Damien’s December 2021 portfolio review – Increasing US exposure

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 six 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.

 

 

My £50k portfolio now sits just below its all-time high, after falling during October's stock market weakness and then rebounding. This rebound can be seen more clearly in the chart below which shows how my portfolio performed versus its benchmarks during the last month (and since my last review).

The volatility we experienced during November was mostly down to hawkish comments from the US Federal Reserve as well the emergence of Omicron. One of the biggest impacts was a surge in the strength of the US dollar, as people, first of all, sought safety but also anticipated higher interest rates in the US. The impact can be clearly seen in the table below which shows the performance of the funds within my portfolio since my last review. The two funds which struggled the most were those exposed to emerging markets and gold, both of which perform poorly if the dollar rises. By contrast, the previous month both performed strongly. Meanwhile, concerns over Omicron and potential restrictions put pressure on domestically focused smaller companies funds during November.

Fund	% return over 1 month since the last review
Fidelity Global Property	2.59
Fundsmith Equity	1.52
BlackRock Natural Resources Growth & Income	0.73
Invesco High Yield (UK)	0.64
SVS Sanlam North American Equity	-0.24
BM Brooks Macdonald Defensive Capital	-0.34
Slater Recovery	-0.36
Premier Miton Diversified Growth	-0.43
IFSL Marlborough European Special Situations	-1.7
Wise Funds Limited TB Wise Multi-Asset Growth	-1.75
Fidelity UK Smaller Companies	-2.02
iShares Physical Gold ETC	-3.19
Fidelity Emerging Europe Middle East and Africa	-6.25

 

As usual, the table below shows which funds within my current 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
BlackRock Natural Resources Growth & Income	5	High	Commodity/Natural Resource	GB00B6865B79
BM Brooks Macdonald Defensive Capital	14.5	Low	Targeted Absolute Return	GB00B61MR835
Fidelity Emerging Europe Middle East and Africa	9	High	Specialist	GB00B87Z7808
Fidelity Global Property	5	Medium	Property Other	GB00B7K2NZ09
Fidelity UK Smaller Companies	10	High	UK Smaller Companies	GB00B7VNMB18
Fundsmith Equity	5.5	Medium	Global	GB00B4Q5X527
iShares Physical Gold ETC	4	Medium	Commodity & Energy ETF	IE00B4ND3602
Marlborough European Multi-Cap	10	High	Europe Excluding UK	GB0001719730
Premier Miton Diversified Growth	7	Medium	Mixed Investment 40-85% Shares	GB00B8BJV423
Slater Recovery	3	Medium	UK All Companies	GB0031554248
Wise Multi-Asset Growth	8.5	Medium	Flexible Investment	GB0034272533
Invesco High Yield (UK)	7.5	Low	Sterling High Yield	GB00B3RW7649
SVS Sanlam North American Equity	11	Medium	North America	GB0007655698

 

The first thing to point out is that the following four funds once again remain outside of the BOTB and BFBS and are highlighted in red:

• Premier Diversified Growth
• Wise Multi-Asset Growth
• Slater Recovery
• Fundsmith Equity

This month IFSL Marlborough European Special Situations (formerly named Marlborough European Multi-Cap) lost momentum and fell out of the BOTB and BFBS tables too.

The other funds within my portfolio are either still in the BOTB or BFBS tables. Again, given the performance of the portfolio and the volatility of markets into the year-end (largely due to the unknowns surrounding Omicron & central bank policy), there is no need for drastic changes right now. I will keep an eye on both Fidelity Emerging Europe Middle East and Africa and Fidelity UK Smaller Companies going forward, as both have been adversely affected by the uncertainties I've mentioned over the last few weeks. However, the latter is entering a historically positive period for UK smaller companies funds (see my Winter Portfolio update 2021) while the former has still proved a profitable holding (the chart below shows its performance since I've held it).

If you recall, last time I kept a holding in the Premier Diversified Growth fund, as it has been a strong performer, but I did reduce my exposure as I looked to diversify my portfolio for the potential of higher yields. I also kept my holding in Wise Multi-Asset Growth as it has performed well during a rising bond yield environment. While ordinarily, I may look to alter my exposure to these funds given their continued absence from the BOTB and BFBS tables; they were among the 25 funds identified in my "Finding a Covid core" research. Given the uncertainty surrounding Omicron and the direction of yields right now (don't forget both the US Federal Reserve and the Bank of England are scheduled to announce their latest monetary policy decision next week) I think it's prudent to review their position in January.

That leaves both Slater Recovery and Fundsmith Equity, both of which I reduced my exposure to last time. The first chart below shows how the Slater Recovery fund has outperformed its peer group average since I've held it which is obviously a big positive. But its momentum has stalled in recent months, effectively trading sideways.

 

Fundsmith Equity has performed well of late, but it is only really playing catchup with its peer group, as can be seen in the chart below which shows the fund's performance since I've held it. The fund has a 72% exposure to US equities, so it's really a quasi-US equity fund. With that in mind its performance has lagged the wider US stock market, as shown by the Fidelity US Index fund in black (a member of the current BOTB) which tracks the S&P 500.

Fund switches

The fund switches below bring my portfolio in line with the BOTB a bit more, in terms of reducing my UK equity exposure while at the same time increasing my US equity exposure. Both switches move money into the Fidelity US Index which is a member of December's BOTB. The fund switches I have made this time are:

• 100% out of Fundsmith Equity and 100% into Fidelity US Index
• 100% out of Slater Recovery and 100% into Fidelity US Index

Overall it means that the equity exposure within my portfolio remains at 67%, while the number of holdings has reduced by one. It is a relatively minor change only affecting just over 8% of my portfolio.

My portfolio

My portfolio now looks like this:

Name	Allocation % (rounded)	Risk	Sector	ISIN Code
BlackRock Natural Resources Growth & Income	5	High	Commodity/Natural Resource	GB00B6865B79
BM Brooks Macdonald Defensive Capital	14.5	Low	Targeted Absolute Return	GB00B61MR835
Fidelity Emerging Europe Middle East and Africa	9	High	Specialist	GB00B87Z7808
Fidelity Global Property	5	Medium	Property Other	GB00B7K2NZ09
Fidelity UK Smaller Companies	10	High	UK Smaller Companies	GB00B7VNMB18
Fidelity US Index	8.5	Medium	North America	GB00BJS8SH10
iShares Physical Gold ETC	4	Medium	Commodity & Energy ETF	IE00B4ND3602
Marlborough European Multi-Cap	10	High	Europe Excluding UK	GB0001719730
Premier Miton Diversified Growth	7	Medium	Mixed Investment 40-85% Shares	GB00B8BJV423
Wise Multi-Asset Growth	8.5	Medium	Flexible Investment	GB0034272533
Invesco High Yield (UK)	7.5	Low	Sterling High Yield	GB00B3RW7649
SVS Sanlam North American Equity	11	Medium	North America	GB0007655698

 

My Portfolio asset mix

My portfolio asset mix is now as shown below which remains around 67% exposure to equities. Last month's figures are shown in brackets

• • UK Equities 10% (14%)
  • North American Equities 22% (18%)
  • Asian/Emerging Market Equities 8% (9%)
  • Japanese Equities 0% (0%)
  • European Equities 9% (9%)
  • Chinese equities 0% (0%)
  • Other equity 7% (7%)
  • Commodities and energy 11% (11%)
  • UK Fixed Interest 0% (0%)
  • Global Fixed Interest 12% (13%)
  • Cash 4% (3%)
  • Alternative Investment Strategies 11% (11%)
  • Property 6% (5%)

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:

Lower risk

Fund	Allocation %
BM Brooks Macdonald Defensive Capital	22
Fidelity Global Property	8
Fidelity US Index	13
Invesco High Yield (UK)	11
iShares Physical Gold ETC	6
Premier Miton Diversified Growth	10
SVS Sanlam North American Equity	17
Wise Multi-Asset Growth	13

Higher risk

Fund	Allocation %
Fidelity Emerging Europe Middle East and Africa	12
Fidelity Global Property	6
Fidelity UK Smaller Companies	13
Fidelity US Index	11
iShares Physical Gold ETC	5
Marlborough European Multi-Cap	13
Premier Miton Diversified Growth	9
Wise Multi-Asset Growth	11
SVS Sanlam North American Equity	14
BlackRock Natural Resources Growth & Income	6