‘Set and forget’ funds that require minimal tinkering

Every investor understands the basic premise of investing: to sell something for more than they bought it for. However, while objectively straightforward, it is fiendishly difficult to do in practice. Time, markets, and emotions can all get in the way. This is the appeal of the “set and forget” investment, where someone does the hard work for you.

• Invest with ii: Buy Global Funds | Top Investment Funds | What is a Managed ISA?

There are two problems with the “buy low, sell high” idea. The first is that relatively few people are able to do it effectively. Every year, consultancy group Dalbar runs a study comparing the returns of the stock market to the returns of investors in the stock market. In 2023, it found that the average equity investor earned 5.5% less than the S&P 500. Year in, year out, the study shows that investors pull money out of the market at the wrong time (i.e. at the bottom) and invest it at the wrong time (i.e. at the top).

The second problem is that most people don’t have the time and energy for hours of fund research. They have jobs, children, a social life. Even the most enthusiastic investment geek cannot hope to keep track of the disparate factors that might influence a portfolio, which could include – but are not limited to – elections, geopolitics, inflation, interest rates or the economy. They will also need to keep track of fund manager moves, fund group mergers and team changes.

This is a clear argument to look for a manager who takes all this complexity off your hands. These managers will harness their expertise to insulate you from the highs and lows.

Ben Conway, head of fund management at Hawksmoor Fund Managers, describes how this can work in practice: “The valuations between different asset classes is always in flux. We will switch from fund to fund and asset class to asset class according to whether we identify a margin of safety. We aim to own growth at the right part in the cycle, and value at the right point in the cycle. We like to stick to very disciplined managers with a clear philosophy.”

He continues: “The best managers tend to be really good at doing one thing. They produce good results through a market cycle, but will move in and out of favour. We manage it with fund picking and flexing our exposure.”

Multi-asset options

Multi-asset options are the full English of set and forget options – a true one-stop shop with bonds, equities and other investments in one carefully managed package. Arguably, the most consequential decision an investor makes is on the bond/equity split of the portfolio, so this should lighten the load.

• Fund Spotlight: why we like Vanguard LifeStrategy
• Can you own just one fund? The answer might surprise you

Troy Trojan is a pick from Gavin Haynes, investment director at Fairview Investing. This is not just set and forget, but also “sleep soundly at night”, with an emphasis on capital preservation.

Haynes says: “It’s a good choice for investors wanting a flexible, defensive ‘all-weather’ multi-asset fund that they can hold irrespective of the investment backdrop. This is achieved through active asset allocation based on the manager’s top-down view and a focus on valuations, plus careful selection of high-quality equities.” Sebastian Lyon has been at the helm of Troy’s multi-asset mandates for several years and has a strong track record.

• Watch our video: Sebastian Lyon: why soaring gold is not yet a bubble
• Watch our video: Owning Microsoft over Nvidia, and backing Diageo to recover

Haynes also likes the Ruffer Investment Company Ord (LSE:RICA) investment trust. This also focuses on capital preservation and is the £25 billion group’s flagship strategy. He says: “The twin objectives are to not lose money on a 12-month rolling basis and to beat cash returns significantly over the medium term. The strategy has built up an impressive long-term track record. This fund can provide good core defensive bedrock for a portfolio.”

Ruffer trades at a small discount to net asset value (NAV), but if investors are looking for a bargain, James Carthew, head of investment companies at QuotedData, suggests RIT Capital Partners Ord (LSE:RCP), currently on a near-30% discount. RIT Capital Partners uses a multi-manager approach, spreading its money across a wide range of asset types, including private equity and debt.

• Watch our video: RIT Capital Partners: how the Rothschild’s trust invests
• Watch our video: RIT Capital Partners: portfolio not to blame for share price slump

He adds: “Recent performance has been held back by its exposure to unquoted companies, but we think these could soon be the engine for growth as these businesses mature, and start looking for an exit, which may also trigger some narrowing of that discount. RIT Capital’s underlying ethos is to preserve and grow wealth for future generations.”

Equity options

Growth-focused investors may not be interested in holding a lot of bonds, but picking a diversified global equity fund can be trickier than it looks. In theory, an MSCI World tracker fund would do the job, giving access to a range of geographic regions and sectors. In this respect, the Fidelity Index World fund is a cheap and well-run option.

However, global index funds and exchange-traded funds (ETFs)  will tend to be heavily weighted to the US, and to the technology sector in particular. This is great if it is what you’re after (and has been a good strategy for much of the past decade), but investors shouldn’t neglect the potential risks in such a concentrated approach.

For many years, the “go-to” active equity option has been the global growth investment trusts. While quality varies, Carthew likes £5 billion behemoth Alliance Witan Ord (LSE:ALW), which allocates pools of money to some of the world’s best fund managers and asks them to back their 20 best ideas with it.

Carthew explains: “Part of the attraction of Alliance Witan is that it tries to minimise the impact of various investment styles moving in and out of favour – balancing the portfolio between ‘growth’ and ‘value’ for example – that should mean it gives fairly steady returns. If you want an income, it uses the investment trust structure to smooth and enhance the dividend it pays to investors.”

• How and why Alliance Trust and Witan have joined forces
• Sign up to our free newsletter for investment ideas, latest news and award-winning analysis

John Monaghan, research director at Square Mile, picks the BNY Mellon Long-Term Global Equity fund: “It has a simple mantra of investing in high-quality companies and holding them for the long term. We believe there is much to admire about this strategy, which offers investors the potential for a combination of capital accumulation with an element of inflation protection.”

Managed by BNY Mellon’s affiliate Walter Scott & Partners, the managers have a seven-stage approach to identify higher-growth companies. All stocks that pass this process must have a “stock champion”, an analyst who takes responsibility for it. The final portfolio of between 40 and 60 stocks is conviction-based with few formal limits. Its return profile is more conservative than other global equity strategies, but could be a reassuring backbone to a portfolio.

Even ‘set and forget’ funds need monitoring

In truth, no investment is ever truly “set and forget” and investors need to keep an eye on their choices to check they are still fulfilling their brief.

It would be remiss not to mention interactive investor’s Managed ISA option here. This aims to build a portfolio based on an individual’s appetite for risk and how much they want to invest. Investors simply answer a few questions, and hand the decision-making over to the interactive investor team. It builds the portfolio and, importantly, monitors it over time, so you don’t have to think about it. With this option, you really can forget about it, safe in the knowledge that someone else has got it covered.

• How much help do you need when investing?
• Is this new type of ISA the one for you?