Relying on passive trackers doesn't mean you cannot take a strong view in your strategic asset allocation, and Fidelity's Chris Forgan certainly does.
This week Asset Allocator sat down with Forgan, who heads up both their active and passive multi-asset range.
While the bulk of its equity exposure lies in global trackers, Forgan has picked global-small caps and emerging market funds as two standout strategic picks, plus a decent chunk of Reits, to create what he calls the ‘growth’ side of the portfolio.
“In the case of small caps, they benefit from mergers and acquisitions, they tend to be more under-researched in the market but that tends to deliver superior returns over time,” he said. “That comes with volatility, but that additional level of volatility can be diversified away in conjunction with the other assets in the strategic asset allocation.”
Global small-caps comprise six per cent of his balanced offering, higher than our database average but certainly ahead of the recent trend of DFMs flocking to the asset class, which we’ve looked into recently.
Perks of the job
Forgan says a privilege of his job as an active fund selector is the ability to work with some of the best minds in the industry.
“One of the blessings of that role is you get to sit down with some of the best investors in the world and get to learn what makes them tick and how they go about their approach,” he said. "And then the fantastic thing about it is there's no one way in which to do it, and my job is about assessing how that individual goes about it.”
He said that overall manager turnover in their portfolios is very low as he hopes to buy and hold for the long term, once they feel they’ve secured the right person.
Indeed one of the areas that Fidelity is overweight versus the peer group is in emerging market debt, with just over 5 per cent here. In contrast, our DFMs park just under 2 per cent of client money there.
On this, he said: “The balance sheet of these countries is much stronger than we’ve seen in previous periods. If we're moving into an environment where the US economy is under pressure and the dollar begins to weaken, then these tend to be tailwinds for those particular countries.
“So I think they're offered at pretty attractive valuations at this juncture with yields that are really quite compelling.”
Growth market
One of the things he noted was the growth in popularity of their index-tracking ‘Allocator’ proposition, which has grown from around £500mn in 2018 to more than £2bn now. The active range, meanwhile, hasn’t grown as rapidly and Forgan said it’s because the cost of delivery to the end client is far more prominent than it was five or 10 years ago.
“It’s [Fidelity’s range] in keeping with what you've seen in the marketplace – this move towards passive exposures has had a strong tailwind behind it and for sure, our fund range has seen similar dynamics at play.”
He said that performance of both has been strong but they’ve achieved it in different ways – namely, the addition of tactical allocation in its active strategies making a difference.
As we all know, 2022 was a tough year for everyone, and particularly for passive portfolios, as these could not move nimbly out of equity-bond correlation and sell-offs. On the other hand, Fidelity’s active range were underweight both asset classes going into the year, and as such could manoeuvre its way out of challenging market conditions.
