Commentary
As explained in this month’s newsletter the market narrative was turned on its head at the start of September. Assets and equity sectors that performed well in August struggled in the first two weeks of September.
For UK investors the biggest influence on fund and portfolio returns was the strengthening of the pound. Over the course of the month the pound rallied more than 3% against the US dollar, a result of the Brexit saga and dollar strength, hampering returns of overseas holdings as well as index-linked gilt funds.
Unsurprisingly funds with significant US equity exposure struggled (i.e Artemis US Select and Fundsmith Equity fell over 3%). Meanwhile, after a shaky start to September, when defensive sectors lagged, infrastructure funds and REITs (i.e. Fidelity Global Property) rebounded to finish once again among last months’ BOTB top performers (up between 0.6%and 0.9%). Despite this, overall the BOTB was down an average of 1.23% for the month of September versus +0.99% for the average Mixed 40-85% Shares sector.
To give this some context, during September the BOTB simply gave back the outperformance it achieved during August when the market was pricing in a recession.
As we enter October the market narrative has once again begun pricing in the possibility of a global recession, helping to boost bonds and defensives in the short term. This narrative could just as easily turn on its head again, as we’ve seen it do a number of times in the last few months and particularly at the start of September.
October’s BOTB sees a number of changes. The low-risk funds are now almost exclusively exposed to UK assets, in particular bonds, which is a reflection of the increased volatility and risk that currency exposure brings. You will notice that a number of funds with overseas exposure (global bonds and equities) have moved up risk categories which reflects the impact of the gyrations in the pound. TB Evenlode Global Income fund is a case in point, which is now classed as high risk.
While there is less property exposure in October’s BOTB there is an increase in exposure to utilities through funds such as VT Gravis Clean Energy Income. Bear in mind that the 80-20 Investor algorithm looks at medium-term trends so the BOTB still maintains some exposure to defensive sectors. The BOTB still has no exposure to emerging market equities but has now got a small exposure to Japanese equities, which received a huge boost from a weakening yen versus the dollar during September.
Overall 13 funds retain their place in this month's BOTB, while the equity content dropped once again, this time from 57% to 52%.
At the foot of this article you can see how the 80-20 Investor selection has outperformed the professional fund managers as well as the market since its launch five years ago.
Below I list this month's selection in full with the 13 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 |
| Artemis US Select | North America | GB00BMMV5105 | High risk |
| ASI Emerging Market Debt | Global Emerging Markets Bond | GB00B8K56P77 | Medium risk |
| ASI Ethical Corporate Bond | Sterling Corporate Bond | GB00B708KW45 | Low risk |
| Baillie Gifford High Yield Bond | Sterling High Yield | GB0030816713 | Low risk |
| Baillie Gifford Investment Grade Bond | Sterling Corporate Bond | GB0030816481 | Low risk |
| BNY Mellon International Bond | Global Bonds | GB0006779655 | Medium risk |
| BNY Mellon Real Return | Targeted Absolute Return | GB0001642635 | Low risk |
| Close Growth Portfolio | Flexible Investment | GB00B7F1W221 | Medium risk |
| Fidelity Global Dividend | Global Equity Income | GB00B7778087 | Medium risk |
| Fidelity Global Enhanced Income | Global Equity Income | GB00BD1NLJ41 | Medium risk |
| Fidelity Global Focus | Global | GB00B3RDH349 | High risk |
| First State Global Listed Infrastructure | Global | GB00B24HJL45 | Medium risk |
| Janus Henderson Fixed Interest Monthly Income | Sterling Strategic Bond | GB0001920486 | Low risk |
| Jupiter Japan Income | Japan | GB00B0HZTZ55 | High risk |
| Jupiter Merlin Conservative Portfolio | Mixed Investment 0-35% Shares | GB00B8GDMB34 | Low risk |
| Legg Mason IF ClearBridge US Equity Income | North America | GB00B3TTBW75 | High risk |
| LF Miton Global Infrastructure Income | Global Equity Income | GB00BD3H9L21 | Medium risk |
| M&G Global Listed Infrastructure | Global | GB00BF00R928 | Medium risk |
| M&G Global Themes | Global | GB00B7FW1L71 | High risk |
| Marlborough US Multi-Cap Income | North America | GB0001722882 | High 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 |
| Sarasin Responsible Global Equity | Global | GB00B8369M57 | High risk |
| Schroder All Maturities Corporate Bond | Sterling Corporate Bond | GB00B4V0R051 | Low risk |
| Schroder Global Cities Real Estate | Property Other | GB00B1VPTY75 | High risk |
| Schroder Sterling Corporate Bond | Sterling Corporate Bond | GB0009379370 | Low risk |
| TB Evenlode Global Income | Global Equity Income | GB00BF1QMV61 | High risk |
| Vanguard LifeStrategy 20% Equity | Mixed Investment 0-35% Shares | GB00B4NXY349 | Low risk |
| Vanguard UK Inflation-Linked Gilt Index | UK Index Linked Gilts | GB00B45Q9038 | High risk |
| VT Gravis Clean Energy Income | Global | GB00BFN4H792 | 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 |
| ASI Ethical Corporate Bond | Sterling Corporate Bond | GB00B708KW45 | Low risk |
| Baillie Gifford High Yield Bond | Sterling High Yield | GB0030816713 | Low risk |
| Baillie Gifford Investment Grade Bond | Sterling Corporate Bond | GB0030816481 | Low risk |
| BNY Mellon Real Return | Targeted Absolute Return | GB0001642635 | Low risk |
| Janus Henderson Fixed Interest Monthly Income | Sterling Strategic Bond | GB0001920486 | Low risk |
| Jupiter Merlin Conservative Portfolio | Mixed Investment 0-35% Shares | GB00B8GDMB34 | Low risk |
| Royal London Sustainable Managed Growth Trust | Mixed Investment 0-35% Shares | GB00B8H7XS88 | Low risk |
| Schroder All Maturities Corporate Bond | Sterling Corporate Bond | GB00B4V0R051 | Low risk |
| Schroder Sterling Corporate Bond | Sterling Corporate Bond | GB0009379370 | Low risk |
| Vanguard LifeStrategy 20% Equity | Mixed Investment 0-35% Shares | GB00B4NXY349 | Low risk |
| ASI Emerging Market Debt | Global Emerging Markets Bond | GB00B8K56P77 | Medium risk |
| BNY Mellon International Bond | Global Bonds | GB0006779655 | Medium risk |
| Close Growth Portfolio | Flexible Investment | GB00B7F1W221 | Medium risk |
| Fidelity Global Dividend | Global Equity Income | GB00B7778087 | Medium risk |
| Fidelity Global Enhanced Income | Global Equity Income | GB00BD1NLJ41 | Medium risk |
| First State Global Listed Infrastructure | Global | GB00B24HJL45 | Medium risk |
| LF Miton Global Infrastructure Income | Global Equity Income | GB00BD3H9L21 | Medium risk |
| M&G Global Listed Infrastructure | Global | GB00BF00R928 | Medium risk |
| Royal London Sustainable Leaders Trust | UK All Companies | GB00B7V23Z99 | Medium risk |
| VT Gravis Clean Energy Income | Global | GB00BFN4H792 | Medium risk |
| Artemis US Select | North America | GB00BMMV5105 | High risk |
| Fidelity Global Focus | Global | GB00B3RDH349 | High risk |
| Jupiter Japan Income | Japan | GB00B0HZTZ55 | High risk |
| Legg Mason IF ClearBridge US Equity Income | North America | GB00B3TTBW75 | High risk |
| M&G Global Themes | Global | GB00B7FW1L71 | High risk |
| Marlborough US Multi-Cap Income | North America | GB0001722882 | High risk |
| Sarasin Responsible Global Equity | Global | GB00B8369M57 | High risk |
| Schroder Global Cities Real Estate | Property Other | GB00B1VPTY75 | High risk |
| TB Evenlode Global Income | Global Equity Income | GB00BF1QMV61 | High risk |
| Vanguard UK Inflation-Linked Gilt Index | UK Index Linked Gilts | GB00B45Q9038 | 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 |
| Allianz Gilt Yield | UK Gilts | GB0031383283 | Low risk |
| ASI Europe ex UK Equity | Europe Excluding UK | GB00B0LG6P37 | High risk |
| ASI Global Unconstrained Equity | Global | GB00B6915J97 | High risk |
| AXA Sterling Index Linked Bond | UK Index Linked Gilts | GB00B02Y6B22 | Medium risk |
| Carvetian Electric & General Investment | Global | GB00B52CBS38 | Medium risk |
| Fidelity Global Property | Property Other | GB00B7K2NZ09 | High risk |
| Fidelity Multi Asset Allocator Defensive | Mixed Investment 0-35% Shares | GB00B8YQD220 | Low risk |
| Fundsmith Equity | Global | GB00B4Q5X527 | High risk |
| Legg Mason IF Martin Currie North American | North America | GB00BVZ6VD94 | High risk |
| LF Canlife Global Macro Bond | Global Bonds | GB00B4LW2X97 | Low risk |
| LF Miton European Opportunities | Europe Excluding UK | GB00BZ2K2M84 | High risk |
| Morgan Stanley Global Brands | Global | GB0032482498 | High risk |
| Royal London Index Linked | UK Index Linked Gilts | GB00B8DDWW71 | Medium risk |
| TB Evenlode Income | UK All Companies | GB00BD0B7D55 | Medium risk |
| Threadneedle Emerging Market Bond | Global Emerging Markets Bond | GB0002365608 | Low risk |
| Threadneedle European Bond | Global Bonds | GB0002702909 | Low risk |
| Troy Asset Management Ltd Trojan Global Equity | Global | GB00B0ZJ5S47 | 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 14% (14%)
- Alternatives 14% (9%) - includes absolute return strategies & some bond exposure
- UK Corporate Fixed Interest (i.e UK bonds) 12% (0%)
- Emerging Market Fixed Income 4% (6%)
- North American Equities 22% (23%)
- European Equities 8% (12%)
- Japanese Equities 5% (0%)
- Property 4% (7%)
- UK Equities 9% (8%)
- Gilts 4% (10%)
- Cash 0% (4%)
- Emerging market equities 0% (0%)
- Other international equities 4% (7%)
- Asian Equities 0% (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 a FTSE 100 tracker fund (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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