Rugby World Cup
Posted by Adrian Lowcock in Latest insights category on 30 Sep 19
2019 Rugby World Cup: How to build a portfolio
There are a number of parallels between picking a winning rugby team and building a successful portfolio. As well as finding the best individual performers, it is also vital to pick a combination of youth and experience and to ensure their strengths complement each other.
Rugby team managers do not just put together a team with 15 front row forwards. Instead, they look for a balanced team with a reliable fly-half, and a blend of defensive and attacking outfield players.
Similarly, when building an investment portfolio you need managers who can offer some protection for your investments when the going gets tough alongside those that have the ability to produce strong returns in the good times.
It is wise to have funds covering different asset classes, a variety of countries and a blend of styles. This can smooth out returns, as not all will perform well at the same time.
With the Rugby World Cup just a couple of weeks away, below we look at how an example portfolio might be built using the rugby analogy. We also highlight some funds highly rated by our research partner Morningstar.
Everyone’s circumstances, tolerance for risk and financial goals are different and you should always take these factors into account when building your own portfolio. The example portfolio below is designed to illustrate the roles different asset classes can take but it might not be right for you.
The front row
A front row in rugby is needed to maintain a strong and stable position as they are critical in the scrum. Fund managers in this space need to offer solid core holdings to a portfolio with the potential to drive sustainable long-term returns.
The US economy remains the largest in the world, whilst the stock market accounts for over half of globally listed equities. As such, investors should consider having some exposure to the US, provided it is appropriate for the level of risk they are willing and able to take. One fund in this space is the Morningstar gold rated T. Rowe Price US Blue Chip Equity
fund, managed by Larry Puglia. The fund's strategy is to focus on companies with above average and sustainable growth prospects.
Investors often have a bias towards their home market. The companies are often familiar and investing domestically can help reduce volatility because changes in the value of Sterling may have less of an impact. Bear in mind however, that the UK stock market has a more international focus and is full of global leaders. Lindsell Train UK Equity
is one option, and is another Morningstar gold rated fund. Nick Train’s flagship fund invests in unique and high-quality companies that offer the potential for a sustainable return on investment, show low capital intensity, and have proven themselves cash-generative.
At the heart of any portfolio, you need an engine room of potentially less risky funds, as good as they are in defence as in attack.
Bonds will usually play an important role in a portfolio, typically providing some defensive qualities and the potential to protect investors’ capital in volatile markets. The Janus Henderson Strategic Bond
fund is one such example. Run by managers John Pattullo and Jenna Barnard they employ a flexible and unconstrained strategy looking to add value mostly through asset allocation. They can invest anywhere in the bond market but have had a bias to corporate bonds. This fund has earned a silver rating from Morningstar.
Equity Income –
This is another asset class that can offer a defensive element. Income paying companies are often well managed, providing investors with the potential to receive an income as well as the potential for capital growth. One example in this space is M&G Global Dividend
. Stuart Rhodes manages the Morningstar silver rated fund. He looks to identify businesses, which fall into three buckets: quality, assets and rapid growth. Rhodes is sensitive to valuation criteria and will not overpay. The portfolio currently provides a mix of growth companies and economically sensitive cyclicals.
Considered as having the freest role on the rugby field, with no set expectations, in the world of funds the wing forwards are your flair players, allowing you to tap into higher risk areas in the hope of achieving long-term growth. Whilst they may make up a smaller percentage of your overall allocation, with the higher potential risk comes the potential to make superior returns.
Asia offers investors access to younger and faster growing economies, but can be accessed through managers who focus on capital preservation as a foundation for long-term growth. First State Asia Focus
is one highly rated fund investing in Asia and has a gold Morningstar rating. The manager, Martin Lau, looks for companies that deliver sustainable growth whilst having the flexibility to adapt to prevailing social and economic conditions.
Smaller Companies –
Investing in smaller companies offers access to risky but potentially high growth companies. In essence, you are investing to find the market leaders of tomorrow. Dan Nickols is the manager of the Merian UK Smaller Companies
fund, also gold rated by Morningstar. He looks for companies that demonstrate one or more of the following characteristics; the ability to grow earnings faster than the market average for a long time; the scope to generate a positive surprise; or the potential to be re-rated relative to the market.
The fly half
This key player in any squad, the fly half provides both defensive and attacking characteristics.
Absolute Return funds –
Capital preservation is an important aspect of successful long-term investing. The premise is simple; it is easier to make a profit if your investment has not fallen significantly in value first. The Trojan
fund is gold rated by Morningstar and is managed by Sebastian Lyon. Lyon’s philosophy is that preservation of wealth is more important than growing assets. The fund’s investments span equities, government bonds, index-linked bonds, precious metals and cash.
Completing the team is the out and out attacker, someone who looks to deliver the opportunity to score points and win the game.
Emerging Markets -
In terms of asset classes, Emerging Markets offer exposure to fast growing stocks and are considered amongst the highest risk investments. Fidelity Institutional Emerging Markets
is silver rated by Morningstar. Manager Nick Price focuses on companies that have the potential to offer quality growth and that display superior and sustainable return on assets. He is looking for strong, unleveraged balance sheets, shareholder-friendly management and reasonable valuations. Price actively manages this as a "best of breed" portfolio and has a clear bias towards companies that exhibit signs of above-average growth.
The key to successful portfolio construction is to have funds that complement each other so that they give you exposure to the different assets classes, broad country and industry exposure as well as accessing different investment strategies and philosophies.
To check how well diversified your portfolio is check out our portfolio x-ray tool in :explore
. Always remember that the value of investments and the income from them can fall as well as rise.
: We do not give investment advice so you will need to decide if an investment is suitable for you. If you are unsure whether to invest, you should contact a financial adviser.