By ADRIAN LOWCOCK 03/09/2010
On Tuesday Fidelity announced the launch of a new fund, the Fidelity Equity Growth Defender. The aim of this fund is to provide access to the growth potential of shares in the UK whilst protecting your capital from falls in the stock markets.
The Fidelity Equity Growth Defender fund is structured to provide an expected level of protection of 80% of the funds highest ever price, however, this protection is not guaranteed. The protection is provided by moving the fund between shares and cash deposits, using a systematic approach to re-allocate between the two. The protection will continue to work unless the value of shares held in the fund falls more than 20% in a single day. The FTSE All Share Index has never fallen by this amount since records begin in 1969, although investors should always be aware past performance is not a guide to the future.
The Pros
- Investors do not have to tie their money up for a set period of time and are able to invest or sell at any point.
- The annual management charge, at 1.25%, is much lower than structured products.
- Investors can get 100% of the upside of the index, depending on manager performance and market conditions.
The Cons
- Active managers are likely to want to switch into the market after a big fall, not sell.
- Because the fund will frequently hold a proportion in cash, the manager will need to consistently outperform the benchmark index just to keep up with it.
- Protection is not guaranteed.
Alternatives
The aim of the fund is to reduce the volatility or the risk of your investment. There are several ways to to do this already available. Diversification is the first port of call and investors in a wider range of assets will have a less volatile portfolio. Some sectors help reduce volatility, in particular absolute return funds. These aim to make consistent returns in all market conditions. Our top rated fund in this sector is Standard Life Global Absolute Returns Strategies.
Bestinvest’s Multi-Asset Portfolios
We spend each day analysing funds and measuring the risk of investments, constructing asset models designed for different investment objectives. We have used this knowledge to build five multi asset portfolios that provide investors with consistent performance but for much lower levels of risk. You can find out more on our MAP service on our website.