Commentary
If February 2018 was the month when volatility finally returned to equity markets then March 2018 was when it started to hurt investors. In February the sell-off was followed by a rebound but in March the market jitters over the escalating trade war rhetoric and technology stock sell-off showed little respite.
If you look at the latest heatmap once again cash was King. Interestingly bond fund returns recovered as Trump’s trade war gave rise to concerns over global economic growth which is good for bonds. The positive relationship between bonds and equities that we saw in February diminished meaning bonds have returned to the fold of the BOTB once again, proving a good diversifier to equities. It will be interesting to see whether that lasts. Yet the risks of owning bonds and gilts, and in particular index-linked gilts, have increased slightly, perhaps more so than some investors may anticipate. This explains why one of the gilt funds in this month’s BOTB is rated as medium risk. The presence of index-linked bonds is also perhaps a reflection of the increased inflationary concerns troubling both bond and equity markets.
The change in the investment backdrop in the last month has seen other funds move risk category. 80-20 Investor takes into account the current investment backdrop when looking at a fund’s risk level. For example, Premier Diversified, which has always been a low risk fund, is now a medium risk fund. When I next review my £50,000 portfolio I will review these changes with a view to maintaining the general medium risk level of my own portfolio.
Once again the BOTB contains commercial property rather than just shares of property companies in the low risk section. If we look at the medium and higher risk parts of the BOTB you will notice an increased presence of ‘income’ funds. This is not surprising as ‘income’ funds tend to invest in defensive sectors which while providing reliable dividends also tend to fare better in an equity market sell-off. In addition the BOTB has a sprinkling of smaller companies funds which is likely a reflection of investors favouring domestically focused stocks in the face of an escalating trade war (see my previous newsletter).
During the last two month’s the epicentre of the equity market correction has been US stocks and in particular technology stocks of late. This month the BOTB has a notable reduction in its US exposure but also in its technology exposure (down from around 20% to 10% in the underlying funds). So it's not a wholesale removal of either technology or US stocks but a case of risk management.
In April's BOTB there are 14 funds that have once again regained their position. Of those funds that are new many are familiar from past months' BOTB selections while many of the funds that lost their place in March's BOTB remain in their respective BFBS shortlists. It is notable that once again there is no exposure to European equities in this month's BOTB . European stocks have struggled with the German Dax only now starting to enjoy something of a rebound.
In terms of direct equity exposure the BOTB's exposure has dropped quite significantly from 67% last month to nearer 51% this month. The overriding theme of this month’s BOTB update seems to be reducing equity risk, especially in those areas most impacted by the ongoing correction, in favour of bonds and more defensive equity funds.
At the foot of this article you can see how the 80-20 Investor Selection has continued to outperform the professional fund managers as well as the market since its launch more than three years ago.
Below I list this month's selection in full with the 14 funds that regained their place in black while the new additions are in green. As usual, I have included the full list sorted alphabetically by name and then by risk category.
April's Best of the Best Selection - (A-Z by fund name)
(funds unchanged from last month are in black while new additions are in green)
| Name | Sector | ISIN Code | Risk |
| Aberdeen Diversified Core Growth | Mixed Investment 20-60% Shares | GB00BVTW3820 | Low risk |
| AXA Framlington American Growth | North America | GB00B5LXGG05 | High risk |
| AXA Framlington Japan | Japan | GB00BRJZVR88 | High risk |
| Baillie Gifford Global Discovery | Global | GB0006059330 | Medium risk |
| Baillie Gifford Japanese Income Growth | Japan | GB00BYZJQG71 | High risk |
| Baring Eastern Trust | Asia Pacific Excluding Japan | GB0000799923 | High risk |
| CFP SDL UK Buffettology | UK All Companies | GB00B3QQFJ66 | High risk |
| FP Pictet Multi Asset Portfolio | Targeted Absolute Return | GB00BVYTTC41 | Low risk |
| Janus Henderson China Opportunities | China/Greater China | GB0031860934 | High risk |
| JPM Global Macro Balanced | Mixed Investment 0-35% Shares | GB00B09RGK38 | Low risk |
| Jupiter Japan Income | Japan | GB00B0HZTZ55 | High risk |
| Jupiter UK Smaller Companies | UK Smaller Companies | GB0004911870 | High risk |
| L&G UK Property | Property | GB00BK35DV33 | Low risk |
| LF Miton UK Smaller Companies | UK Smaller Companies | GB00B818N094 | Medium risk |
| McInroy & Wood Smaller Companies | Global | GB00B8NC4D98 | Medium risk |
| Natixis H2O MultiReturns | Targeted Absolute Return | GB00BFNXSH36 | Medium risk |
| Old Mutual Corporate Bond | Sterling Corporate Bond | GB00B1XG7X39 | Low risk |
| Premier Diversified | Mixed Investment 40-85% Shares | GB00B8BJV423 | Medium risk |
| Royal London Global Index Linked | Global Bonds | GB00B772RM82 | Low risk |
| Sarasin Global Dividend (Sterling Hedged) | Global Equity Income | GB00BGDF8439 | Medium risk |
| Schroder Global Equity Income | Global Equity Income | GB00B76V7M69 | Medium risk |
| Schroder Income | UK Equity Income | GB00B3PM1190 | Medium risk |
| Schroder Income Maximiser | UK Equity Income | GB00B5B0KM51 | Medium risk |
| Schroder Sterling Corporate Bond | Sterling Corporate Bond | GB0009379370 | Low risk |
| Schroder Strategic Bond | Sterling Strategic Bond | GB00B7FPS593 | Low risk |
| Standard Life Investments Global Emerging Markets Equity | Global Emerging Markets | GB00B7ZMKJ84 | High risk |
| Standard Life Investments Global Index Linked Bond | Global Bonds | GB00B7C0H946 | Low risk |
| Standard Life Investments UK Gilt | UK Gilts | GB00B6WZXS38 | Medium risk |
| Threadneedle China Opportunities | China/Greater China | GB00B1PRW734 | High risk |
| VT Tcam Absolute Return Portfolio | Targeted Absolute Return | GB00B4QPB031 | Low risk |
April's Best of the Best Selection - (grouped by risk)
Here is April's shortlist grouped by their risk category (funds unchanged from last month are in black while new additions are in green):
| Name | Sector | ISIN Code | Risk |
| Aberdeen Diversified Core Growth | Mixed Investment 20-60% Shares | GB00BVTW3820 | Low risk |
| FP Pictet Multi Asset Portfolio | Targeted Absolute Return | GB00BVYTTC41 | Low risk |
| JPM Global Macro Balanced | Mixed Investment 0-35% Shares | GB00B09RGK38 | Low risk |
| L&G UK Property | Property | GB00BK35DV33 | Low risk |
| Old Mutual Corporate Bond | Sterling Corporate Bond | GB00B1XG7X39 | Low risk |
| Royal London Global Index Linked | Global Bonds | GB00B772RM82 | Low risk |
| Schroder Sterling Corporate Bond | Sterling Corporate Bond | GB0009379370 | Low risk |
| Schroder Strategic Bond | Sterling Strategic Bond | GB00B7FPS593 | Low risk |
| Standard Life Investments Global Index Linked Bond | Global Bonds | GB00B7C0H946 | Low risk |
| VT Tcam Absolute Return Portfolio | Targeted Absolute Return | GB00B4QPB031 | Low risk |
| Baillie Gifford Global Discovery | Global | GB0006059330 | Medium risk |
| LF Miton UK Smaller Companies | UK Smaller Companies | GB00B818N094 | Medium risk |
| McInroy & Wood Smaller Companies | Global | GB00B8NC4D98 | Medium risk |
| Natixis H2O MultiReturns | Targeted Absolute Return | GB00BFNXSH36 | Medium risk |
| Premier Diversified | Mixed Investment 40-85% Shares | GB00B8BJV423 | Medium risk |
| Sarasin Global Dividend (Sterling Hedged) | Global Equity Income | GB00BGDF8439 | Medium risk |
| Schroder Global Equity Income | Global Equity Income | GB00B76V7M69 | Medium risk |
| Schroder Income | UK Equity Income | GB00B3PM1190 | Medium risk |
| Schroder Income Maximiser | UK Equity Income | GB00B5B0KM51 | Medium risk |
| Standard Life Investments UK Gilt | UK Gilts | GB00B6WZXS38 | Medium risk |
| AXA Framlington American Growth | North America | GB00B5LXGG05 | High risk |
| AXA Framlington Japan | Japan | GB00BRJZVR88 | High risk |
| Baillie Gifford Japanese Income Growth | Japan | GB00BYZJQG71 | High risk |
| Baring Eastern Trust | Asia Pacific Excluding Japan | GB0000799923 | High risk |
| CFP SDL UK Buffettology | UK All Companies | GB00B3QQFJ66 | High risk |
| Janus Henderson China Opportunities | China/Greater China | GB0031860934 | High risk |
| Jupiter Japan Income | Japan | GB00B0HZTZ55 | High risk |
| Jupiter UK Smaller Companies | UK Smaller Companies | GB0004911870 | High risk |
| Standard Life Investments Global Emerging Markets Equity | Global Emerging Markets | GB00B7ZMKJ84 | High risk |
| Threadneedle China Opportunities | China/Greater China | GB00B1PRW734 | High risk |
The funds that dropped out of the Best of the Best Selection
For reference, the funds from last month that dropped out of the 80-20 Investor Best of the Best list are listed below. Many of them remain in the Best funds by Sector selection:
| Name | Sector | ISIN Code | Risk |
| 7IM US Equity Value | North America | GB00BWBSHX88 | Medium risk |
| Artemis US Select | North America | GB00BMMV5105 | Medium risk |
| AXA Framlington Global Technology | Technology & Telecommunication | GB00B4W52V57 | High risk |
| FP Apollo Multi Asset Balanced | Mixed Investment 20-60% Shares | GB00B3FPF276 | Low risk |
| FP Apollo Multi Asset Cautious | Mixed Investment 20-60% Shares | GB00B3FPDY55 | Low risk |
| Franklin UK Smaller Companies | UK Smaller Companies | GB00B7FFF708 | High risk |
| Janus Henderson Global Technology | Technology & Telecommunication | GB0007698847 | High risk |
| JPM US | North America | GB0030878846 | Medium risk |
| L&G High Income Trust | Sterling High Yield | GB00B0CNHJ41 | Low risk |
| LF Livingbridge UK Micro Cap | UK Smaller Companies | GB00BV9FYS80 | Medium risk |
| MI Chelverton UK Equity Growth | UK All Companies | GB00BP855B75 | High risk |
| Neptune Emerging Markets | Global Emerging Markets | GB00B8J6SV12 | High risk |
| Neptune Global Equity | Global | GB00B8DLY478 | Medium risk |
| Sarasin Fund of Funds Global Equity | Flexible Investment | GB00B7YYSB32 | Low risk |
| Standard Life Investments Japanese Equity Growth | Japan | GB00B76C7M93 | High risk |
| Standard Life Investments UK Real Estate | Property | GB00BYPHP536 | Low risk |
The Asset mix
The current asset mix of the new Best of the Best Selection is shown below with last month's figures in brackets:
- Global Fixed Interest 17% (6%)
- Alternatives 15% (12%) - includes absolute return strategies & property
- UK Corporate Fixed Interest (i.e UK bonds) 7% (0%)
- Emerging Market Fixed Interest 0% (0%)
- North American Equities 9% (24%)
- European Equities 0% (0%)
- Japanese Equities 11% (8%)
- Property 3% (8%)
- UK Equities 17% (20%)
- Cash 7% (7%)
- Asian equities 3% (3%)
- Asia Pacific Emerging equities 8% (7%)
- Other international equities 3% (5%)
80-20 Investor's outperformance continues
As you know the Best of the Best Selection is the shortlist of the best funds highlighted by our 80-20 Investor algorithm split into high, medium and low-risk categories. This shortlist is updated at the start of every month.
The green line in the chart below (click to enlarge) shows how a portfolio would have performed since inception (in August 2014) if it had been split equally between the Best of the Best Selection funds and then switched each month when each new shortlist was published. I have also charted the performance against that of the FTSE 100 (the black line) and the average cautious managed fund (blue line) and the average managed fund with up to 85% equity exposure (red line). In reality, the 80-20 Investor's asset allocation typically lies between these two as it usually has 60-85% exposure to equities at any one time. So they provide a good comparison of how fund managers with a similar remit have fared over the same period.
As you can see, since launch in August 2014 the 80-20 Investor portfolio has HUGELY outperformed the average managed fund and the market.
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