80-20 Investor Best of the Best Selection – December 2016 Update

Commentary

11 funds from last month's 29 Best of the Best Selection regained their position in December's shortlist. November was a tough month for investors with the average multi-asset fund down 2% and it was a rare occasion as the 80-20 Investor Best of the Best Selection (BOTB) underperformed falling 4%. But to put that into some form of context, the BOTB is still up 13.32% in 2016 alone, comfortably outperforming the average multi-asset fund by between 3.75% - 6.14%. At the foot of this article you can see how the 80-20 Investor Portfolio has continued to outperform the professional fund managers as well as the market since its launch over 2 years ago. Most of November's pain for the BOTB was felt in a single day via its bond global and Asian equity holding. These things happen and the catalyst was Donald Trump's election victory. Ultimately unless you had been 100% invested in US equities (or stayed in cash) you would have lost money as an investor during November. As such there is little to dwell on. We are more interested in trends over longer timeframes than a month and if history serves as a guide then we are likely to see some form of moderation in the extreme moves we've seen.

When looking at the new BOTB list it is interesting to see that the bond holdings are almost exclusively UK high yield and strategic bond funds, nearly all of which I previously identified (in my Bond funds for a bond bear market) as having a lower more favourable duration. Overall the global bond exposure of the BOTB has dropped to its lowest level for some time with exposure to UK fixed interest increasing slightly which also should reduce the currency exposure of the portfolio slightly.

The number of managed funds from the Mixed sectors has also fallen, which reflects the impact of the global bond sell-off as most managed funds maintain a core exposure to global bonds. Once again we see Targeted Absolute Return funds providing stability and indeed two of the funds that retained their position in the portfolio are from this sector. Perhaps unsurprisingly the exposure to US equities has crept up a touch, a reflection of their resilience after Trump's victory.

The portfolio's direct equity exposure remains around 50% while the 'alternatives' listed will likely include exposure to equities but via derivatives etc. Unfortunately the opaque 'alternatives' label is a result of some fund managers' inability to fit their fund holdings into one of the Investment Association's official categories. So it's something DIY investors are stuck with.

Below I list this month's selection in full with the 11 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.

December'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 Level
7IM - Unconstrained	Targeted Absolute Return	GB00B75MS619	Medium risk
Artemis - Global Emerging Markets	Global Emerging Markets	GB00BW9HL132	High risk
Artemis - Global Income	Global Equity Income	GB00B5N99561	Medium risk
Artemis - High Income	Sterling Strategic Bond	GB00B2PLJN71	Low risk
Artemis - Monthly Distribution	Mixed Investment 20%-60% Shares	GB00B6TK3R06	Medium risk
AXA - Framlington Managed Income	Sterling Strategic Bond	GB00B6RPX228	Low risk
Baillie Gifford - Corporate Bond	Sterling Strategic Bond	GB0005947741	Low risk
Baillie Gifford - Japanese	Japan	GB0006011133	High risk
BlackRock - US Dynamic	North America	GB00B87XJQ69	High risk
Fidelity - China Consumer	China/Greater China	GB00B82ZSC67	High risk
Fidelity - Global High Yield	Sterling High Yield	GB00B7K7SQ18	Low risk
GAM - North American Growth	North America	GB0002423852	High risk
Henderson - China Opportunities	China/Greater China	GB0031860934	High risk
IFSL - Brooks Macdonald Defensive Capital	Targeted Absolute Return	GB00B61MR835	Low risk
Invesco Perpetual - Asian	Asia Pacific Excluding Japan	GB00B8N44Q86	High risk
Jupiter - Income Trust	UK Equity Income	GB0004791389	Medium risk
Jupiter - UK Special Situations	UK All Companies	GB0004777347	Medium risk
Majedie - UK Equity	UK All Companies	GB0033283895	Medium risk
Man GLG - Corporate Bond	Global Bonds	GB00B0118B85	Medium risk
Man GLG - Japan Core Alpha	Japan	GB00B3F46Y30	High risk
Marlborough - European Multi-Cap	Europe Excluding UK	GB0001719730	Medium risk
Marlborough - Far East Growth	Asia Pacific Excluding Japan	GB00B0NVCN62	High risk
Old Mutual - Cirilium Conservative	Mixed Investment 0%-35% Shares	GB00B4LTHW43	Low risk
Rathbone - Strategic Bond	Sterling Strategic Bond	GB00B6ZS1L87	Low risk
Schroder - Global Equity Income	Global	GB00B76V7M69	High risk
Schroder - Monthly High Income	Sterling High Yield	GB00B83RDY83	Low risk
TB Saracen - Global Income & Growth	Global Equity Income	GB00B8MG4091	Medium risk
Threadneedle - Dollar Bond	Global Bonds	GB00B9BRCL73	Medium risk
Threadneedle - Dynamic Real Return	Targeted Absolute Return	GB00BWWC6P48	Low risk

December's Best of the Best Selection - (grouped by risk)

Here is December'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 Level
Artemis - High Income	Sterling Strategic Bond	GB00B2PLJN71	Low risk
AXA - Framlington Managed Income	Sterling Strategic Bond	GB00B6RPX228	Low risk
Baillie Gifford - Corporate Bond	Sterling Strategic Bond	GB0005947741	Low risk
Fidelity - Global High Yield	Sterling High Yield	GB00B7K7SQ18	Low risk
IFSL - Brooks Macdonald Defensive Capital	Targeted Absolute Return	GB00B61MR835	Low risk
Old Mutual - Cirilium Conservative	Mixed Investment 0%-35% Shares	GB00B4LTHW43	Low risk
Rathbone - Strategic Bond	Sterling Strategic Bond	GB00B6ZS1L87	Low risk
Schroder - Monthly High Income	Sterling High Yield	GB00B83RDY83	Low risk
Threadneedle - Dynamic Real Return	Targeted Absolute Return	GB00BWWC6P48	Low risk
7IM - Unconstrained	Targeted Absolute Return	GB00B75MS619	Medium risk
Artemis - Global Income	Global Equity Income	GB00B5N99561	Medium risk
Artemis - Monthly Distribution	Mixed Investment 20%-60% Shares	GB00B6TK3R06	Medium risk
Jupiter - Income Trust	UK Equity Income	GB0004791389	Medium risk
Jupiter - UK Special Situations	UK All Companies	GB0004777347	Medium risk
Majedie - UK Equity	UK All Companies	GB0033283895	Medium risk
Man GLG - Corporate Bond	Global Bonds	GB00B0118B85	Medium risk
Marlborough - European Multi-Cap	Europe Excluding UK	GB0001719730	Medium risk
TB Saracen - Global Income & Growth	Global Equity Income	GB00B8MG4091	Medium risk
Threadneedle - Dollar Bond	Global Bonds	GB00B9BRCL73	Medium risk
Artemis - Global Emerging Markets	Global Emerging Markets	GB00BW9HL132	High risk
Baillie Gifford - Japanese	Japan	GB0006011133	High risk
BlackRock - US Dynamic	North America	GB00B87XJQ69	High risk
Fidelity - China Consumer	China/Greater China	GB00B82ZSC67	High risk
GAM - North American Growth	North America	GB0002423852	High risk
Henderson - China Opportunities	China/Greater China	GB0031860934	High risk
Invesco Perpetual - Asian	Asia Pacific Excluding Japan	GB00B8N44Q86	High risk
Man GLG - Japan Core Alpha	Japan	GB00B3F46Y30	High risk
Marlborough - Far East Growth	Asia Pacific Excluding Japan	GB00B0NVCN62	High risk
Schroder - Global Equity Income	Global	GB00B76V7M69	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 Level
Artemis - US Extended Alpha	North America	GB00BMMV5G59	Medium risk
Baillie Gifford - Emerging Markets Leading Companies	Global Emerging Markets	GB00B06HZN29	High risk
BlackRock - NURS II Consensus 60	Mixed Investment 20%-60% Shares	GB00B86VJL67	Low risk
BlackRock - Overseas Corporate Bond Tracker	Global Bonds	GB00B58YKH53	Medium risk
Insight - Inflation Linked Corporate Bond	Sterling Strategic Bond	GB00B8CJGZ73	Low risk
JPM - Europe Dynamic Ex UK	Europe Excluding UK	GB00B02L5M76	Medium risk
Jupiter - Global Emerging Markets	Global Emerging Markets	GB00B4JVHP59	High risk
L&G - Global 100 Index Trust	Global	GB00B0CNH056	Medium risk
L&G - Global Technology Index Trust	Technology & Telecom	GB00B0CNH163	High risk
S&W - Saltus Multi Asset Class	Targeted Absolute Return	GB00B43T2834	Low risk
Schroder - European Alpha Plus	Europe Excluding UK	GB00B7LDKR32	Medium risk
Schroder - Tokyo	Japan	GB00B4SZR818	High risk
Threadneedle - Defensive	Mixed Investment 0%-35% Shares	GB0032010042	Low risk
Threadneedle - Defensive Equity & Bond	Mixed Investment 0%-35% Shares	GB0032009937	Low risk
Threadneedle - European High Yield Bond	Global Bonds	GB00B6RRFW23	Medium risk
Threadneedle - Japan	Japan	GB00B7TRT705	High risk
UBS - Global Emerging Markets Equity	Global Emerging Markets	GB0033696013	High risk
Vanguard - LifeStrategy 80% Equity	Mixed Investment 40%-85% Shares	GB00B4PQW151	Medium 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  15% (21%)
• Alternatives/Other 18% (19%) - mostly absolute return strategies
• UK Corporate Fixed Interest (i.e UK bonds) 10% (6%)
• North American Equities 12% (9%)
• European Equities 7% (12%)
• Japanese Equities 8% (11%)
• Property 0% (0%)
• UK Equities 12% (8%)
• Cash 5% (0%)
• Asian equities 4% (5%)
• Asia Pacific Emerging equities 9% (9%)

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. The large spike in performance in the 80-20 Investor portfolio on the right hand side of the chart is where the portfolio rallied after the Brexit referendum while global markets plummeted.

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