“Diversification is the name of the game,” says Interactive Investor's investment analyst Dzmitry Lipski when it comes to building a long-term portfolio which can also protect on the downside. 
Lipski said that diversification is core to building a low maintenance portfolio for the long-term.
He explained: “Having too many eggs in one basket can seriously hinder your overall portfolio returns at times of underperformance.”
Having previously spoken with Tom Sparke of GDIM Discretionary Fund Managers and AJ Bell’s Ryan Hughes, this week Lipski highlights the funds that he believes are core holdings for a long-term, low maintenance portfolio.
Fundsmith Equity
The first of Lipski’s three choices is Terry Smith’s five FE Crown-rated, £18.8bn Fundsmith Equity fund.
The fund – a popular choice with many advisers – takes a long-term approach to investment targeting attractively valued, high-quality businesses.
Companies found in the fund can sustain a high return on operating capital employed and have businesses with advantages that are difficult to replicate and do not require significant leverage to generate returns.
They also typically have a high degree of growth certainty from reinvestment of cash flows at high rates of return and are usually resilient to change, particularly in an age of disruption.
Performance of fund vs sector over 5yrs
Source: FE Analytics
Fundsmith Equity fund has made a total return of 161.38 per cent over the past five years, compared with a gain of 85.38 per cent for the MSCI World benchmark and a 68..21 per cent return for the average IA Global peer.
“Fundsmith has gained a considerable fan club of investors and it’s easy to see why,” said Lipski. “Smith adopts a Warren Buffett-esque investment approach, favouring a concentrated portfolio of quality companies that can withstand the test of time.”
FE Alpha Manager Smith’s concentrated portfolio of 20-30 stocks currently include social media giant Facebook, online payments company Paypal, and cosmetics company Estée Lauder.
The fund has an ongoing charges figure (OCF) of 1.05 per cent, a slightly more expensive annual charge than its competitors, according to Square Mile Consulting and Research, but the analysts noted that “in this instance we would argue a premium is warranted”.
Vanguard US Equity Index
The next recommendation from the Interactive Investor analyst is a tracker fund from passive investment giant Vanguard: the £6.8bn Vanguard US Equity Index fund.
Unlike Lipski’s other two recommendations, allocations in this fund are not overseen by a manager and instead seeks to replicate the performance of the US equity market, the world’s largest.
Vanguard US Equity Index, said the analyst, allows investors to access one of the strongest performing markets of the past decade at a low price.
“The US equity market has a good track record of providing steady returns over the long term,” he said. “With an OCF of just 0.1 per cent, Vanguard US Equity Index is a cheap way of getting exposure the S&P Total Market Index offering broad exposure to large-, mid-, small-, and micro-cap companies regularly traded on the New York Stock Exchange and the tech-heavy Nasdaq stock exchange.”
Performance of fund vs sector over 5yrs
Source: FE Analytics
The fund has made a return of 112.10 per cent over the past five years.
LF Lindsell Train UK Equity
The final fund to on Lipski’s list is the five FE Crown-rated £7.3bn LF Lindsell Train UK Equity fund overseen by FE Alpha manager Nick Train.
LF Lindsell Train UK Equity is another fund popular with the adviser community and has a similar style to Fundsmith taking a long-term approach and focusing on stable, cash-generative UK businesses with strong management teams.
“The UK market has experienced heightened volatility for a number of reasons – not least Brexit,” said Lipski. “This is why the LF Lindsell Train UK Equity stands out.
“Similar to Smith, manager Train adopts a buy and hold approach which requires a degree of stubbornness to hold steady when political and macro-economic concerns arrive that worry investors.”
Performance of fund vs sector over 5yrs
Source: FE Analytics
LF Lindsell Train UK Equity has an OCF of 0.65 per cent.