80-20 Investor Best of the Best Selection - July 2015 Update

A total of 7 funds from June's Best of the Best Selection make it into July's selection. Below I list this month's selection in full with the 7 funds that regained their place in green while the new additions are in black.

For the first time I have included the full list sorted by both alphabetical name and then by risk category. This is following a request to do so from an 80-20 Investor member. Remember if you have any feedback or development requests for 80-20 Investor please let us know so that we can look to act upon them, as I have here.

But before I start, here is an investing lesson born out of my analysis of over 2,200 funds.

During June when the Greek debt crisis escalated, clearly fund managers were unprepared as 96% of them lost money. Also the worst thing you could have done was to buy a gold fund such as BlackRock Gold & General (down over 10%).

Gold is often cited as a safe haven asset to buy when a crisis hits markets. Gold is a volatile asset in itself and seldom behaves as people claim it should in a crisis. Yet funds like BlackRock Gold & General actually invest in the shares of gold mining companies so are even more volatile and actually high risk. Don't fall into the trap of a) rushing to buy gold and b) thinking that a gold fund always invests in physical gold.

July's Best of the Best Selection - (A-Z by fund name)

(funds unchanged from last month are in green while new additions are in black)

Name	Sector	ISIN Code	Risk
7IM - Moderately Cautious	Mixed Investment 0%-35% Shares	GB0033953497	Low risk
Aberdeen - European High Yield Bond	Sterling High Yield	GB00B77QLR32	Low risk
Aberdeen - High Yield Bond	Sterling High Yield	GB00B5968F40	Low risk
Aberdeen - Property Trust	Property	GB00B036Z329	Low risk
Argonaut - FP Argonaut European Enhanced Income	Europe Excluding UK	GB00B7M3XX95	Medium risk
BlackRock - Asia Special Situations	Asia Pacific Excluding Japan	GB00BJGZYG57	High risk
BlackRock - Continental European	Europe Excluding UK	GB0005804728	High risk
CF - Miton UK Value Opportunities	UK All Companies	GB00B8KV0M06	Medium risk
CF - Seneca Diversified Income	Mixed Investment 20%-60% Shares	GB0031467961	Low risk
Franklin - UK Smaller Companies	UK Smaller Companies	GB00B7FFF708	High risk
GLG - Continental Europe	Europe Excluding UK	GB00B0119370	High risk
Henderson - Japan Opportunities	Japan	GB0007683203	Medium risk
Invesco Perpetual - Hong Kong & China	China/Greater China	GB0033028332	High risk
Jupiter - Japan Income	Japan	GB00B0HZTZ55	Medium risk
M&G - Short Dated Corporate Bond	Sterling Corporate Bond	GB0031110397	Low risk
Neptune - UK Mid Cap	UK All Companies	GB00B3D7FD61	Medium risk
Old Mutual - Bond 1	Sterling Strategic Bond	GB0033476184	Low risk
PFS - Chelverton UK Equity Income	UK Equity Income	GB00B1FD6244	Medium risk
PFS - TwentyFour Dynamic Bond	Sterling Strategic Bond	GB00B566LX69	Low risk
Premier - Multi-Asset Distribution	Mixed Investment 20%-60% Shares	GB0031107799	Low risk
Schroder - European Alpha Plus	Europe Excluding UK	GB0033302877	High risk
Schroder - Monthly High Income	Sterling High Yield	GB0009505693	Low risk
Scottish Widows - UK Smaller Companies	UK Smaller Companies	GB0031644197	High risk
Threadneedle - UK Mid 250	UK All Companies	GB0033547604	Medium risk
Unicorn - UK Income	UK Equity Income	GB00B00Z1S94	Medium risk

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

Here is July's shortlist grouped by their risk category (funds unchanged from last month are in green while new additions are in black):

Name	Sector	ISIN Code	Risk
7IM - Moderately Cautious	Mixed Investment 0%-35% Shares	GB0033953497	Low risk
Aberdeen - European High Yield Bond	Sterling High Yield	GB00B77QLR32	Low risk
Aberdeen - High Yield Bond	Sterling High Yield	GB00B5968F40	Low risk
Aberdeen - Property Trust	Property	GB00B036Z329	Low risk
CF - Seneca Diversified Income	Mixed Investment 20%-60% Shares	GB0031467961	Low risk
M&G - Short Dated Corporate Bond	Sterling Corporate Bond	GB0031110397	Low risk
Old Mutual - Bond 1	Sterling Strategic Bond	GB0033476184	Low risk
PFS - TwentyFour Dynamic Bond	Sterling Strategic Bond	GB00B566LX69	Low risk
Premier - Multi-Asset Distribution	Mixed Investment 20%-60% Shares	GB0031107799	Low risk
Schroder - Monthly High Income	Sterling High Yield	GB0009505693	Low risk
Argonaut - FP Argonaut European Enhanced Income	Europe Excluding UK	GB00B7M3XX95	Medium risk
CF - Miton UK Value Opportunities	UK All Companies	GB00B8KV0M06	Medium risk
Henderson - Japan Opportunities	Japan	GB0007683203	Medium risk
Jupiter - Japan Income	Japan	GB00B0HZTZ55	Medium risk
Neptune - UK Mid Cap	UK All Companies	GB00B3D7FD61	Medium risk
PFS - Chelverton UK Equity Income	UK Equity Income	GB00B1FD6244	Medium risk
Threadneedle - UK Mid 250	UK All Companies	GB0033547604	Medium risk
Unicorn - UK Income	UK Equity Income	GB00B00Z1S94	Medium risk
BlackRock - Asia Special Situations	Asia Pacific Excluding Japan	GB00BJGZYG57	High risk
BlackRock - Continental European	Europe Excluding UK	GB0005804728	High risk
Franklin - UK Smaller Companies	UK Smaller Companies	GB00B7FFF708	High risk
GLG - Continental Europe	Europe Excluding UK	GB00B0119370	High risk
Invesco Perpetual - Hong Kong & China	China/Greater China	GB0033028332	High risk
Schroder - European Alpha Plus	Europe Excluding UK	GB0033302877	High risk
Scottish Widows - UK Smaller Companies	UK Smaller Companies	GB0031644197	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 Best of the Best list are listed below. Many of them remain in the Best funds by Sector selection:

Name	Sector	ISIN Code
7IM - Unconstrained	Targeted Absolute Return	GB00B75MS619
Aberdeen - European Property Share	Property	GB00B0H5MF69
Aberdeen - UK Smaller Companies Equity	UK Smaller Companies	GB00B07T4636
Artemis - Monthly Distribution	Mixed Investment 20%-60% Shares	GB00B74BQB01
Aviva Inv - European Equity	Europe Excluding UK	GB0032494246
Aviva Inv - High Yield Bond	Sterling High Yield	GB00B3CGJ878
AXA - Sterling Index Linked Bond	UK Index - Linked Gilts	GB00B0LLCP07
First State - Global Property Securities	Property	GB00B1F76L55
GLG - Japan CoreAlpha	Japan	GB00B0119933
Henderson - UK Smaller Companies	UK Smaller Companies	GB0007447286
HSBC - Chinese Equity	China/Greater China	GB0000204395
JPM - Cautious Managed	Mixed Investment 0%-35% Shares	GB00B09RGK38
Jupiter - Distribution	Mixed Investment 0%-35% Shares	GB0031294183
Kames - Ethical Cautious Managed	Mixed Investment 20%-60% Shares	GB00B1N9DX45
L&G - Global Emerging Markets Index	Global Emerging Markets	GB00B4KBDL25
M&G - Japan	Japan	GB0030938475
Old Mutual - Cirilium Conservative	Mixed Investment 0%-35% Shares	GB00B4LTHW43
Old Mutual - UK Mid Cap	UK All Companies	GB00B1XG7999
Threadneedle - China Opportunities	China/Greater China	GB00B1PRW734

Commentary

Unsurprisingly, following a month where markets were rocked by an escalation in the Greek debt crisis there have been sweeping changes in the 80-20 Investor Best of the Best Selection. The first thing to note is that China has all but disappeared from the selection which is not surprising given the recent sharp sell-off. Some people may wonder why it is included at all. The 80-20 Investor algorithm is based around a momentum style of investing. Clearly short-term momentum is factored in to the algorithm, hence the reduction in Chinese equity funds, but medium term momentum is also vital. The Best of the Best Selection takes this all into account in order to arrive at a short list. It's by applying this process consistently over the long term that your portfolio will benefit, yet occasionally it may throw up uncomfortable results.

A few weeks ago I published a piece of research titled The funds for a Greek exit in which M&G - Short Dated Corporate Bond featured. This fund has unsurprisingly made it into the Best of the Best Selection this month. Also the same piece of research championed property funds which invest in actual buildings (rather than the shares of property companies). Again it is interesting to see such a fund (Aberdeen Property Trust) make this month's shortlist while property-share focused funds have been axed entirely

There is also a general move towards 'equity Income' funds throughout. Equity income funds tend to invest in companies with a history of strong dividend payments. This tends to mean defensive sectors and companies, such as pharmaceutical and utility companies, which also usually fare better in a market sell-off.

The Asset mix

If you analyse all the holdings across the new Best of the Best Selection it is now split:

UK Equities 29%
Global Fixed Interest 14%
European Equities 15%
Japanese Equities 8%
UK Corporate Fixed Interest (i.e UK bonds) 7%
Asia Pacific Emerging Equities (including China) 4%
Property (mostly shares) 4%

The remainder is made up of other international equities. Overall the asset mix has marginally increased its UK exposure (via UK smaller companies funds) and cut its Asian & China exposure. Interestingly, despite the current Greek exit risks the exposure to European funds has increased. Perhaps this is not as surprising as it first seems. In the high risk category developed-European markets have fared better than more speculative stock markets, despite the Greek debt crisis being the catalyst for June's market downturn.

80-20 Investor Best of the Best fund performance – since inception August 2014

To make the comparison I have assumed that an investor bought all of the 80-20 Best of the Best funds in equal measure and switched them every month. The chart shows the level of outperformance since we began tracking the 80-20 Investor Best of the Best selection back in August 2014. The 80-20 selection is up 10.45% (green line) versus 6.82% for the average managed fund (red line) and 1.08% for the FTSE 100 (black line).