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A defensive approach from Fidelity

Fidelity’s equity growth defender fund is an Oeic that  aims to protect growth and investors capital by moving investment between UK equities and cash to maintain a target of 80 per cent above the fund’s highest ever value.

The fund is designed to provide a smoother ride for investors than a pure UK equity fund. It will invest up to 100 per cent in equities, increasing exposure during rising market conditions. If the UK equity market then takes a turn for the worse, it will protect investors’ capital and the gains made during rising market condition by using cash as a shelter.

Equity markets can be volatile, which leaves some investors unsure about the best time to invest. Fidelity’s systematic process, where the allocation between cash and equities is reviewed daily using a computer-based asset allocation model, removes this responsibility from the adviser and client.

Two fund managers share responsibility for the fund. Stephen Fulford oversees the asset allocation model and risk management, while James Griffin – manager of Fidelity MoneyBuilder growth, will manage the equity portfolio.

Fidelity says the fund price should remain above 80 per cent of its highest ever value unless the fund’s equity holdings fall by more than 20 per cent in a day. This would be unusual but Fidelity points out that the protection is a target, not a guarantee.

Funds such as the Investec multi-asset protector fund and Architas multi-manager protector funds use a similar strategy but differ from Fidelity’s fund in that they are multi-asset multi-manager portfolios.

The Fidelity fund could be useful for investors who want the growth potential of equities, which cannot be generated by cash, but are put off by the potential for short-term volatility and the risk of losing money during market declines.

However, the fund may lag a pure equity fund over the long term because it is not always fully exposed to equities. The fund would also have high levels of cash in a severe downturn and could have an uncertain future in market conditions where rebuilding the equity exposure is not possible.

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