Fund Selection Day 2021

Dominice Goodwin, portfolio manager for our mandate Wictor Equity Fund Selection, shares his thoughts on fund selection.

Ownership of fund shares is one way, among several, for an investor to achieve a desired market exposure, expected return, and risk. Without delving too deeply into the analysis of other possible alternatives, it can be stated that a portfolio of funds is a well-established and widely recognized way to achieve the desired level of diversification and market exposure in many situations.

For those who decide to assemble their fund portfolio, helpful information and good tips on fund selection can be obtained from their advisor or by searching online. Investors are often recommended to look at factors such as the fund's assets under management, costs, the fund's historical return compared to a relevant benchmark, and compared to other funds in the same category. Once an investor has defined an investment horizon and the risk and return profile they seek for their fund investments, the question often follows whether to achieve the desired exposure through broader mixed funds and global funds, or to invest in a number of bond funds and country/region/sector funds for the equity portion of the portfolio. Recommendations and tips for private investors on this matter can sometimes differ, and due to the impact that the COVID-19 pandemic has had on the markets over the past year, it may be particularly important to highlight this issue right now.

It is undoubtedly clear that the COVID-19 pandemic has affected different sectors and regions differently, resulting in significantly divergent country and sector indices. There is a certain risk that such a development may complicate the evaluation of funds for private investors if they only follow the common advice to compare the history between funds in the same category.

What one should be attentive to is that funds with a given classification, e.g., global equity funds, can have tremendous differences in allocation to regions and sectors. Some may have a significant overweight in, for example, the North American technology sector, while others have a significant overweight in, for example, the Swedish industrial sector. Often, such differences in allocation to regions and sectors are also largely persistent over time since the fund's holdings are typically long-term and reflect the fund manager's investment philosophy and valuation models. Thus, the results and ranking that funds have achieved in the past year may, to some extent, be a consequence of the fact that the region or sector to which they have been statically concentrated for several years has become more or less affected by the COVID-19 pandemic. For this reason, it may be a particularly good time right now to study in detail the holdings in the funds you own or plan to buy to ensure that the fund reflects the exposure you are seeking.

For the investor who does not find the desired level of diversification and market exposure among global funds, a portfolio of country/region/sector funds may be a better alternative. For the investor who also wants to be more active, such a fund portfolio opens up the opportunity to both select funds with fund managers who are judged to be particularly competent in a certain region or sector, and also to, during extraordinary events like the COVID-19 pandemic, exclude individual sectors and regions. This is the foundation on which Wictor's discretionary mandate Wictor Equity Fund Selection stands. The discretionary management of the mandate allows us to help our clients with such decisions both proactively and responsively, given predefined frameworks and limitations on how much of the capital can be allocated to specific sectors and regions to ensure diversification.

As we approach the 1-year anniversary, Wictor Equity Fund Selection has an accumulated gross return of +41.13%* compared to +14.50% in the benchmark for global stocks MSCI All-country World Index (in SEK) during the same period. At its lowest, the mandate was down 14.03% when the markets sold off during the COVID-19 uncertainty in March, compared to the benchmark which was down 20.20% during the same period.

Whichever path you choose, it can be concluded that the new dynamic climate we see in the market is well worth considering in your upcoming fund selection.

* Cumulative gross return for an investment in the mandate since inception on March 5, 2020 (until February 17, 2021), after transaction costs associated with trading.