Damien’s March 2021 portfolio review – Reflation continues

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 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.

 

As you can see my portfolio gave up some of its lead over its benchmarks as a result of the equity/bond sell-off in the second half of February (see chart below). But it remains well ahead of its benchmarks over the long term.

The table below shows the performance of the individual funds within my portfolio since my last portfolio review. Interestingly the table is almost the inverse of the one I shared in last month's review which showed the best performing funds from the new year up to the start of February. The bottom four performers below highlight how the bond sell-off has hit certain parts of the market, which are sensitive to rising bond yields, particularly hard. That includes technology and growth stocks as well as alternative energy stocks and gold.

Name	Custom Period Performance
Fidelity UK Smaller Companies	5.41
Fidelity Global High Yield	-0.57
ASI Strategic Bond	-0.76
Premier Miton Diversified Growth	-0.93
Sarasin Global Dividend	-2.51
Invesco Global Emerging Markets (UK)	-3.91
T. Rowe Price Global Focused Growth Equity	-5.03
Baillie Gifford European	-6.7
Allianz Total Return Asian Equity	-6.91
VT Gravis Clean Energy Income	-7.45
iShares Physical Gold ETC	-8.1
Baillie Gifford Positive Change	-12.56
Baillie Gifford Long Term Global Growth Investment	-14.39

Of course there is no way of telling if the current market volatility is a short term event or something more structural in nature where rising inflation expectations become entrenched going forward.

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
Allianz Total Return Asian Equity	5.5	Medium	Asia Pacific Excluding Japan	GB00B1FRQV53
ASI Strategic Bond	15	Low	Sterling Strategic Bond	GB00BWK27X12
Baillie Gifford European	3.5	Medium	Europe Excluding UK	GB0006058258
Baillie Gifford Long Term Global Growth Investment	5.5	High	Global	GB00BD5Z0Z54
Baillie Gifford Positive Change	3.5	High	Global	GB00BYVGKV59
Fidelity Global High Yield	8	Low	Sterling High Yield	GB00B7K7SQ18
Fidelity UK Smaller Companies	7.5	High	UK Smaller Companies	GB00B7VNMB18
Invesco Global Emerging Markets (UK)	11	High	Global Emerging Markets	GB00B3RW7S64
iShares Physical Gold ETC	4.5	Medium	Commodity & Energy ETF	IE00B4ND3602
Premier Diversified Growth	9.5	Medium	Mixed Investment 40-85% Shares	GB00B8BJV423
Sarasin Global Dividend	8	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

Despite the weakness we've seen in the last couple of weeks most funds remain in either the BOTB or BFBS tables. That is because the 80-20 Investor algorithm looks beyond just short term market movements. However there have been some notable changes.

Baillie Gifford Long Term Global Growth Investment is a pure growth/tech fund and has been ever-present in my portfolio and the BOTB since April 2020. However, it's technology exposure is why it is propping up the short term performance table listed earlier. Since I first invested in the fund (back in April 2020) the fund is up 98.60%, almost doubling, compared to an average return of 40.27% from its peers. So it's not suddenly a bad fund. But having dropped out of the BOTB and BFBS tables as well as triggering stop loss alerts last month I've decided to complete the transition I started back in November and reduce my exposure further.

If you go back and read my November portfolio 2020 review you will see that I halved my exposure to Baillie Gifford Long Term Global Growth Investment,  Baillie Gifford Positive Change and reduced my exposure to Baillie Gifford European. All of these are growth plays and have struggled in recent weeks as a result of the rise in government bond yields globally. Back in November I also cashed out my gilt exposure in favour of high yield bonds before adding exposure to UK Smaller Companies in December. The overall theme of these changes was a movement away from a reliance on growth stocks and an introduction of assets, such as value stocks, that would fare better in a period of rapid economic expansion (which is also an environment where real bond yields rise). To show the impact of those changes the chart below shows how my portfolio has performed since versus a hypothetical portfolio had I not made those changes to my portfolio. You can see that even over just a few months my portfolio is 3% higher as a result of the changes. With the benefit of hindsight, I am now glad that I made them.

So I plan to continue on the course, started back then, and sell my holding in Baillie Gifford European and halve my exposure to Baillie Gifford Long Term Global Growth Investment as better opportunities lie elsewhere, particularly in UK equities at the moment.

Another fund coloured red in the table above, and already on my watchlist, is VT Gravis Clean Energy Income, which had been proving fairly resilient. However its exposure to alternative energy stocks, as opposed to traditional commodities, has seen it falter in recent weeks. As such I've decided to diversify my commodity exposure to gain exposure to those commodities benefiting from the reflation trade.

Interestingly T. Rowe Price Global Focused Growth Equity reentered the BOTB, benefiting from its mix of value and growth stocks so giving it a stay of execution. Meanwhile, Sarasin Global Dividend, although still not in the BOTB and BFBS tables, has helped diversify my portfolio due to its value approach and reduced my potential equity losses in the current market conditions. If the last few months are anything to go by it pays to make changes gradually and to take advantage of trends once they've become established. Given the high level of volatility right now where most assets are falling in tandem I want to keep the number of changes in my portfolio to a minimum. So for the time being I will leave Sarasin Global Dividend on my watchlist and within my portfolio.

Below I list each of my fund switches with a brief explanation.

Fund switches

I only plan to make three fund switches this month, impacting the three weakest performing funds year to date. As mentioned above there is little compulsion to make wholesale changes until the current bout of market volatility has settled and new trends have become firmly established, if indeed that is what occurs.

Fund switch 1

100% out of Baillie Gifford European and 100% into ES R&M UK Recovery - initially I planned to bolster my Fidelity UK Smaller Companies position which has performed very strongly since I've held it. But for the sake of diversification, I instead opted for ES R&M UK Recovery. If you look at the fund it has performed in line with the Fidelity UK Smaller Companies fund. Both are value-focused funds but ES R&M UK Recovery operates in the mid-cap space rather than the smaller companies arena where the Fidelity fund operates. The switch helps to increase my portfolio's UK equity exposure to be more in line with the BOTB asset mix.

Fund switch 2

50% out of Baillie Gifford Long Term Global Growth Investment and 100% ES R&M UK Recovery - continuing the trend I started in November of reducing my exposure to technology plays in favour of more value opportunities, this time in the UK.

Fund switch 3

50% out of VT Gravis Clean Energy Income and 100% into JPM Natural Resources - as explained above this fund switch gives my portfolio's exposure to those commodities benefiting from rising inflation expectations.

Both JPM Natural Resources and ES R&M UK Recovery are currently in the BOTB. Overall the switches will impact just over 11% of my portfolio. I deliberately wanted to keep the percentage of my portfolio that could be out of the market to a minimum as the heightened level of volatility we are experiencing right now increases the chances that the market could move against me.

My portfolio

So my portfolio now looks like this:

Name	Allocation % (rounded)	Risk	Sector	ISIN Code
Allianz Total Return Asian Equity	5.5	Medium	Asia Pacific Excluding Japan	GB00B1FRQV53
ASI Strategic Bond	15.5	Low	Sterling Strategic Bond	GB00BWK27X12
Baillie Gifford Long Term Global Growth Investment	2.5	High	Global	GB00BD5Z0Z54
Baillie Gifford Positive Change	3.5	High	Global	GB00BYVGKV59
ES R&M UK Recovery	6	Medium	UK All Companies	GB00B614J053
Fidelity Global High Yield	8	Low	Sterling High Yield	GB00B7K7SQ18
Fidelity UK Smaller Companies	8	High	UK Smaller Companies	GB00B7VNMB18
Invesco Global Emerging Markets (UK)	10.5	High	Global Emerging Markets	GB00B3RW7S64
iShares Physical Gold ETC	4	Medium	Commodity & Energy ETF	IE00B4ND3602
JPM Natural Resources	5.5	High	Specialist	GB0031835118
Premier Diversified Growth	10	Medium	Mixed Investment 40-85% Shares	GB00B8BJV423
Sarasin Global Dividend	8	Medium	Global Equity Income	GB00BGDF8F44
T. Rowe Price Global Focused Growth Equity	7.5	Medium	Global	GB00BD446774
VT Gravis Clean Energy Income	5.5	Medium	Global	GB00BFN4H792

 

My Portfolio asset mix

My portfolio asset mix is as shown below which has around a 62% exposure to equities. The numbers in brackets are last month's equivalent figures.

• • UK Equities 16% (12%)
  • North American Equities 11% (14%)
  • Asian/Emerging Market Equities 11% (11%)
  • Japanese Equities 0% (0%)
  • European Equities 4% (6%)
  • Chinese equities 5% (5%)
  • Other equity 8% (8%)
  • Commodities and energy 11% (9%)
  • UK Fixed Interest 7% (7%)
  • Global Fixed Interest 15% (14%)
  • Cash 0% (0%)
  • Alternative Investment Strategies 12% (14%)

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	7
Baillie Gifford Long Term Global Growth Investment	3
Baillie Gifford Positive Change	5
ES R&M UK Recovery	8
Fidelity UK Smaller Companies	10
Invesco Global Emerging Markets (UK)	14
iShares Physical Gold ETC	5
JPM Natural Resources	7
Premier Diversified Growth	13
Sarasin Global Dividend	11
T. Rowe Price Global Focused Growth Equity	10
VT Gravis Clean Energy Income	7

Lower risk

Fund	Allocation %
Allianz Total Return Asian Equity	8
ASI Strategic Bond	22
ES R&M UK Recovery	9
Fidelity Global High Yield	11
iShares Physical Gold ETC	6
Premier Diversified Growth	14
Sarasin Global Dividend	11
T. Rowe Price Global Focused Growth Equity	11
VT Gravis Clean Energy Income	8