80-20 Investor Best of the Best Selection - October 2018 Update

Commentary

While September was a good month from a headline equity index level (see September's monthly newsletter) the updated 80-20 Investor heatmap shows how fund managers struggled to break even, with most losing money. The stand out sector performance-wise was Japanese equities with the weakening yen boosting returns.

The divergence between US stocks, global stocks and other assets showed no sign of abating and explains the slight increase in the US equity allocation in this month's BOTB. It is interesting to see AXA Framlington American reappear in the BOTB having dropped out of the list last month, but it is a reflection of the narrowing bull market in equities.

Bricks and mortar property funds have finally got their own Investment Association sector which allowed the Standard Life UK Real Estate fund to slide back into the low-risk end of the BOTB. I held this fund in my own portfolio for some time and it did exactly what I wanted it to. Yet concerns over a hard Brexit and a repeat of the fund closures that plagued such funds after the Brexit vote in 2106 meant that I sold out of my position. My view still hasn't changed. There's still little to get excited about in the bond market at the moment, which has been compounded by this week's bond market sell-off. Consequently, the BOTB still has significant exposure to absolute return strategies and now mixed asset funds, which invest in a mixture of assets including equities and bonds.

15 funds have regained their position in this month's BOTB. Of those funds that are new many are familiar from past months' BOTB selections while many of the funds that lost their place in this month's BOTB remain in their respective BFBS shortlists.

In terms of direct equity exposure, the BOTB's exposure remains at 65%. 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 15 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.

October'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
7IM Sustainable Balance	Mixed Investment 20-60% Shares	GB00B1LBFZ86	Low risk
AXA Framlington American Growth	North America	GB00B5LXGG05	High risk
AXA Framlington Global Technology	Technology & Telecommunications	GB00B4W52V57	High risk
AXA Global Distribution	Mixed Investment 20-60% Shares	GB0008309063	Low risk
Baillie Gifford Japanese Income Growth	Japan	GB00BYZJQG71	Medium risk
Baillie Gifford Positive Change	Global	GB00BYVGKV59	High risk
BlackRock NURS II Consensus 35	Mixed Investment 0-35% Shares	GB00B7W6H253	Low risk
Fidelity European	Europe Excluding UK	GB00BFRT3504	Medium risk
Fidelity Global Dividend	Global Equity Income	GB00B7GJPN73	Medium risk
FP Octopus UK Micro Cap Growth	UK Smaller Companies	GB00BYQ7HN43	High risk
Fundsmith Equity	Global	GB00B4Q5X527	High risk
Janus Henderson US Growth	North America	GB0032438466	High risk
JPM Global High Yield Bond	Sterling High Yield	GB0008350976	Low risk
L&G Global Health & Pharmaceuticals Index Trust	Global	GB00B0CNH387	High risk
LF Livingbridge UK Micro Cap	UK Smaller Companies	GB00BV9FYS80	Medium risk
LF Miton European Opportunities	Europe Excluding UK	GB00BZ2K2M84	High risk
Liontrust Sustainable Future Absolute Growth	Flexible Investment	GB0030029622	Medium risk
Liontrust Sustainable Future Defensive Managed	Mixed Investment 20-60% Shares	GB00BMN90635	Low risk
Liontrust Sustainable Future UK Growth	UK All Companies	GB0030028764	Medium risk
Man GLG Corporate Bond	Global Bonds	GB00B0118B85	Low risk
Morgan Stanley Global Brands	Global	GB0032482498	Medium risk
Neptune Global Technology	Technology & Telecommunications	GB00BYXZ5N79	High risk
Neptune US Opportunities	North America	GB00B7K9LQ88	High risk
Newton Global Income	Global Equity Income	GB00B0MY6T00	Medium risk
Newton Real Return	Targeted Absolute Return	GB0001642635	Low risk
Sarasin Global Dividend	Global Equity Income	GB00BGDF8F44	Medium risk
Schroder Managed Wealth Portfolio	Mixed Investment 20-60% Shares	GB00B84YNB54	Low risk
Standard Life Investments UK Real Estate	UK Direct Property	GB00BYPHP536	Low risk
Threadneedle Dynamic Real Return	Targeted Absolute Return	GB00B93TQ868	Low risk
VT Castlebay UK Equity	UK All Companies	GB00BV0LF607	Medium risk

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

Here is October'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
7IM Sustainable Balance	Mixed Investment 20-60% Shares	GB00B1LBFZ86	Low risk
AXA Global Distribution	Mixed Investment 20-60% Shares	GB0008309063	Low risk
BlackRock NURS II Consensus 35	Mixed Investment 0-35% Shares	GB00B7W6H253	Low risk
JPM Global High Yield Bond	Sterling High Yield	GB0008350976	Low risk
Liontrust Sustainable Future Defensive Managed	Mixed Investment 20-60% Shares	GB00BMN90635	Low risk
Man GLG Corporate Bond	Global Bonds	GB00B0118B85	Low risk
Newton Real Return	Targeted Absolute Return	GB0001642635	Low risk
Schroder Managed Wealth Portfolio	Mixed Investment 20-60% Shares	GB00B84YNB54	Low risk
Standard Life Investments UK Real Estate	UK Direct Property	GB00BYPHP536	Low risk
Threadneedle Dynamic Real Return	Targeted Absolute Return	GB00B93TQ868	Low risk
Baillie Gifford Japanese Income Growth	Japan	GB00BYZJQG71	Medium risk
Fidelity European	Europe Excluding UK	GB00BFRT3504	Medium risk
Fidelity Global Dividend	Global Equity Income	GB00B7GJPN73	Medium risk
LF Livingbridge UK Micro Cap	UK Smaller Companies	GB00BV9FYS80	Medium risk
Liontrust Sustainable Future Absolute Growth	Flexible Investment	GB0030029622	Medium risk
Liontrust Sustainable Future UK Growth	UK All Companies	GB0030028764	Medium risk
Morgan Stanley Global Brands	Global	GB0032482498	Medium risk
Newton Global Income	Global Equity Income	GB00B0MY6T00	Medium risk
Sarasin Global Dividend	Global Equity Income	GB00BGDF8F44	Medium risk
VT Castlebay UK Equity	UK All Companies	GB00BV0LF607	Medium risk
AXA Framlington American Growth	North America	GB00B5LXGG05	High risk
AXA Framlington Global Technology	Technology & Telecommunications	GB00B4W52V57	High risk
Baillie Gifford Positive Change	Global	GB00BYVGKV59	High risk
FP Octopus UK Micro Cap Growth	UK Smaller Companies	GB00BYQ7HN43	High risk
Fundsmith Equity	Global	GB00B4Q5X527	High risk
Janus Henderson US Growth	North America	GB0032438466	High risk
L&G Global Health & Pharmaceuticals Index Trust	Global	GB00B0CNH387	High risk
LF Miton European Opportunities	Europe Excluding UK	GB00BZ2K2M84	High risk
Neptune Global Technology	Technology & Telecommunications	GB00BYXZ5N79	High risk
Neptune US Opportunities	North America	GB00B7K9LQ88	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 European Equity	Europe Excluding UK	GB00B0LG6P37	Medium risk
Allianz Continental European	Europe Excluding UK	GB00B3Q8YX99	Medium risk
BlackRock European Absolute Alpha	Targeted Absolute Return	GB00B4Y62W78	Low risk
Fidelity Global Property	Property	GB00B7K2NZ09	High risk
iShares UK Gilts All Stocks Index (UK)	UK Gilts	GB00B83HGR24	Low risk
JPM Japan	Japan	GB0030879471	High risk
Jupiter UK Smaller Companies	UK Smaller Companies	GB0004911870	Medium risk
McInroy & Wood Smaller Companies	Global	GB00B8NC4D98	Medium risk
Royal London European Growth Trust	Europe Excluding UK	GB0009537407	Medium risk
Royal London Sustainable Diversified Trust	Mixed Investment 20-60% Shares	GB00B844WJ68	Low risk
Royal London Sustainable Leaders Trust	UK All Companies	GB00B7V23Z99	Medium risk
Royal London Sustainable Managed Growth Trust	Mixed Investment 0-35% Shares	GB00B8H7XS88	Low risk
S&W Saltus Wealth	Targeted Absolute Return	GB00B6RLZP73	Low risk
Standard Life Investments Global Smaller Companies	Global	GB00B7KVX245	High risk
Standard Life Investments Higher Income	Sterling High Yield	GB00B79RR984	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 10% (6%)
Alternatives 16% (14%) - includes absolute return strategies & property
UK Corporate Fixed Interest (i.e UK bonds) 0% (8%)
Emerging Market Fixed Interest 0% (0%)
North American Equities 26% (21%)
European Equities 12% (19%)
Japanese Equities 5% (4%)
Property 4% (3%)
UK Equities 19% (18%)
UK Gilts 0% (3%)
Cash 5% (4%)
Asian equities 0% (0%)
Asia Pacific Emerging equities 0% (0%)
Other international equities 3% (0%)

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.