Damien’s October 2017 review – Asian shuffle

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

My portfolio has continued to perform extremely well while not taking excessive risks, typically around 50-60% equities. At present it has approximately 65% of the portfolio invested in equities which is the highest level for quite some time. I have produced over 25% profit despite the various crises we have experienced including a Greek crisis, a Chinese economic slowdown, a commodity crisis, Brexit vote and Donald Trump's surprise election win.

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 blue 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 red line shows what the average multi-asset fund with comparable equity content achieved. In other words the blue 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 red 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.

The last five weeks have been volatile for UK investors as the pound rallied 4% before crashing back again. My portfolio held up well when the pound rallied despite the negative pressure that bears on UK equities and overseas fund holdings, as I explained in October's monthly newsletter. However this week the pound had its worst week since the Brexit vote (falling more than 4%) which immediately lit a rocket under my portfolio. You can see the uptick in the top right of the chart above. At the time of writing the portfolio performance is now 25.8% after another strong day on Friday. A significant part of my portfolio's outperformance over the last few months has been down to my increased exposure to China, Asia and emerging markets. You can see from the chart above the benefit of just being in these areas (the blue line). However, being in the right funds in these sectors accounts for my additional performance (the green line) .

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 the funds in red have dropped out of both shortlists.

Name	Allocation % (rounded)	Risk	ISIN Code	SEDOL Code
Aberdeen - Emerging Markets Bond	3.4	Medium	GB00B5L9HN22	B5L9HN2
Allianz - Total Return Asian Equity	5.1	High	GB00B1FRQV53	B1FRQV5
Baillie Gifford - American	10.6	Medium	GB0006061963	606196
Baillie Gifford - Emerging Markets Growth	6.6	High	GB0006020647	602064
Baillie Gifford - Greater China	6.5	High	GB00B39RMM81	B39RMM8
CF - Miton European Opportunities	10.5	High	GB00BZ2K2M84	BZ2K2M8
F&C - Property Growth and Income	3.6	Medium	GB00BQWJ8687	BQWJ868
Man GLG - Strategic Bond	13.6	Low	GB00B731HR48	B731HR4
Premier - Diversified	18.6	Low	GB00B8BJV423	B8BJV42
TM - Cavendish AIM	13.2	High	GB00B0JX3Z52	B0JX3Z5
TwentyFour - Dynamic Bond	8.3	Low	GB00B5KPRZ34	B5KPRZ3

Looking at the above table there are two funds that have dropped out of both the BFBS and BOTB tables. Meanwhile the Twentyfour Dynamic Bond fund is flashing amber which puts it on my watchlist. The two red funds are interesting for their omission from the BOTB. Firstly the Allianz fund triggered a stop loss alert last month which was the first stop loss alert in over 5 months. That put me on alert to review its position in my portfolio in any case. The chart below shows the return I've achieved from that fund since I've owned it (in green) versus the sector average (in red). While the fund has bounced back from it's recent sell-off, the 80-20 Investor algorithm has screened it out of the fund shortlists based on both the risk it's taking and its momentum. While the fund is not suddenly a terrible fund the risk/return no longer stacks up and there are better alternatives in the sector. Click on the image below to enlarge it.

It's a similar story with the Baillie Gifford Greater China fund. In the two and half months since I've held the fund it has grown an eye-watering 9.75%. In fact the fund is flying but the 80-20 Investor algorithm has screened it out due to a slight increase in the level of risk the fund is taking for that return. Some people would think I am mad to replace the fund but by following a process you can control risk and not just chase performance. I am replacing both the Allianz fund and the Baillie Gifford fund with equivalents from the same sector from the BOTB table. The aim is to try and reduce the risk (albeit only marginally) while trying to maximise returns.

The only other minor tweak I am carrying out is to slightly reduce my emerging market equity exposure in favour of a slight increase in my UK equity exposure, in line with the BOTB's new asset mix. The chart below shows you how well the Baillie Gifford Emerging Markets Growth fund I hold has done (versus its peers) since I first invested in it two months ago (up 7.50%). This is a simple case of taking some profit and utilising it elsewhere.

 

Fund switches

• 100% out of  Allianz Total Return Asian Equity and 60% into Baring Eastern Trust and 40% Cavendish Aim . By doing this I bring my Asian equity exposure back down to around 3% while at the same time increasing my UK equity exposure. UK Smaller companies (especially the Cavendish Aim fund) have had a strong run as highlighted in this month's updated 80-20 Investor Heatmap. This should hopefully reduce my risk a touch (although both destination funds are still classed as high risk) and the smaller companies investment will help reduce the impact of any continued volatility in the value of pound on my portfolio.
• 100% out of Baillie Gifford Greater China and 100% into Fidelity China Consumer is a simple like-for-like swap.
• 50% out of Baillie Gifford Emerging Markets Growth and 100% into Man GLG UK Income fund. This trade helps nudge up my UK equity exposure without adding further to the Cavendish fund, so diversifying my UK equity exposure away from just smaller companies. The Man GLG UK Income fund has been a regular in the BOTB for some time so is a worthy alternative. The switch also helps reduce my portfolio's risk as the Man fund is classed as medium risk. In addition equity income funds tend to have a more defensive tilt which will hopefully bode well should we finally see a market correction. Also if the dollar continues to strengthen it doesn't bode well for emerging markets so a reduced exposure may prove timely.

Overall I am only switching about 14% of my overall portfolio which emphasises that this is more a case of good housekeeping. I will now have 12 funds in my portfolio which is slightly unusual for me but I will inevitably look to consolidate some of these in the near future.

My new portfolio will look like this and leaves my equity exposure nearer 62% which is slightly lower than it was:

Name	Allocation % (rounded)	Risk	ISIN Code	SEDOL Code
Aberdeen Emerging Markets Bond	3.3	Medium	GB00B5L9HN22	B5L9HN2
Baillie Gifford American	10.7	Medium	GB0006061963	606196
Baillie Gifford Emerging Markets Growth	3.3	High	GB0006020647	602064
Baring Eastern Trust	3	High	GB0000799923	79992
CF Miton European Opportunities	10.5	High	GB00BZ2K2M84	BZ2K2M8
F&C Property Growth and Income	3.6	Medium	GB00BQWJ8687	BQWJ868
Fidelity China Consumer	6.7	High	GB00B82ZSC67	B82ZSC6
Man GLG Strategic Bond	13.6	Low	GB00B731HR48	B731HR4
Man GLG UK Income	3.3	Medium	GB00B0117B11	B0117B1
Premier Diversified	18.6	Low	GB00B8BJV423	B8BJV42
TM Cavendish AIM	15.2	High	GB00B0JX3Z52	B0JX3Z5
TwentyFour Dynamic Bond	8.2	Low	GB00B5KPRZ34	B5KPRZ3

My new asset mix

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

• UK Equities 23% (19%)
• North American Equities 14% (14%)
• Global Fixed Interest 17% (17%)
• Japanese Equities 0% (0%)
• Other International Equities 3% (3%)
• Asian equities 3% (3%)
• European Equities 12% (12%)
• UK Fixed Interest 6% (6%)
• Cash 0% (0%)
• Alternative Investment Strategies (including property) 12% (9%)
• Emerging Asia equities 8% (15%)
• Emerging Market Fixed Interest 2% (2%)