Damien’s May 2023 portfolio review – Diversifying further

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. 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 the chart above shows, my portfolio continues to outperform its benchmarks over the last 8 years. My portfolio also rebounded from a disappointing March 2023 and has since performed in line with its benchmark but with less volatility.

Interestingly, last time I made a number of changes to my portfolio to reduce its exposure to banking stocks. The chart below shows how my portfolio would have fared over the last month had I not made the changes (the purple line). You can see that making the changes gave a significant performance boost to my portfolio, which is obviously a great result.

The table below shows the individual performance of each fund in my portfolio between the 4th April (when I carried out my last review) up until 9th May. The standout performers were AXA Framlington UK Equity Income and CT European Select which were the new additions to my portfolio last time. They were then followed by Thesis TM Tellworth UK Select and BNY Mellon Global Income. At the other end of the scale the pound's continued strength against the US dollar once again hurt those funds with exposure to US bonds and equities. Invesco Asian Equity Income (UK) was the biggest underperformer.

Fund	Performance since last review on 4th April (up to 9th May)
AXA Framlington UK Equity Income	1.56
CT European Select	1.35
Thesis TM Tellworth UK Select	0.89
BNY Mellon Global Income	0.58
abrdn High Yield Bond	0.37
iShares Physical Gold ETC	0.22
Jupiter Merlin Balanced Portfolio	-0.39
M&G Global Dividend	-0.56
TB Saracen Global Income & Growth	-1.15
Invesco Global Bond (UK)	-1.5
Jupiter Global Value Equity	-1.71
Invesco Asian Equity Income (UK)	-2.96

Before I get into any fund changes I will make this month, as usual the table below shows which funds within my portfolio are in the current BOTB or BFBS tables and which are not. Those funds in blue 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.

Fund	Allocation	Risk	Sector	ISIN
abrdn High Yield Bond	9	Low	Sterling High Yield	GB00B79RR984
AXA Framlington UK Equity Income	5	Medium	UK Equity Income	GB00B7KBNV36
BNY Mellon Global Income	6.5	Medium	Global Equity Income	GB00B7XK5M25
Cash	7	Low
CT European Select	8.5	High	Europe Excluding UK	GB00B8BC5H23
Invesco Asian Equity Income (UK)	5	High	Asia Pacific Excluding Japan	GB00B4JR4R48
Invesco Global Bond (UK)	9	Low	Global Bonds	GB00B3RW7B97
iShares Physical Gold ETC	5	Medium	Commodity & Energy ETF	IE00B4ND3602
Jupiter Global Value Equity	10.5	Medium	Global	GB00BF5DRF26
Jupiter Merlin Balanced Portfolio	12.5	Medium	Mixed Investment 40-85% Shares	GB0031845141
M&G Global Dividend	7	Medium	Global Equity Income	GB00B46J9127
TB Saracen Global Income & Growth	9.5	Medium	Global Equity Income	GB00B5B35X02
Thesis TM Tellworth UK Select	5.5	Low	Targeted Absolute Return	GB00BNY7YM73

The following funds have fallen out of the BOTB and BFBS tables and are coloured in red.

• Thesis TM Tellworth UK Select
• Jupiter Merlin Balanced Portfolio
• Jupiter Global Value Equity
• Invesco Global Bond (UK)
• BNY Mellon Global Income

I am happy with the current performance of my portfolio as a whole so I won't make drastic changes and remove all of the five funds listed above. Last month, I also placed three of the above funds on my watchlist namely Thesis TM Tellworth UK Select, Jupiter Merlin Balanced Portfolio and Invesco Global Bond (UK).

Of the three, Thesis TM Tellworth UK Select has turned the corner since my last review with it not only being one of the top performers in its sector but also across the entire bond/low risk space. While it is not a bond fund I make the comparison because when looking for low risk alternatives its recent performance stands out. While one month's performance isn't usually an overriding factor but as the chart below shows the performance versus the average from alternative sectors is significant.

So for now the fund remains on my watchlist with a further stay of execution.

Similarly, BNY Mellon Global Income was among the top performing equity funds within my portfolio over the last month and was in the BOTB as recently as April. So for now, I will maintain the fund within my portfolio and will review its inclusion next time.

That leads me onto the remaining funds in red, Jupiter Merlin Balanced Portfolio, Jupiter Global Value Equity and Invesco Global Bond (UK). All three happen to be among the largest holdings within my portfolio so have a significant influence on its overall performance, given that they account for almost one-third of the portfolio's assets.

Jupiter Merlin Balanced Portfolio and Invesco Global Bond (UK) were among the top performers in my portfolio back in March but have struggled versus their respective peer groups since then. The Invesco Global Bond (UK) in particular has had a tough time of late, partly as a result of the weak US dollar. The chart below shows the performance of the fund (the black line) versus its sector average (the blue line) and the other bond fund within my portfolio (the pink line)

I will begin reducing my exposure to the Invesco fund and place the proceeds into my existing abrdn High Yield Bond, so essentially backing one of my recent winners.

I plan to use a similar tactic with the Jupiter Merlin Balanced Portfolio, thus reducing my exposure to the fund in favour of another from the same sector which is in the BOTB, namely IFSL Marlborough Extra Income. The chart below shows the recent divergence in performance of these two funds and the lower level of volatility of IFSL Marlborough Extra Income.

The last of the funds that has fallen out of the BOTB and BFBS tables is Jupiter Global Value Equity. While last month the fund was in the BOTB its recent performance, especially during the banking crisis, has been underwhelming and has fallen behind the average of its peers.

So by removing this fund I am also further reducing the portfolio's exposure to the risks associated with a renewed escalation in the banking crisis. On the chart above you will also see that I've added the Fundsmith Equity fund, which is a fund within this month's BOTB from the same sector. I plan to replace the Jupiter fund with the Fundsmith fund which also happens to perform better in the 'recession stress test' in the 80-20 Investor stress test tool. A potential recession remains a risk that continues to dog markets and while it is not a key driver for my decisions it is worth noting. The switch also increases my portfolio's US equity exposure above that of the BOTB and this is something I will review in the future.

The remaining funds within my portfolio are still in the BOTB or BFBS tables so for now I will maintain them in my portfolio. So in summary, the planned transactions impact around 20% of my portfolio and are mostly like-for-like swaps for funds that are in the same sector which are also in May's BOTB

Fund switches

• 50% out of Jupiter Merlin Balanced Portfolio and 100% into IFSL Marlborough Extra Income
• 100% out of Jupiter Global Value Equity and 100% into Fundsmith Equity
• 33% out of Invesco Global Bond (UK) and 100% into abrdn High Yield Bond

The fund changes increase the number of holdings within my portfolio by one but I will look to reduce this in the future. The switches also slightly increase my portfolio's equity exposure to 62% which is more in line with the BOTB.

My portfolio

My portfolio now looks like this:

Fund	Allocation	Risk	Sector	ISIN
abrdn High Yield Bond	12	Low	Sterling High Yield	GB00B79RR984
AXA Framlington UK Equity Income	5	Medium	UK Equity Income	GB00B7KBNV36
BNY Mellon Global Income	6.5	Medium	Global Equity Income	GB00B7XK5M25
Cash	7	Low
CT European Select	8.5	High	Europe Excluding UK	GB0001529345
Fundsmith Equity	10	Medium	Global	GB00B4Q5X527
IFSL Marlborough Extra Income	6.5	Medium	Mixed Investment 40-85% Shares	GB0005662894
Invesco Asian Equity Income (UK)	5	High	Asia Pacific Excluding Japan	GB00B4JR4R48
Invesco Global Bond (UK)	6	Low	Global Bonds	GB00B3RW7B97
iShares Physical Gold ETC	5	Medium	Commodity & Energy ETF	IE00B4ND3602
Jupiter Merlin Balanced Portfolio	6.5	Medium	Mixed Investment 40-85% Shares	GB0031845141
M&G Global Dividend	7	Medium	Global Equity Income	GB00B46J9127
TB Saracen Global Income & Growth	9.5	Medium	Global Equity Income	GB00B5B35X02
Thesis TM Tellworth UK Select	5.5	Low	Targeted Absolute Return	GB00BNY7YM73

My Portfolio asset mix

My portfolio asset mix has around 62% exposure to equities. Last month's figures are shown in brackets.

• • UK Equities 19% (19%)
  • North American Equities 17% (13%)
  • Asian/Emerging Market Equities 4% (5%)
  • Japanese Equities 0% (0%)
  • European Equities 19% (19%)
  • Chinese equities 0% (0%)
  • Other equity 3% (4%)
  • Commodities and energy 5% (5%)
  • UK Fixed Interest 0% (0%)
  • Global Fixed Interest 17% (17%)
  • Cash 7% (7%)
  • Alternative Investment Strategies 9% (11%)
  • 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:

Lower risk

Fund	Allocation %
abrdn High Yield Bond	14
AXA Framlington UK Equity Income	6
BNY Mellon Global Income	8
Cash	8
Fundsmith Equity	11
IFSL Marlborough Extra Income	8
Invesco Global Bond (UK)	7
iShares Physical Gold ETC	6
Jupiter Merlin Balanced Portfolio	8
M&G Global Dividend	8
TB Saracen Global Income & Growth	10
Thesis TM Tellworth UK Select	6

 

Higher risk

Fund	Allocation %
AXA Framlington UK Equity Income	8
BNY Mellon Global Income	10
CT European Select	12
Fundsmith Equity	14
IFSL Marlborough Extra Income	9
Invesco Asian Equity Income (UK)	7
iShares Physical Gold ETC	7
Jupiter Merlin Balanced Portfolio	9
M&G Global Dividend	10
TB Saracen Global Income & Growth	14