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 two-fold, 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 roundup: Beating 91% of Professional multi-asset funds
My portfolio has continued to perform well while not taking excessive risks, as currently only around 45-50% of the portfolio is invested in equities. Since I started the challenge I have outperformed the market, passive portfolios and 91% of professionally multi-asset managed funds. I have produced a double-digit profit despite the various crises we have experienced including a Greek crisis, a Chinese economic slowdown as well as a commodity crisis and Brexit vote.
The table below shows that my portfolio has performed brilliantly since the challenge started in March 2015:
| Portfolio | % Return |
| Damien's £50,000 portfolio | 15.7 |
| Passive Vanguard benchmark | 10.86 |
| FTSE 100 | 8.73 |
| Average multi-asset fund manager | 6.91 |
Fund changes
Given such a good result there will be some of you who will think 'why change anything?' Of course I have sympathy with that viewpoint but my success to date has been achieved by sticking to a process of making changes based upon the 80-20 Investor algorithm. Sometimes that means making some uncomfortable investment decisions (see my past commentaries), regularly reviewing my portfolio and even selling my winners in favour of better opportunities.
The table below shows my portfolio prior to today:
| Fund | ISIN Code | SEDOL Code | Citicode / TIDM | Allocation |
| AXA - Framlington Japan | GB00BRJZVR88 | BRJZVR8 | M3CM | 8.38 |
| Barclays - Sterling Bond | GB00B72Y6K08 | B72Y6K0 | I0TI | 9.29 |
| BlackRock - Overseas Corporate Bond Tracker | GB00B58YKH53 | B58YKH5 | G6ID | 19.15 |
| First State - Global Listed Infrastructure | GB00B24HJC53 | B24HJC5 | A6X1 | 14 |
| Franklin - UK Equity Income | GB00B7DRD638 | B7DRD63 | G25P | 8.64 |
| Marlborough - European Multi-Cap | GB0001719730 | 171973 | CA33 | 8.64 |
| Schroder - Global Real Estate Securities Income | GB00B50MLC91 | B50MLC9 | MEL9 | 8.64 |
| Schroder - US Mid Cap | GB00B7LDLV43 | B7LDLV4 | 0V2Q | 8.64 |
| Threadneedle - Defensive | GB0032010042 | 3201004 | TC71 | 6 |
| Threadneedle - Global bond | GB00B8C2M701 | B8C2M70 | GDYT | 8.62 |
The funds in red are those which are not in either of the Best of the Best Selection or the Best Funds by Sector section (with the exception of Schroder US Mid Cap, but more on that later). As such I am removing them from my portfolio. The table below shows the performance of each fund since I've held them versus their sector peers. A quartile rank of 1 or 2 shows that the fund outperformed the majority of their peers for the period I held them. A quartile rank of 3 or 4 suggests that the funds underperformed the average of their peers for the period that I held them.
| Name | Sector | Date bought | Fund % return | Quartile rank | Sector average % return |
| Threadneedle - Defensive | Mixed Investment 0%-35% Shares | 10/08/2016 | 0.98 | 2 | 0.73 |
| Schroder - US Mid Cap | North America | 10/08/2016 | 3.72 | 1 | 2.09 |
| Schroder - Global Real Estate Securities Income | Property | 10/08/2016 | -1.37 | 4 | 0.47 |
| AXA Framlington Japan | Japan | 28/07/2016 | 6.86 | 3 | 8.28 |
| Threadneedle Global Bond | Global Bond | 08/03/2016 | 15.76 | 2 | 10.8 |
| First State Global Infrastructure | Global | 19/05/2016 | 21.46 | 2 | 19.42 |
The interesting things to note are that:
- only 1 fund lost money
- and only 2 funds underperformed the average of their peers.
It illustrates perfectly that by switching out of the above funds that I am selling both winners and losers. Plus even funds that started out well, such as AXA Framlington Japan which made 6.86% profit, can hit your potential returns in terms of opportunity cost. The figures also highlight that not every investment decision will be a masterstroke, yet the aim is to get more right than you get wrong. Looking at the returns in detail like this helps remind us of the ups and downs of investment markets and keeps you humble even when your overall portfolio returns are going well.
Fund switches
In light of October 2016's Best of the Best (BOTB) Selection I am switching my portfolio to bring my own asset allocation more in line with that of the BOTB. As I highlighted in my analysis of October's BOTB, the new asset allocation has no direct exposure to North American equities nor Property. This is an interesting move especially ahead of the US Election. Time will tell if this turns out to be a wise move. However a similar move ahead of the UK referendum (when I reduced my UK or European equity exposure) proved profitable.
As you know I've been wanting to make a few changes to my portfolio for a while but unfortunately market events and a spike in volatility deterred me, which with the benefit of hindsight turned out to be the right decision. Now a window of opportunity may have presented itself to make changes while volatility has calmed, assuming central banks don't do anything unexpected or one of the background risk events doesn't escalate. It's largely down to luck whether the investment market (and currency markets) move for you, against you or do nothing while you make changes to your portfolio. You just have to take the rough with the smooth.
Below I list my latest fund switches:
Switch 100% from AXA Framlington Japan to Baillie Gifford Japanese
This is a straight like for like swap with me favouring the Baillie Gifford fund over the other Japan funds in the BOTB because it has been a stalwart of the list for a while plus it is cheap and has the smallest max weekly fall statistics, so suggesting a certain amount of resilience.
Switch 100% Threadneedle Defensive to Threadneedle Dynamic Real Return
Because of the need to reduce the portfolio's global bond exposure (to bring it more in line with the BOTB) I needed another defensive holding with a focus on capital protection without it being a bond fund. Threadneedle Dynamic Real Return is another regular of the BOTB list and is again the cheapest and most resilient of the Targeted Absolute Return Funds. While being the cheapest isn't always a crucial factor it is another tick in a box for a fund that I'm already attracted to.
Switch 100% Threadneedle Global Bond to Brooks Macdonald Defensive Capital
You will realise by now that I have absolutely no loyalty to a fund or fund manager. However, if I was an emotional investor I would be sad to see the Threadneedle Global Bond fund go as it has been a fantastic investment for the last 7 months (up 15.76% versus 10.8% for its peers). However, as I've highlighted in my recent commentaries the writing has been on the wall for this fund for a while. First of all it dropped from the BOTB and then finally from the Best Funds by Sector (BFBS) list. The reality is that better opportunities lie elsewhere in the global bond space, with the best being the BlackRock Overseas Corporate Bond Tracker which I already hold. The Brooks Macdonald fund has been a regular of the low risk end of the BOTB list which makes it a good non-bond replacement for the Threadneedle fund. Again it is cheap and the downside protection of the fund versus its peers has been very good.
Switch 100% First State Global Infrastructure to Stewart Investors Worldwide Sustainability
The First State fund was one of those funds that performed brilliantly as a result of Brexit and the ensuing crash of the pound. The fund made 21.45% for me in just over 4 months. The fund will no doubt benefit if the pound falls further however that will be true of many global funds (as their assets are denominated in foreign currencies). Much like the Threadneedle Global Bond fund it first fell out of the BOTB and then the BFBS list, so better opportunities lie elsewhere. I was keen to maintain a global equity exposure in order to keep the diversification and currency exposure in my portfolio. However, as explained in my article Global funds to weather a ‘Brexit’ tantrum, the average global fund typically has a 43% exposure to US equities. The article also highlights that the Stewart Investors funds tend to only have around a 20% exposure to the region which is a huge difference. That is why I chose the Stewart Investors Worldwide Sustainability from the BOTB list instead of the global equity income fund listed. The Stewart fund allowed me to minimise my US exposure more in line with the BOTB list (I will end up with just a 3% exposure across the portfolio) while increasing my global equity exposure in a like for like risk switch (i.e. a global fund replaces a global fund)
Switch 100% Schroder Global Real Estate Securities Income to Henderson China Opportunities
Of the funds shown in the performance table this Schroder fund was the only one that lost money. Losing money in itself is not so much of a problem if the rest of the market is losing more than you. Looking at the performance table it would appear that the Schroder fund underperformed its peers. However, the top performing funds over the period were some of the bricks and mortar funds which had hefty devaluations applied to them in the aftermath of the Brexit vote when there were mass redemptions. The performance of some of these funds has been artificially inflated over the short-term as some of these devaluations were tempered. When discussing this with a commercial property fund manager it transpires that new money into these funds, that hadn't endured the original devaluation, wouldn't necessarily enjoy the revaluation upwards. The point is that while the Schroder fund has not performed brilliantly since I've held it its performance is more inline with comparable funds than the table above suggests.
However much of that is immaterial as property funds (bricks and mortar funds or those investing in shares) did not make it into the October's BOTB list. So I've sold out of my property holding and replaced it with the Henderson China Opportunities fund to give me exposure to the emerging Asia equities in line with the BOTB. This is a bold move and the last time I held the fund was in 2015. Fortunately it played out well for me and I escaped the worst of the China crash in the summer of 2015.
Switch 100% Schroder US Mid Cap into 50% Invesco Perpetual Asian & 50% Marlborough European Multi-Cap
The Schroder US Mid Cap fund has been a great performer, up 3.72% in less than two months. It remains a good fund and is in the BFBS list. However, as I am strategically removing US exposure from my portfolio I have to sell the fund. The proceeds are being split between a fund I already hold (Marlborough European Multi-Cap) and a new one, namely Invesco Perpetual Asia. The latter gives my portfolio some Asian exposure, broadly inline with the BOTB. Of the three Asian equity funds in this month's BOTB it is the cheapest, most resilient (shown by the max fall figure and the barcharts in the BOTB section) and a consistent performer.
In topping up my European exposure I opted to back a fund that I hold and that remains a top pick rather than over diversifying and opting for an additional European equity fund.
My new portfolio
New funds are in green:
| Fund | Sector | ISIN Code | % Allocation |
| IFSL - Brooks Macdonald Defensive Capital | Targeted Absolute Return | GB00B61MR835 | 8.5 |
| Threadneedle - Dynamic Real Return | Targeted Absolute Return | GB00BWWC6P48 | 5.89 |
| Henderson - China Opportunities | China/Greater China | GB0031860934 | 8.4 |
| Marlborough - European Multi-Cap | Europe Excluding UK | GB0001719730 | 13.44 |
| Invesco Perpetual - Asian | Asia Pacific Excluding Japan | GB00B8N44Q86 | 4.41 |
| BlackRock - Overseas Corporate Bond Tracker | Global Bonds | GB00B58YKH53 | 19.08 |
| Stewart Investors - Worldwide Sustainability | Global | GB00B845Y045 | 13.8 |
| Baillie Gifford - Japanese | Japan | GB0006010838 | 8.43 |
| Barclays - Sterling Bond | Sterling Strategic Bond | GB00B72Y6K08 | 9.13 |
| Franklin - UK Equity Income | UK Equity Income | GB00B7DRD638 | 8.92 |
My new asset allocation
My new asset allocation is shown below with my previous allocation is in brackets
- Global fixed interest 24% - (29%)
- US equities - 3% (16%)
- European equities -16% (10%)
- UK equities - 10% (10%)
- Japanese equities - 10% (9%)
- Other international equities - 0% (0%)
- Cash - 5% (4%)
- Property - 0% (9%)
- UK Gilts - 0% (0%)
- UK Fixed Interest 7% (10%)
- Alternative assets/strategies - 10% (3%)
- Asia Emerging Equities 10% (0%)
- Asia Equities ex Japan 5% (0%)
You can see how this compares to the asset allocation for October's 2016 Best of the Best Selection at the foot of this analysis.
