80-20 Investor Best of the Best Selection – January 2019 Update

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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