Damien’s August 2020 portfolio review – Looking for consistency

The background to my portfolio

Back in March 2015 I decided to invest £50,000 of my own money using 80-20 Investor. The purpose was twofold, firstly to show how you can use 80-20 Investor to invest and outperform the market with only a few minutes effort every now and then. Secondly, no other investment commentator, journalist or research provider invests their own money for fear of failing. This is a sorry state of affairs and is precisely why I committed to openly running my own portfolio for 80-20 Investor members to see.

Since then I have periodically changed my portfolio using the fund suggestions provided by the 80-20 Investor algorithm and associated research. I always disclose the changes at the time they are made.

Performance update

As is usual in my portfolio reviews, the chart below shows how my portfolio has outperformed since I started the challenge in March 2015, which is over five years ago. The green line is the performance of my portfolio while the red line is the benchmark showing the average return achieved by professional fund managers given the same asset mix. To accurately calculate this I have used the average return for each sector in which my portfolio invested. The blue line shows what the average multi-asset fund with comparable equity content achieved. In other words, the red line would show the extra performance added by just the asset mix of my portfolio (where I was invested i.e European equities etc) over picking a typical multi-asset fund (the blue line). While the green line (which is my actual performance) shows the impact of being in the right funds at the right time, as identified by the 80-20 Investor algorithm.

You can see how my portfolio has continued to extend its lead over its benchmarks. The chart below shows how the portfolio has performed since my last review, a month ago.

 

Breaking this down further, the table below shows the performance of each component of my portfolio over the last month.

Name	1 month return %
iShares Physical Gold ETC	9.66
VT Gravis Clean Energy Income	6.77
Troy Asset Management Ltd Trojan Ethical	2.53
Allianz Strategic Bond	2.35
Premier Diversified Growth	2.24
Schroder Global Healthcare	2.05
Liontrust Sustainable Future Cautious Managed	1.47
Baillie Gifford Positive Change	1.43
Allianz Total Return Asian Equity	1.03
Royal London UK Government Bond	-0.15
Fidelity European	-0.37
JPM Japan	-2.46
Baillie Gifford Long Term Global Growth Investment	-4.02

 

The standout performer is clearly gold because as I highlighted in my article 'Where next for Gold and Silver?' I entered just before the price of gold rallied over 10%. Interestingly VT Gravis Energy is a top performer, which will be partly due to it being a commodity/green investment play. Both themes are benefiting from the global push by governments to rebuild economies ethically but also the fall in the value of the dollar. VT Gravis Clean Energy is also partially currency-hedged which means that the weakness in the dollar is not proving a drag on the profits of its US holdings. The laggard over the last month has been Baillie Gifford Long Term Global Growth Investment, although it is still up 24.2% since I first invested in the fund in May. The reason for its recent slump is a rotation out of technology stocks in favour of more cyclical sectors. However, if you consider the overall performance of my portfolio versus that of the equity heavy Mixed Investment 40-85% Shares sector and the more cautious Mixed Investment 20%-60% Share sector (which is more of a fairer comparison versus my portfolio) over the last two months then the result is fantastic.

 

 

Last month I mentioned that my portfolio was in a bit of a sweet spot riding the technology stock rally as well as the rally in government bonds. This is why the portfolio has outperformed while having limited equity exposure. Throw into the mix the rally in gold which the portfolio has also ridden over the last month there feels little reason to tamper with the portfolio too much. Of course all trends come to an end and you can see that in the last week my portfolio has lagged its benchmarks because technology stocks have slumped along with UK gilts and gold (at the time of writing gold is down 5% today). We will have to wait and see whether this is the beginning of a meaningful rotation and the reversal of the trends that my portfolio has been riding.

As is the routine in my portfolio reviews, the table below shows which funds within my portfolio are in the current BOTB or BFBS tables and which are not. Those funds in green are still in the BOTB while those in yellow are not in the BOTB but remain in the BFBS list. Meanwhile, any funds in red have dropped out of both shortlists.

 

Name	Allocation % (rounded)	Risk	Sector	ISIN Code
Fidelity European	5	Medium	Europe Excluding UK	GB00BFRT3504
Schroder Global Healthcare	7.5	Medium	Global	GB00B76V7Q08
Baillie Gifford Long Term Global Growth Investment	9	High	Global	GB00BD5Z0Z54
VT Gravis Clean Energy Income	5.5	Medium	Global	GB00BFN4H792
Premier Diversified Growth	9	Medium	Mixed Investment 40-85% Shares	GB00B8BJV423
Royal London UK Government Bond	15	Medium	UK Gilts	GB00B881TW52
Allianz Strategic Bond	16.5	Low	Sterling Strategic Bond	GB00B06T9362
Troy Asset Management Ltd Trojan Ethical	10.5	Medium	Flexible Investment	GB00BJP0XX17
Baillie Gifford Positive Change	5.5	High	Global	GB00BYVGKV59
Liontrust Sustainable Future Cautious Managed	5	Medium	Mixed Investment 40-85% Shares	GB00BMN90304
iShares Physical Gold ETC	5.5	Medium	Commodity & Energy ETF	-
Allianz Total Return Asian Equity	3	Medium	Asia Pacific Excluding Japan	GB00B1FRQV53
JPM Japan	3	Medium	Japan	GB00B1XMTP77

 

The first thing to notice is that most of the funds are in August's BOTB and even Schroder Global Healthcare has returned to the fold. Given my longer-term decision on holding gold and its recent performance, I will keep the precious metal within my portfolio for now (iShares Physical Gold ETC). That leaves just four funds no longer in the BOTB or BFBS tables. Liontrust Sustainable Future Cautious Managed was in the BFBS table last week so I don't plan to remove it from the portfolio as the fund is likely to return to the BFBS lists soon. VT Gravis Clean Energy Income has had a new lease of life over the last month benefiting from the current macro backdrop, as mentioned earlier. So for now I will keep the fund, especially given its relatively low weighting in my portfolio.

That brings me on to Premier Diversified Growth and Fidelity European. Over the last few months I've chosen to keep the Premier Diversified Growth fund because it's also had a new lease of life versus its peers. I chose to ride the upward momentum and that faith was rewarded with the fund outperforming 90% of its peers over the last month, making it one of the best performers in my portfolio during that period. The chart below shows the performance on the fund versus its peer group average over the last 6 months. While it's not blowing the doors off it's better than average and in such a volatile environment I am keen to keep the changes to my portfolio to a minimum.

 

Fidelity European has been on my watchlist for some time, pretty much since before the February sell-off. Its lack of volatility and performance gave it a stay of execution. However, as the chart below shows the fund has begun lagging its peer group so there is little reason to keep the fund after 10 months of inclusion in my portfolio.

I have chosen to replace it with the Baillie Gifford European fund, which has been a regular in both the BOTB as well as the Consistent funds table. If you compare the fund to the Fidelity European fund using the 'Stress Test Tool' it has been more volatile in the past and has underperformed whenever the US-China trade war has escalated. The latter is of concern given the current flare-up in US-China trade war tensions but the strength and consistency of the funds performance convinces me that it is a risk worth taking, especially with it affecting just 5% of my portfolio.

Fund switches

To sum up I plan to make the following fund switch which will only affect 5% of my portfolio. The overall tactic this month is to leave the portfolio as it is aside from this one switch

• 100% out of Fidelity European and 100% into Baillie Gifford European

My portfolio now looks as shown in the table below. My portfolio still contains 13 funds and while I plan to reduce this in time the selection is offering a good degree of diversification and a lack of correlation.

Name	Allocation % (rounded)	Risk	Sector	ISIN Code
Baillie Gifford European	5	High	Europe Excluding UK	GB0006058258
Schroder Global Healthcare	7.5	Medium	Global	GB00B76V7Q08
Baillie Gifford Long Term Global Growth Investment	9	High	Global	GB00BD5Z0Z54
VT Gravis Clean Energy Income	5.5	Medium	Global	GB00BFN4H792
Premier Diversified Growth	9	Medium	Mixed Investment 40-85% Shares	GB00B8BJV423
Royal London UK Government Bond	15	Medium	UK Gilts	GB00B881TW52
Allianz Strategic Bond	16.5	Low	Sterling Strategic Bond	GB00B06T9362
Troy Asset Management Ltd Trojan Ethical	10.5	Medium	Flexible Investment	GB00BJP0XX17
Baillie Gifford Positive Change	5.5	High	Global	GB00BYVGKV59
Liontrust Sustainable Future Cautious Managed	5	Medium	Mixed Investment 40-85% Shares	GB00BMN90304
iShares Physical Gold ETC	5.5	Medium	Commodity & Energy ETF	-
Allianz Total Return Asian Equity	3	Medium	Asia Pacific Excluding Japan	GB00B1FRQV53
JPM Japan	3	Medium	Japan	GB00B1XMTP77

My Portfolio asset mix

My portfolio asset mix is as shown below and the previous asset mix is in brackets. Because I made a like-for-like switch my equity exposure remains at approximately 48%, which is still 5% less than I had before the coronavirus sell-off. Also the asset mix remains unchanged from last month and is in line with the BOTB for August.

• • UK Equities 5% (5%)
  • North American Equities 20% (20%)
  • Global Fixed Interest 23% (23%)
  • Japanese Equities 4% (4%)
  • European Equities 11% (11%)
  • UK Fixed Interest 0% (0%)
  • UK Gilt 13% (13%)
  • Cash 4% (4%)
  • Alternative Investment Strategies 7% (7%)
  • Asian Equities 3% (3%)
  • Emerging Market Equities 3% (3%)
  • Commodities and energy 7% (7%)
  • Property 0% (0%)

Damien's higher risk and lower risk portfolios

Using the logic described in my post: Update to Damien’s alternative risk portfolios I created hypothetical higher and lower risk versions of my portfolio below:

Higher risk

Name	Allocation %
Baillie Gifford European	6
Schroder Global Healthcare	9
Baillie Gifford Long Term Global Growth Investment	9.5
VT Gravis Clean Energy Income	7
Premier Diversified Growth	11.5
Royal London UK Government Bond	18
Troy Asset Management Ltd Trojan Ethical	13
Baillie Gifford Positive Change	6
Liontrust Sustainable Future Cautious Managed	6
iShares Physical Gold ETC	6
Allianz Total Return Asian Equity	4
JPM Japan	4

Lower risk

Fund	Allocation %
Schroder Global Healthcare	9.5
VT Gravis Clean Energy Income	7
Premier Diversified Growth	11
Royal London UK Government Bond	18.5
Allianz Strategic Bond	20.5
Troy Asset Management Ltd Trojan Ethical	13
Liontrust Sustainable Future Cautious Managed	6
iShares Physical Gold ETC	6.5
Allianz Total Return Asian Equity	4
JPM Japan	4