Commentary
If you've read January's monthly newsletter and my weekly note titled A Christmas Carol you will be aware that December was unseasonably bad for equity investors. US stocks, in particular, endured their worst December since 1931. It was only if you shorted the market via a fund from the BOTB like Thesis TM Sanditon European Select or invested in a global/emerging market bond fund that you would have made money.
The slight increase of the BOTB's equity exposure last month hampered the selection's average return but with a 55% equity exposure that average return was still better than that of the average managed fund from the Mixed Investment 40-85% equity Shares sector. The average of the former was -3.73% versus the latter's -3.99%. Not great but December was merely a reflection of 2018 in general when 97% of assets lost money, with cash proving the most attractive asset with the benefit of hindsight. Remember cash can be a destination in itself and not just a starting point for investing. My £50k portfolio lost just 2.23% in December, due to its low equity exposure, large cash holding and global bond exposure, a month that was one of the worst for equities in nearly a decade.
The attractiveness of cash right now is reflected by this month's BOTB selection only containing 24 funds, the lowest ever. Quite simply there are currently few attractive investment propositions outside of bonds and cash until the stock market finds a bottom. Within the bond space itself, global and emerging market bond funds have benefited from the pounds continued weakness and have momentum right now. The attractiveness of cash and bonds is also shown in this month's heatmap.
With the arrival of a bear market looking increasingly likely in the US (it has already arrived in other global stock markets) it's no wonder then that this month's BOTB has the lowest ever equity exposure, at just 24%. In fact this limited equity exposure is almost solely invested in the US, via global equity funds.
The exposure to property funds that invest in actual buildings (rather than equities) remain in the BOTB but I have continued to avoid them in my £50k portfolio as I have concerns about their liquidity. Fears over a no-deal Brexit could put downward pressure on commercial property prices, encouraging investors to try and sell their holding in property funds. This dash for the exit could lead to unit trust property funds having to close again, as they did in 2016 in the aftermath of the Brexit vote. I have it on good authority from industry contacts that some commercial property funds are already experiencing large redemptions and may close or apply penalties to investors' holdings soon.
This update to the BOTB is very defensive (there are only 4 high-risk funds - again the lowest ever) in the face of potential continued equity market weakness. Time will tell if this proves a wise move or whether equity markets will rebound. If they do then the momentum will shift upwards and more investment opportunities will present themselves in coming BOTB updates. However, with the volatility in markets at such extremes it would be prudent to keep an eye on the weekly updates of the BFBS tables given that the BOTB is updated once a month.
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 four years ago.
Below I list this month's selection in full with the 12 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.
January'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 |
| Artemis US Absolute Return | Targeted Absolute Return | GB00BMMV5N27 | Low risk |
| AXA Sterling Index Linked Bond | UK Index Linked Gilts | GB00B02Y6B22 | Medium risk |
| Baillie Gifford Emerging Markets Bond | Global Emerging Markets Bond | GB00B39RMQ20 | Medium risk |
| BlackRock European Absolute Alpha | Targeted Absolute Return | GB00B4Y62W78 | Low risk |
| Fidelity Global Dividend | Global Equity Income | GB00B7GJPN73 | Medium risk |
| Fidelity Global Enhanced Income | Global Equity Income | GB00BD1NLJ41 | Medium risk |
| Fidelity Short Dated Corporate Bond | Sterling Corporate Bond | GB00BDCG0G22 | Low risk |
| FP Henderson Rowe FTSE RAFI Emerging Markets | Global Emerging Markets | GB00B4TW6408 | High risk |
| Janus Henderson Inst Overseas Bond | Global Bonds | GB0007673055 | Low risk |
| L&G Emerging Markets Government Bond (US$) Index | Global Emerging Markets Bond | GB00B7MJV331 | Medium risk |
| L&G Global Health & Pharmaceuticals Index Trust | Global | GB00B0CNH387 | High risk |
| Man GLG Corporate Bond | Global Bonds | GB00B0118B85 | Low risk |
| Newton Asian Income | Asia Pacific Excluding Japan | GB00B0MY6Z69 | Medium risk |
| Newton International Bond | Global Bonds | GB0006779655 | Low risk |
| Premier Defensive Growth | Targeted Absolute Return | GB00B832BD89 | Low risk |
| Schroder Global Healthcare | Global | GB00B76V7Q08 | High risk |
| Standard Life Investments Emerging Market Debt | Global Emerging Markets Bond | GB00B8K56P77 | Medium risk |
| Standard Life Investments Global Real Estate | Property Other | GB00B774LD38 | Low risk |
| Standard Life Investments UK Real Estate | UK Direct Property | GB00BYPHP536 | Low risk |
| Thesis TM Sanditon European Select | Targeted Absolute Return | GB00BNY7Y722 | Medium risk |
| Threadneedle Emerging Market Bond | Global Emerging Markets Bond | GB00B817DW83 | Medium risk |
| Threadneedle Global Bond | Global Bonds | GB0001533685 | Low risk |
| Troy Asset Management Ltd Trojan Global Income | Global Equity Income | GB00BD82KP33 | High risk |
| Vanguard UK Inflation-Linked Gilt Index | UK Index Linked Gilts | GB00B45Q9038 | Medium risk |
January's Best of the Best Selection - (grouped by risk)
Here is January'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 |
| Artemis US Absolute Return | Targeted Absolute Return | GB00BMMV5N27 | Low risk |
| BlackRock European Absolute Alpha | Targeted Absolute Return | GB00B4Y62W78 | Low risk |
| Fidelity Short Dated Corporate Bond | Sterling Corporate Bond | GB00BDCG0G22 | Low risk |
| Janus Henderson Inst Overseas Bond | Global Bonds | GB0007673055 | Low risk |
| Man GLG Corporate Bond | Global Bonds | GB00B0118B85 | Low risk |
| Newton International Bond | Global Bonds | GB0006779655 | Low risk |
| Premier Defensive Growth | Targeted Absolute Return | GB00B832BD89 | Low risk |
| Standard Life Investments Global Real Estate | Property Other | GB00B774LD38 | Low risk |
| Standard Life Investments UK Real Estate | UK Direct Property | GB00BYPHP536 | Low risk |
| Threadneedle Global Bond | Global Bonds | GB0001533685 | Low risk |
| AXA Sterling Index Linked Bond | UK Index Linked Gilts | GB00B02Y6B22 | Medium risk |
| Baillie Gifford Emerging Markets Bond | Global Emerging Markets Bond | GB00B39RMQ20 | Medium risk |
| Fidelity Global Dividend | Global Equity Income | GB00B7GJPN73 | Medium risk |
| Fidelity Global Enhanced Income | Global Equity Income | GB00BD1NLJ41 | Medium risk |
| L&G Emerging Markets Government Bond (US$) Index | Global Emerging Markets Bond | GB00B7MJV331 | Medium risk |
| Newton Asian Income | Asia Pacific Excluding Japan | GB00B0MY6Z69 | Medium risk |
| Standard Life Investments Emerging Market Debt | Global Emerging Markets Bond | GB00B8K56P77 | Medium risk |
| Thesis TM Sanditon European Select | Targeted Absolute Return | GB00BNY7Y722 | Medium risk |
| Threadneedle Emerging Market Bond | Global Emerging Markets Bond | GB00B817DW83 | Medium risk |
| Vanguard UK Inflation-Linked Gilt Index | UK Index Linked Gilts | GB00B45Q9038 | Medium risk |
| FP Henderson Rowe FTSE RAFI Emerging Markets | Global Emerging Markets | GB00B4TW6408 | High risk |
| L&G Global Health & Pharmaceuticals Index Trust | Global | GB00B0CNH387 | High risk |
| Schroder Global Healthcare | Global | GB00B76V7Q08 | High risk |
| Troy Asset Management Ltd Trojan Global Income | Global Equity Income | GB00BD82KP33 | 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 |
| Aberdeen UK Property | UK Direct Property | GB00BTLX1F24 | Low risk |
| Carvetian Electric & General Investment | Global | GB00B52CBS38 | High risk |
| Close Diversified Income Portfolio | Mixed Investment 20-60% Shares | GB00B708TJ43 | Low risk |
| Fidelity American | North America | GB00B8GPC429 | High risk |
| Fidelity American Special Situations | North America | GB00B89ST706 | High risk |
| Fidelity Multi Asset Allocator Growth | Mixed Investment 40-85% Shares | GB00B9C3GS90 | Medium risk |
| Fidelity Multi Asset Income & Growth | Mixed Investment 40-85% Shares | GB00BGFBN227 | Low risk |
| JPM US Equity Income | North America | GB00B3FJQ045 | High risk |
| LF Canlife North American | North America | GB00B73N3278 | High risk |
| Morgan Stanley Global Brands | Global | GB0032482498 | High risk |
| Newton Global Income | Global Equity Income | GB00B0MY6T00 | Medium risk |
| Sarasin Global Higher Dividend | Global Equity Income | GB00B84ZSV39 | Medium risk |
| TB Evenlode Global Income | Global Equity Income | GB00BF1QMV61 | Medium risk |
| Thesis TM Sanditon European | Europe Excluding UK | GB00BNY7YH21 | Medium risk |
| Thesis TM Sanditon UK Select | Targeted Absolute Return | GB00BNY7YM73 | Medium risk |
| TIME Investments Commercial Freehold | UK Direct Property | GB00BLRZPX27 | Low risk |
| Troy Asset Management Ltd Trojan | Flexible Investment | GB0034243732 | Low risk |
| Troy Asset Management Ltd Trojan Global Equity | Global | GB00B0ZJ5S47 | High 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 16% (10%)
- Alternatives 19% (20%) - includes absolute return strategies & property
- UK Corporate Fixed Interest (i.e UK bonds) 4% (0%)
- Emerging Market Fixed Interest 15% (0%)
- North American Equities 9% (26%)
- European Equities 0% (8%)
- Japanese Equities 0% (0%)
- Property 8% (10%)
- UK Equities 0% (8%)
- Gilts 8% (0%)
- Cash 6% (5%)
- Asia Pacific Emerging equities 5% (2%)
- Other international equities 10% (11%)
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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Funds invest in shares, bonds, and other financial instruments and are by their nature speculative and can be volatile. You should never invest more than you can safely afford to lose. The value of your investment can go down as well as up so you may get back less than you originally invested. Tax rules can change and benefits depend on individual circumstances.
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