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We often talk about a fund making a good ‘core’ investment – a fund you can have at the centre of your portfolio, which forms a solid base for your savings.
A core fund is generally one that is well diversified and probably less volatile than some of its racier peers. It could be UK equity income fund. It could be a multi-asset fund – the choice is yours. But it is usually a fund you feel very comfortable owning throughout the market cycle.
As our portfolios grow in value and/or our confidence increases, we tend to add satellite investments to our portfolios. These could be individual shares or more niche funds that have the potential to add something a little extra to our portfolios.
There is no hard and fast rule: these satellite funds could be added to provide extra income, extra diversification, or extra growth.
Here are five satellite funds you could consider adding to your investment ISA this year:
The growth potential of emerging markets over the long term is very exciting but investing in them can be a bumpy ride, so investors need to be able to stomach the extra risk. This fund gives investors exposure to companies in Latin America and is managed by Aberdeen’s renowned emerging markets team, whose primary investment concern is quality, followed by value. The strategy has had considerable success across a range of regions. The fund currently* has around 60% invested in Brazil, 22% in Mexico and 10% in Chile.
From water and gas to airports, bridges and schools, infrastructure is all around us. Many of the companies in these sectors have government-backed contracts and the underlying assets are often inflation-linked. This means infrastructure can offer a defensive source of diversification and an income that won’t be eroded by rising prices. This fund invests in listed infrastructure companies and is run by one of the pioneers in providing access to this asset class.
Interest rates look to be on the rise in the developed world. The US has already raised rates a few times and the Bank of England is under pressure to do the same. This type of environment is usually bad for bonds, as it means yields should rise but in doing so, could cause the price to fall, resulting in capital losses. But one area of fixed income that does still offer value and a good level of income is emerging market bonds. This fund has a very experienced manager and a yield currently standing at 5.33%.
This fund is another that could add defensive qualities to a portfolio. Everything around us is insured, regardless of economic boom or bust. In the good times, we may pay less attention to our renewals but in the bad times we are also likely to cut other expenses before we cut our insurance policies. That means a fund investing in this space has some very nice defensive characteristics. There are few fund managers with a more intimate knowledge of their market than the managers of this fund. Their many years of experience in risk and casualty insurance markets are fundamental to their success.
While it could easily be argued that most of us have property at the core of our portfolios as we could well own our own home, this isn’t the case for everyone. And even if it is, the UK retail property market is very different to the UK commercial and overseas markets. This fund does not invest in ‘bricks and mortar’ property but in the shares of property companies across Europe, including the UK. The manager is incredibly knowledgeable about his sector and has managed to differentiate the fund meaningfully from both its benchmark and its sector.
*Source: Fund fact sheet, 31 January 2018