Damien’s December 2020 portfolio review – Lockdown is over

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 and a half 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.

While my portfolio is still outperforming its benchmarks it gave up some of its outperformance during November (as shown below).

 

In one of the biggest (and fastest) rotations in history we saw investment winners and laggards of 2020 change places due to the COVID-19 vaccine announcements. It meant that the funds within my portfolio that have driven its outperformance over the summer lagged relative to their peers as investors flocked to cyclical and value plays, at the expense of growth stocks (such as tech) and government debt (gilts). But as the month wore on the strength of the vaccine trade faded.

Such market-moving events are impossible to predict but usually they can mean that you lose money, such as when the pandemic hit back in February. However, this time around being on the wrong side of the trade simply allowed laggards to play catch-up a bit which personally isn't painful on an absolute performance basis. Indeed, my portfolio is sitting at around its all-time profit high, something that I can't complain about. Once again I am sticking to the process that has fared well over the longer term as the market digests the change in the battle with COVID-19

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 orange 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
Baillie Gifford European	3.5	High	Europe Excluding UK	GB0006058258
Schroder Global Healthcare	7.5	Medium	Global	GB00B76V7Q08
Baillie Gifford Long Term Global Growth Investment	5	High	Global	GB00BD5Z0Z54
VT Gravis Clean Energy Income	11	Medium	Global	GB00BFN4H792
Premier Diversified Growth	9.5	Medium	Mixed Investment 40-85% Shares	GB00B8BJV423
Allianz Strategic Bond	16	Low	Sterling Strategic Bond	GB00B06T9362
Troy Asset Management Ltd Trojan Ethical	10	Medium	Flexible Investment	GB00BJP0XX17
Baillie Gifford Positive Change	3	High	Global	GB00BYVGKV59
Liontrust Sustainable Future Cautious Managed	5	Medium	Mixed Investment 40-85% Shares	GB00BMN90304
iShares Physical Gold ETC	5	Medium	Commodity & Energy ETF	-
Allianz Total Return Asian Equity	3	Medium	Asia Pacific Excluding Japan	GB00B1FRQV53
JPM Japan	2.5	Medium	Japan	GB00B1XMTP77
Fidelity Global High Yield	8	Low	Sterling High Yield	GB00B7K7SQ18
Sarasin Global Dividend	8.5	Medium	Global Equity Income	GB00BGDF8F44
Cash	2.5	Low

 

You can see that five funds have now dropped out of the BOTB and BFBS tables, while the VT Clean Energy fund has crept back in. In my last portfolio review, I reduced my portfolio's technology exposure slightly, shuffling the decks and ever so slightly increasing the overall equity exposure of my portfolio to compensate. Ultimately I left most of the portfolio alone until we saw how the vaccine news impacted markets.

At the start of December, the lie of the land is perhaps a little clearer. A swathe of positive vaccine news continued throughout the rest of November as did the vaccine rotation, albeit at a much more muted pace. While my portfolio had an ordinarily strong month (up 3.38%), on a relative basis it lagged its benchmarks (which were up 4.6%). But despite this, a number of funds within my portfolio were already candidates for removal, even before the vaccine news arrived.

The portfolio hasn't been changed in a number of months, almost enduring its own version of lockdown. Last time I said that in December I would look to deploy the small amount of cash in the portfolio, consolidate my holdings and increase my equity content further.... and that's exactly what I will do.

Below I list the fund changes for December with more detail provided beneath each switch.

Fund switch 1

100% out of Allianz Strategic Bond and 100% into ASI Strategic Bond 

The chart below shows the incredible run the Allianz fund has had since I first held it back in March versus its sector average.

The fund is not suddenly a bad fund but you can see how it has started to lag its peer group since the end of the summer, and especially in the last month. Part of the reason is its exposure to US Treasuries. The ASI Strategic Bond fund is in this month's BOTB and is a like for like swap from within the same sector.

Fund switch 2

100% out of Liontrust Sustainable Future Cautious Managed and 100% into Fidelity UK Smaller Companies fund

100% out of Cash and 100% into Fidelity UK Smaller Companies

I've been looking to replace the Liontrust fund for some time as it has dropped out of the 80-20 Investor tables. As the chart below shows, since I first bought the fund in June, it hasn't been a bad performer, marginally outperforming its sector peers. Remember that the Liontrust fund has a cautious mandate which means that its equity content is much lower than that of its peers.

I have chosen to invest the proceeds, as well as my small cash holding into the Fidelity UK Smaller Companies fund for three reasons: 1) it is in this month's BOTB 2) features in the Winter Fund Portfolio so has seasonality on its side and 3) has performed well in the vaccine trade (see 'Funds for the vaccine trade').

Fund switch 3

100% out of Schroder Global Healthcare and 100% into T. Rowe Price Global Focused Growth Equity

The Schroder fund has lagged its peer group since I've held it, with bouts of strong performance in the interim. Indeed after the US election its performance skyrocketed but the arrival pulled the rug from under the healthcare sector, as you can see in the chart below which shows the fund's performance versus its global peers. So it is time to move on. The T. Rowe Price Global Focused Growth Equity has been a regular in the BOTB but also fared well in the 'Funds for the vaccine trade'. It was not a top performer but strikes more of a balance between growth and value which will hopefully be advantageous in a market transition such as we are experiencing now.

Fund switch 4

100% Troy Asset Management Ltd Trojan Ethical and 100% Invesco Global Emerging Markets (UK)

The chart below shows how the Trojan fund played the handbrake role in my portfolio in case we saw another COVID-19 crash. However, the fund has flatlined in the Autumn, hampered by its exposure to gold and treasuries. I've been waiting to replace it as it dropped out of the BOTB and BFBS some time ago. Now the portfolio is essentially out of lockdown, it's time to up the ante and replace it with the Invesco Global Emerging Markets (UK). Obviously, this isn't a like for like replacement but instead looks to introduce an emerging market exposure into my portfolio which is more in line with that of the BOTB. When choosing which emerging market fund to invest in from the BOTB I favoured the one that had performed the best during the recent market rotation.

 

So overall, the fund switches aim to bring the equity content of my portfolio in line with that of the BOTB, at 61%, which has so far worked well for the BOTB. I have also used the opportunity to introduce an emerging market (and Chinese) equity exposure to my portfolio as well as increase my UK equity exposure at the expense of US equities. The rally in the value of the pound has hampered the returns from US equity funds of late. In addition, I've introduced funds that have momentum but also diversity from what currently resides within the portfolio (i.e. more exposure to value plays).

One thing to note is that the risk level of my portfolio is at its highest level since January 2020. Obviously, while there is greater upside potential there is greater downside potential. If we were to see a repeat of the COVID-19 crash of February/March then my portfolio would fall in the same way as it did then.

One fund I had looked at replacing was the Premier Diversified Growth fund, most likely with the Baillie Gifford Managed fund. But when backtesting the portfolio assuming that the switch had been made the asset mix of my portfolio wasn't fundamentally changed but also the Baillie Gifford fund underperformed the Premier fund following the vaccine news. So it raises the risk level without any immediate benefit. In time I may make the switch but I am also conscious that I am switching around 40% of my portfolio already and there are a couple of potentially market-moving events in the coming days (Brexit negotiations being one) so I felt it best to remain invested for now, especially given the Premier fund's stronger performance over the last month.

My new portfolio

Name	Allocation % (rounded)	Risk	Sector	ISIN Code
Allianz Total Return Asian Equity	3	High	Asia Pacific Excluding Japan	GB00B1FRQV53
ASI Strategic Bond	16	Low	Sterling Strategic Bond	GB00BWK27X12
Baillie Gifford European	3.5	High	Europe Excluding UK	GB0006058258
Baillie Gifford Long Term Global Growth Investment	5	High	Global	GB00BD5Z0Z54
Baillie Gifford Positive Change	3	High	Global	GB00BYVGKV59
Fidelity Global High Yield	8	Medium	Sterling High Yield	GB00B7K7SQ18
Fidelity UK Smaller Companies	7.5	High	UK Smaller Companies	GB00B7VNMB18
Invesco Global Emerging Markets (UK)	10	High	Global Emerging Markets	GB00B3RW7S64
iShares Physical Gold ETC	5	Medium	Commodity & Energy ETF	IE00B4ND3602
JPM Japan	2.5	Medium	Japan	GB00B1XMTP77
Premier Diversified Growth	9.5	Medium	Mixed Investment 40-85% Shares	GB00B8BJV423
Sarasin Global Dividend	8.5	Medium	Global Equity Income	GB00BGDF8F44
T. Rowe Price Global Focused Growth Equity	7.5	Medium	Global	GB00BD446774
VT Gravis Clean Energy Income	11	Medium	Global	GB00BFN4H792

One thing you will notice is that the number of holdings has only reduced by one (as I invested the small cash holding I held). In that regard, it remains a work in progress.

My Portfolio asset mix

My portfolio asset mix is as shown below which is now around 61% equities (up from 53%). Last month's asset mix is shown in brackets.

• • UK Equities 10% (5%)
  • North American Equities 13% (19%)
  • Asian Equities 4% (3%)
  • Emerging Market Equities 6% (2%)
  • Japanese Equities 3% (3%)
  • European Equities 8% (9%)
  • Chinese equities 3% (0%)
  • Other equity 8% (5%)
  • Commodities and energy 9% (11%)
  • UK Fixed Interest 7% (0%)
  • Global Fixed Interest 16% (27%)
  • Cash 0% (5%)
  • Alternative Investment Strategies 13% (11%)

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

Fund	Allocation %
Allianz Total Return Asian Equity	4
Baillie Gifford European	4
Baillie Gifford Long Term Global Growth Investment	6
Baillie Gifford Positive Change	4
Fidelity Global High Yield	10
Fidelity UK Smaller Companies	9
Invesco Global Emerging Markets (UK)	12
iShares Physical Gold ETC	6
JPM Japan	3
Premier Diversified Growth	11
Sarasin Global Dividend	10
T. Rowe Price Global Focused Growth Equity	9
VT Gravis Clean Energy Income	12

Lower risk

Fund	Allocation %
ASI Strategic Bond	23
Fidelity Global High Yield	12
iShares Physical Gold ETC	7
JPM Japan	4
Premier Diversified Growth	14
Sarasin Global Dividend	13
T. Rowe Price Global Focused Growth Equity	11
VT Gravis Clean Energy Income	16