several years, their portfolio management experience is still very short and, in the opinion of our colleagues at Fundhouse, is insufficient for such a demanding global bond fund.

In the short run, there are no plans to replace the fund on the Select 50. The Global Macro Bond Fund is unique, and the list is already well served for global bonds (with six other funds in this category). It is not thought that Leaviss’s departure will have a meaningful impact on the two other M&G bond funds on the Select 50, and they remain on the list.

Edinburgh Worldwide Investment Trust

We have previously described this global small-cap investment trust as a high-octane investment. Its managers (at Baillie Gifford) have been unafraid to take risk to deliver performance and they understand that the two go hand in hand. Their process is designed to find stock market winners that can go up in value by many multiples (so-called multi-baggers). Equally they have been willing to ride out tough times and absorb losses when necessary. This is what makes the trust attractive – it is a unique strategy in that it seeks to be a genuine long-term owner of disruptive companies and is willing to back them over the long term.

Recent years have provided a difficult environment for small cap investing and the Edinburgh Worldwide Investment Trust has also suffered from its aggressive growth style. Investors have experienced a significant loss in the past three years, made worse by a widening discount to net assets.

In isolation, these would not be reasons to remove the trust from the Select 50. However, following an extensive assessment, Fundhouse found little evidence that earnings growth had been driving long-term returns. Given that investing in disruptive companies should, eventually, translate into outsize earnings growth, Fundhouse lost confidence in the team’s ability to successfully implement the approach.

Fundhouse is careful not to take too short-term a view when assessing funds for the Select 50. But after a lengthy review, it has decided to remove the fund from the list.

Comgest Growth Europe and Comgest Growth Emerging Markets

In April 2024, Comgest announced that Alistair Wittet, co-manager of the Europe fund, would be leaving in September. This was the second manager departure in a year. Wittet was highly regarded and with no replacement planned, Fundhouse feels that there is too much key-person risk left with the co-portfolio manager, Franz Weis.

It is a similar story at the Emerging Markets fund, with two co-managers of the fund leaving at the start and end of 2023. While a new manager, Nicholas Morse, was added to the team, there have been a lot of changes to the team, casting doubt on the strategy going forward. Fundhouse has therefore decided to remove both funds from the list.

T Rowe Price US Smaller Companies

A change of personnel also lies behind the decision to drop the T Rowe Price fund from the list. Previous lead manager and industry veteran Curt Organt is soon to retire, and Fundhouse is not convinced by his replacement, Matt Mahon (who has worked alongside Organt since last year in a co-manager capacity, and will shortly take lead responsibility for the fund). Mahon has limited experience as a portfolio manager, and in the time that Fundhouse has spent getting to know him, the evidence suggests that he may not adopt the same approach as his predecessor. As such, investors will be taking a risk on his unproven portfolio management skills.

Additions

Barings Europe Select Trust

We are replacing Comgest Growth Europe with the Barings Europe Select Trust. This fund is managed by one of the most experienced portfolio management teams in this category.

The fund follows a Growth at a Reasonable Price (GARP) strategy and would, therefore, blend well with the other actively managed fund in the Select 50’s Europe category, the Schroder European Recovery Fund, which has a value style. Fundhouse finds good evidence of stock selection skill over long periods.

The addition of the Barings Fund also introduces a mid/small cap bias, which is helpful given the desire to replace the global small cap approach of the Edinburgh Worldwide Investment Trust with more regional small cap options.

Brown Advisory US Smaller Companies

This is the replacement for the T Rowe Price US Smaller Companies fund.

Fundhouse rates the team behind this strategy highly, and the firm is well-known for its specialism in US equities. The fund’s strategy is to build a fairly concentrated portfolio of 50-80 stocks in the small- and mid-cap part of the US market. It looks to find well-governed companies with durable growth prospects and to hold them for long periods to outlast other less patient investors.

Although this is the second US equity fund managed by Brown Advisory on the Select 50 list, the two invest in completely different parts of the market and are managed by separate teams.

Fidelity Sustainable Emerging Markets

The replacement for the Comgest Growth Emerging Markets Fund is the Fidelity Sustainable Emerging Markets Fund. Fundhouse has been following this strategy for many years and rates its manager, Amit Goel, highly. He came through the analyst ranks at Fidelity, before taking over the management of Fidelity’s India Focus Fund in 2016 and then this strategy in 2021. The manager is backed by the wider Emerging Market Equity Team, as well as a sizeable analyst team.

The fund has a quality focus, with an emphasis on good governance, which is important when investing in emerging markets. The manager looks for three main characteristics in the stocks he owns: management quality; market leadership potential; and desirable industry characteristics such as underpenetrated sectors and improving industry structures and market share gains. It complements the other active fund in this category, Lazard Emerging Markets.

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Select 50 is not a personal recommendation to buy or sell a fund. 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.