Damien’s June 2018 review – Record highs

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, three 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 portfolio had an excellent month since my last update and extended its lead over its benchmarks as shown in the chart below.

The chart below shows which funds have been the main drivers of that performance over the last month:

It's particularly pleasing to see the stellar return from the Baillie Gifford Discovery fund which I included for the first time last month. This boosted the portfolio's returns above that of other managed funds alongside my exposure to China. In a month where risk was rewarded and bond funds struggled my portfolio was perfectly positioned to benefit. Sometimes things work in your favour and this was one of those times. Sticking to a process and ignoring the noise being created by investment headlines paid off. My portfolio now sits at its highest level since March 2015 when I began running it, up more than 31%. Don't forget at the moment my equity exposure is only around 53% which makes the result even more pleasing. This last week was always going to be tricky to navigate due to the number of potentially market-moving events which is why I waited for the dust to settle before making any changes.

The table below shows my current portfolio, with those funds in green 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	SEDOL Code
Baillie Gifford Global Discovery	5	Medium	Global	GB0006059330	605933
AXA Framlington American Growth	11.5	High	North America	GB00B5LXGG05	B5LXGG0
Fidelity Asia	4.5	High	Asia Pacific Excluding Japan Ret	GB00B6Y7NF43	B6Y7NF4
Fidelity China Consumer	7	High	China/Greater China	GB00B82ZSC67	B82ZSC6
FP Pictet Multi Asset Portfolio	7	Low	Targeted Absolute Return	GB00BVYTTC41	BVYTTC4
Jupiter Japan Income	7	Medium	Japan	GB00B0HZTZ55	B0HZTZ5
Man GLG UK Income	7.5	Medium	UK Equity Income	GB00B0117B11	B0117B1
Jupiter UK Smaller Companies	7.5	Medium	UK Smaller Companies	GB0004911870	491187
Premier Diversified	18	Medium	Mixed Investment 40-85% Shares	GB00B8BJV423	B8BJV42
Standard Life Investments UK Real Estate	6	Low	Property	GB00BYPHP536	BYPHP53
TwentyFour Dynamic Bond	19	Low	Sterling Strategic Bond	GB00B5KPRZ34	B5KPRZ3

Based on the portfolio's recent performance there is a sense of if it's not broke then why try and fix it. For that reason, I only plan to make a couple of changes to those funds that are colour coded red. But, as I remind you each month, when a fund falls out of the 80-20 Investor fund lists it doesn't suddenly become a bad fund. Don't forget the research behind 80-20 Investor allows for funds to be held for 6 months. Premier Diversified, Fidelity China Consumer and FP Pictet Multi Asset Portfolio have all fallen out of both the BOTB and BFBS lists recently only to return. My decision to not cull the FP Pictet Multi Asset fund last month was rewarded.

As shown earlier Baillie Gifford Discovery has been a stellar performer. Now it pretty much tops any performance chart you care to create for the global sector. Interestingly it has dropped out of the BOTB and BFBS lists, not due to a lack of momentum (its momentum is clearly upwards) but due to the risk screens that we apply. You can get a sense of the level of risk that the fund takes by looking at its max fall figure in the data tables. Had the fund not dropped out of the 80-20 Investor tables I would have added to my position by consolidating others (i.e backing my winners). So instead I am going to just maintain the relatively small position in the fund and monitor things going forward.

The Standard Life UK Real Estate fund continues to be boring but reliable and continues to outperform most bond funds while keeping pace with the returns from other property funds. The negative returns offered by most bond funds makes diversification difficult. Indeed you are left with the dilemma of whether holding anything other than cash in the low-risk end of the portfolio is worthwhile. However, I don't want to increase my property exposure, aside from it meaning my asset mix would deviate too much from that of the BOTB, because with the uncertainties surrounding Brexit there is always the danger of a repeat of the panic that trapped investors in property funds back in 2016.

This leads me on to my TwentyFour Dynamic Bond holding. If you go back and review my previous portfolio updates you will see how well the fund performed during the bond market sell-off in February. While other funds lost 3-4% the TwentyFour Dynamic Bond fund barely lost anything. The trouble is that the fund may be outperforming many bond funds but it is slowly losing value. It again begs the question as to whether I'd be better off holding cash. Given that the fund has been out of the 80-20 Investor tables for a little while I am going to drastically reduce my exposure to this fund. However, the bond market weakness means that I won't be adding to my exposure via another bond fund at the moment.

That leaves Man GLG UK Income. This fund has performed well but has marginally underperformed some of its peers recently. Nothing drastic but during that time, while UK equities have struggled, other funds have performed more strongly.

For that reason I am carrying out the switches listed below:

Fund switches

• 100% out of Man GLG UK Income and 100% into Allianz UK Equity Income
• 40% out of TwentyFour Dynamic Bond and 100% into LF Miton European Opportunities

In carrying out the above switches I:

• bring my portfolio's European equity position in line with that of the BOTB and further diversify my portfolio. It's also the first time European equities have been in my portfolio since December 2017
• raise my overall equity exposure, in the same vein as this month's BOTB
• reduced my bond exposure
• increase the number of holdings to 12 which is the maximum I like to hold

I chose the Miton fund over other European funds in the BOTB as it has the lowest max weekly fall figure, so hopefully it offers a bit more downside protection than the others. Interestingly it was also the last European equity fund I held in my portfolio. I pondered putting the remainder of my TwentyFour Dynamic Bond holding into the FP Pictet Multi Asset Portfolio but it would have increased my equity exposure to over 70% while obliterating my fixed interest exposure. Not only would it mean that I would deviate significantly from the BOTB asset mix but I would also raise my portfolio risk level significantly.

The other fund switch was a like-for-like change, maintaining my UK equity exposure. Of the UK equity income funds within the BOTB it was the only one that didn't have a bid/offer spread.

Overall I am switching about 15% of my portfolio, which is a relatively small amount and much lower than last month's more wide-ranging changes (affecting 30% of my portfolio). My new portfolio will look as follows with an equity exposure of around 66% (up from 53%).

Name	Allocation % (rounded)	Risk	Sector	ISIN Code	SEDOL Code
Baillie Gifford Global Discovery	5.5	Medium	Global	GB0006059330	605933
AXA Framlington American Growth	12	High	North America	GB00B5LXGG05	B5LXGG0
Fidelity Asia	4.6	High	Asia Pacific Excluding Japan Ret	GB00B6Y7NF43	B6Y7NF4
Fidelity China Consumer	7	High	China/Greater China	GB00B82ZSC67	B82ZSC6
FP Pictet Multi Asset Portfolio	6.6	Low	Targeted Absolute Return	GB00BVYTTC41	BVYTTC4
Jupiter Japan Income	6.7	Medium	Japan	GB00B0HZTZ55	B0HZTZ5
Jupiter UK Smaller Companies	7.9	Medium	UK Smaller Companies	GB0004911870	491187
Premier Diversified	19	Medium	Mixed Investment 40-85% Shares	GB00B8BJV423	B8BJV42
Standard Life Investments UK Real Estate	5.7	Low	Property	GB00BYPHP536	BYPHP53
TwentyFour Dynamic Bond	10.7	Low	Sterling Strategic Bond	GB00B5KPRZ34	B5KPRZ3
Allianz UK Equity Income	7.2	Medium	UK Equity Income	GB00B82ZGC20	B82ZGC2
LF Miton European Opportunities	7.1	Medium	Europe Excluding UK	GB00BZ2K2M84	BZ2K2M8

My new asset mix

This means my new asset mix is (previous asset mix is in brackets):

• • UK Equities 19% (19%)
  • North American Equities 19% (17%)
  • Global Fixed Interest 8% (13%)
  • Japanese Equities 8% (8%)
  • Other International Equities 0% (0%)
  • Asian equities 4% (4%)
  • European Equities 10% (0%)
  • UK Fixed Interest 0% (6%)
  • Cash 4% (5%)
  • Alternative Investment Strategies 15% (15%)
  • Emerging Asia equities 6% (6%)
  • Emerging Market Fixed Interest 0% (0%)
  • Property 7% (7%)

Damien's high risk and low risk portfolios

Using the logic described in my post New: Damien’s Higher Risk Portfolio the higher and lower risk versions of my portfolio would like as follows:

Higher risk

Name	Allocation % (rounded)
Baillie Gifford Global Discovery	7
AXA Framlington American Growth	15.6
Fidelity Asia	6
Fidelity China Consumer	9.1
Jupiter Japan Income	8.7
Allianz UK Equity Income	9.4
Jupiter UK Smaller Companies	10.3
Premier Diversified	24.7
LF Miton European Opportunities	9.2

Lower risk

Name	Allocation % (rounded)
Baillie Gifford Global Discovery	7.2
FP Pictet Multi Asset Portfolio	8.6
Jupiter Japan Income	8.8
Jupiter UK Smaller Companies	10.3
Premier Diversified	24.9
Standard Life Investments UK Real Estate	7.5
TwentyFour Dynamic Bond	14.0
Allianz UK Equity Income	9.4
LF Miton European Opportunities	9.3