Funds to ‘buy & forget’ in 2015 & the Perfect Portfolio

While the simplest way to benefit from 80-20 Investor is to use our quant analysis to decide what to buy and sell in minutes, based on momentum, I also provide in depth research, such as this article, which is not based on momentum yet enables you to instantly benefit from days of research by me. Again 80-20 Investing at work as you reap the benefits but with little effort on your part.

It's around this time of year that we are inundated with press pieces listing the Best & Worst funds' of the last year. Unless we are going to have a complete replay of last year you aren't likely to get the same result in 2015. Even from a pure momentum perspective taking a year's viewpoint is of limited use.

You're more likely to hit oil if you dig deeper!

As I mentioned, the year-end roundups don't provide much real insight to take forward. So therein lies a DIY lesson for everyone. If you are trying to draw insights from historic data you need to dig deeper to find something useful that can be used in the near future.

Great research starts with asking a question and then experimenting to find the answers. You might not even have an idea of what the answer will be. In fact, it's better if you don't as then you know that the results will be true and unbiased.

So rather than just look at the best and worst performers, I thought I'd analyse the performance and behaviour of funds during the 2 recent market sell-offs. Are there any funds that have performed particularly well. If you look at the chart of the FTSE 100 below you can see there were two sell offs recently. One from 19th September to 16th October when concerns over global growth sparked a 9% fall in the FTSE 100. The other occurred between 5th and 15th December caused by concerns around the eurozone and the continued fall in the price of oil and the Russian rouble.

 

The funds to buy & forget in 2015

If I just did a pure best and worst performers analysis then the funds which outperform in a sell-off would predominantly be safety plays such as gilts (which they were). Similarly the funds most exposed to oil and energy took a battering, particularly in December. So instead I analysed every unit trust out there in key buy and hold sectors. Those investors most likely to buy and hold tend to stick to unit trusts, rather than ETFs or investment trusts. So I analysed over 1,100 funds in the following sectors:

• Flexible Investment
• Global Retail
• Mixed Investment 0%-35%
• Mixed Investment 20%-60%
• Mixed Investment 40%-85%
• Targeted Absolute Return
• UK All Companies
• UK Equity Income

Then I determined the funds that not only outperformed significantly in both market sell-offs but also outperformed over the entire period. That is no mean feat, as when markets bounce back after a sell-off the funds which managed to avoid the crash then tend to lag. 2015 is likely to characterised by similar bouts of uncertainty as we've seen since the summer. After analysing all the funds there were 3 funds that stood out as strong contenders for those of you worried about a future market sell-off, yet want to remain invested:

 

Fidelity Multi Asset Defensive is a member of the Mixed Investment 0%-35% Shares sector. Kames UK Equity Absolute Return and Old Mutual UK Opportunities are members of the Targeted Absolute Return sector.

The Perfect Portfolio

But there is one other fund that has been a standout performer. Interestingly not only was it identified by this piece of research but our 80-20 Investor algorithm has consistently identified it in our Best of the Best selection of funds for the last few months.

The fund is the Vanguard - LifeStrategy 20% Equity. The fund is not only very cheap (with an ongoing charge of just 0.24%) but it has ridden the sell-offs and remains in the top 15% of the funds analysed over the full term. The fund is passively run and packed full of index trackers (hence the low cost) with around 20% exposure to equities with the rest in fixed interest. It would suggest that the perfect portfolio for the current short term environment is 20% equities and 80% fixed interest. It's cautious but with equity exposure.

 

(image by Stuart Miles, freedigitalphotos.net)

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