How to build your investment portfolio

Staci West 27/01/2025 in Basics

I’ve always loved a good puzzle. With National Puzzle Day coming up on Wednesday, 29 January, it’s the perfect time to celebrate the benefits of exercising our brains, with everything from jigsaws to crosswords and brain teasers.

Building an investment portfolio is very similar to solving a puzzle – albeit without the help of a picture on the box to follow as a guide.

How much exposure to equities should you have? Is it important to embrace fixed income holdings? Which areas of the world look attractive – and where should be avoided? All these aspects are enough to challenge the most experienced of professional investors, so where should you start when you’re trying to find a solution?

The reality is that everyone’s investment journey is unique and depends on their longer-term objectives and attitude to risk. However, two main components of a basic portfolio are core and satellite holdings. The former provides the backbone while the latter are used for added spice.

Core holdings

The first task is deciding where to hold the bulk of your assets. This is the core part of your portfolio and is often focused on more stable, reliable investments. They are the positions that are most likely to generate the returns required to meet your overall aims and objectives. For example, if you’ve got many years of investing ahead then a more growth-oriented approach may be suitable, as your priority will probably be seeing the value of your investments rise. However, if you want an extra source of revenue to make ends meet then an income-generating portfolio is likely to be preferable.

Let’s look at a few options.

Our first suggestion is to have an established global equities fund that scours the world for the most attractive opportunities. Many of these combine income and growth targets. We like Guinness Global Equity Income which aims to provide investors with income and long-term capital growth by putting its money in around 35 equally-weighted stocks.

Of course, there are plenty of alternatives. The Capital Group New Perspective fund aims to achieve long-term growth of capital. It invests in some of the world’s most instantly recognisable multinational firms that are set to benefit from transformational changes in the global economy. We see this as a compelling option for anyone wanting large-cap global growth exposure and like the unique approach of having nine portfolio managers making the stock selection calls.

But how about a fixed income core holding?

Well, the M&G Global Macro Bond fund’s manager, Jim Leaviss, can invest in bonds issued by governments and companies around the world. Jim is very experienced and uses the skills he’s picked up over the years to take a view on the macroeconomic backdrop and make stock-picks. Government bonds account for just under half of assets (49.4%), while 24.2% is held within investment grade corporates*.

Satellite holdings

Then you have the satellite positions. These are the added extras that are thrown into the mix as they have the potential to deliver extraordinary returns. While you may not want all of your money tied up in these areas, they can still provide an attractive boost to your overall returns. For example, those feeling upbeat about a certain country’s immediate prospects may want to have at least some exposure to that region.

The Baillie Gifford Japanese fund invests in growing companies in Japan that are capable of delivering consistently strong returns to shareholders. Matthew Brett, its lead manager, likes to invest in well-managed businesses, with strong competitive advantages, that are attractively valued.

Another satellite option can be a fund offering a particular sector exposure. The Polar Capital Global Insurance fund is designed to provide exposure to non-life insurance companies, a specialist and often undervalued sector. The funds consistent track record offers a good return profile for portfolio diversification.

Infrastructure is another popular sector, with companies involved in various high profile developments around the world. The First Sentier Global Listed Infrastructure fund holds shares in companies involved in areas such as electric utilities, highways, airport service, oil & gas storage, and construction. First Sentier Investors was a pioneer in providing access to this asset class and it’s proved to be particularly popular with income-focused investors.

Other options

An alternative is to opt for a fund that has already solved many of the investment puzzles that you’re likely to face. For example, the Aegon Diversified Monthly Income fund has 40% of assets in bonds, 34.4% in equities, 13.6% in specialist income and 6% in property**. Its stated objective is to generate income with a target yield of approximately 5% per annum, with the potential for capital growth over the medium term.

This multi-asset fund benefits from having a variety of sources from which its managers can derive the income required. It’s very well resourced and supported by specialist teams. Elsewhere, the BNY Mellon Multi-Asset Balanced fund aims to achieve a split between income and capital growth over the long term, defined as being at least five years. Its manager, Simon Nichols, looks to achieve this objective by investing in a mix of equities and bonds, with a focus on those with future-facing business models.

 

*Source: fund factsheet, 31 December 2024

**Source: fund factsheet, 30 November 2024

This article is provided for information only. The views of the author and any people quoted are their own and do not constitute financial advice. The content is not intended to be a personal recommendation to buy or sell any fund or trust, or to adopt a particular investment strategy. However, the knowledge that professional analysts have analysed a fund or trust in depth before assigning them a rating can be a valuable additional filter for anyone looking to make their own decisions.Past performance is not a reliable guide to future returns. Market and exchange-rate movements may cause the value of investments to go down as well as up. Yields will fluctuate and so income from investments is variable and not guaranteed. You may not get back the amount originally invested. Tax treatment depends of your individual circumstances and may be subject to change in the future. If you are unsure about the suitability of any investment you should seek professional advice.Whilst FundCalibre provides product information, guidance and fund research we cannot know which of these products or funds, if any, are suitable for your particular circumstances and must leave that judgement to you. Before you make any investment decision, make sure you’re comfortable and fully understand the risks. Further information can be found on Elite Rated funds by simply clicking on the name highlighted in the article.