Damien’s portfolio – Some minor tweaks

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 65-70% of the portfolio invested in equities which is the highest level for quite some time. I have produced over 20% 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.

As you can see from the chart above my portfolio has continued to ride the market momentum and has continued to set its own all-time highs. At the time of writing the portfolio is up 22.96% in little over two years. Obviously I am very pleased with that result especially when compared to the aforementioned benchmarks.

While June was a tough month for investment returns the move into Chinese equities as well as emerging markets paid off during July and the first week of August. The chart below shows the performance of my portfolio versus its benchmarks.

 

The table below shows the performance of each fund within my portfolio since my last review a month ago. It's good to seem them all in positive territory. However, it is especially pleasing to see the incredible performance of the Baillie Gifford Greater China fund and the Baillie Gifford Emerging Markets Growth fund.

Fund	Performance since last review (10th July)
Baillie Gifford - Greater China	5.96
Baillie Gifford - Emerging Markets Growth	5.49
Baillie Gifford - Pacific	3.51
Schroder - UK Dynamic Smaller Companies	2.83
Premier - Diversified	2.27
Man GLG - Strategic Bond	2.16
Marlborough - European Multi-Cap	1.73
TwentyFour - Dynamic Bond	1.48
Baillie Gifford - American	1.43
Wise Funds Limited - TB Wise Income	1.08

You may recall that last time I switched out of the Cavendish Technology fund and into the two Baillie Gifford funds I've just mentioned and although it's early days they have outperformed the Cavendish fund (which itself returned an impressive 3.22% over the same period). Of course you won't get every call right when you invest but it's about get more right than you do wrong. While the move into emerging markets and China has propelled the portfolio to new highs should we see a correction in markets then these high risk plays will likely be worse affected. I'm not being a pessimist but simply setting expectations.

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 %	Risk	Sector	ISIN Code	SEDOL Code	Citicode / TIDM
Baillie Gifford - American	16	High	North America	GB0006061963	606196	BQ69
Baillie Gifford - Emerging Markets Growth	4	High	Global Emerging Markets	GB0006020647	602064	BG89
Baillie Gifford - Greater China	4	High	China/Greater China	GB00B39RMM81	B39RMM8	CSF5
Baillie Gifford - Pacific	3	High	Asia Pacific Excluding Japan	GB0006063233	606323	BE80
Man GLG - Strategic Bond	12	Low	Sterling Strategic Bond	GB00B731HR48	B731HR4	0K5P
Marlborough - European Multi-Cap	16	High	Europe Excluding UK	GB0001719730	171973	CA33
Premier - Diversified	16	Low	Mixed Investment 40-85% Shares R	GB00B8BJV423	B8BJV42	GH6F
Schroder - UK Dynamic Smaller Companies	10	Medium	UK Smaller Companies	GB0007220360	722036	KR20
TwentyFour - Dynamic Bond	7	Low	Sterling Strategic Bond	GB00B5KPRZ34	B5KPRZ3	JZU3
Wise Funds Limited - TB Wise Income	12	Medium	Flexible Investment	GB00B0LJ0160	B0LJ016	TJ63

Looking at the above table there is only one fund that has dropped out of both the BFBS and BOTB tables. Typically if a fund is green or amber I will leave them alone in order to minimise the number of fund switches I make which in turn minimises the percentage of my portfolio that is out of the market while the transactions complete. The omission of the Baillie Gifford Pacific fund is an interesting one. The chart shows the performance of the fund versus its peer group since I first invested in the fund back in May. The performance has been an incredible 10.13%.

 

The reason that the 80-20 Investor algorithm has now screened it out is because of risk. One of the factors that the 80-20 Investor algorithm takes into account is risk and while the Baillie Gifford fund has always been one of the riskier plays within Asian equities (just look at the dips and rallies on the chart above) it is now the riskiest. All the while these risks are being rewarded, as they have been, it is fantastic but at some point they will inevitably not be, especially if markets turn downwards. In time the fund's risk levels may reduce which may result in it regaining its position within the 80-20 Investor fund lists.

However, by sticking to a process it helps avoid costly emotional investment decisions. For that reason I am going to switch out of the Baillie Gifford Pacific fund and reinvest the proceeds into another Asian equity fund.

Elsewhere in the portfolio there was no compelling need for dramatic changes. However my asset allocation has drifted from that of the BOTB. The drift is marginal and mostly centred around my US and European equity exposure (I have a bit more of each). The chart below (click to enlarge) shows how my portfolio fared from June, when the asset mixes last matched, through to today. The charts scale makes the difference seem more noticeable but we are talking just fractions of a percent. Overall the two portfolios have produced the same result because they are built around the same core funds. So to all intents and purposes the small drift in asset mix has had no material impact.

Having said that, this month I will bring my asset mix back into line because the BOTB once agains has a lower US and European equity exposure. For that reason I will trim my US and European equity exposure and add a small amount of Japanese equity exposure. The remainder of the proceeds will bolster my global fixed interest allocation as well as my emerging market and China exposure to bring it more in line with that of the BOTB. To achieve this I will carry out the following funds switches.

Fund switches

• 100% out of Baillie Gifford Pacific and 100% into Allianz Total Return Asian Equity Fund. This is a like for like switch and I've favoured the Allianz fund over the other Asian fund in the BOTB this month because it has a lower max fall figure and is cheaper.
• 34% out of Baillie Gifford American and 20% of the proceeds into Man GLG Strategic Bond, 20% into Neptune Japan Opportunities, 20% into Baillie Gifford Emerging Markets Growth, 20% into Baillie Gifford Greater China and 20% into Allianz Total Return Asian Equity Fund
• 34% out of Marlborough European Multi-Cap and 20% of the proceeds into Man GLG Strategic Bond, 20% into Neptune Japan Opportunities, 20% into Baillie Gifford Emerging Markets Growth, 20% into Baillie Gifford Greater China and 20% into Allianz Total Return Asian Equity Fund 

Overall I am only switching about 13% of my overall portfolio. 3% of that relates to the Asian equity like for like switch. The remainder is from the medium risk Baillie Gifford American fund as well as the high risk Marlborough European Multi-Cap. I have split the proceeds equally between the five funds mentioned as it makes the switch easier (as they all have the same percentage) plus it achieves my asset mix aim. In addition by splitting the proceeds across low risk funds (Man GLG Strategic Bond), medium risk funds (Neptune Japan Opportunities) and high risk funds (Baillie Gifford Emerging Markets Growth, Baillie Gifford Greater China and Allianz Total Return Asian Equity) I don't increase the risk profile of my portfolio. It could be argued that I in fact reduce it slightly.

My new portfolio mix is the most diversified it has been in a very long time. In addition the Neptune Japan Opportunities fund is actually a hedged fund which will be the first time a currency hedged strategy has appeared in my portfolio since the Brexit vote.

My new portfolio will look like this:

Name	Allocation	Risk	Sector	ISIN Code	SEDOL Code	Citicode / TIDM
Allianz - Total Return Asian Equity	5	High	Asia Pacific Excluding Japan	GB00B1FRQV53	B1FRQV5	BKB9
Baillie Gifford - American	10.5	Medium	North America	GB0006061963	606196	BQ69
Baillie Gifford - Emerging Markets Growth	6.5	High	Global Emerging Markets	GB0006020647	602064	BG89
Baillie Gifford - Greater China	6.5	High	China/Greater China	GB00B39RMM81	B39RMM8	CSF5
Man GLG - Strategic Bond	14	Low	Sterling Strategic Bond	GB00B731HR48	B731HR4	0K5P
Marlborough - European Multi-Cap	10.5	High	Europe Excluding UK	GB0001719730	171973	CA33
Neptune - Japan Opportunities	2	Medium	Japan	GB00B3Z0Y815	B3Z0Y81	GQLD
Premier - Diversified	15.5	Low	Mixed Investment 40-85% Shares	GB00B8BJV423	B8BJV42	GH6F
Schroder - UK Dynamic Smaller Companies	10.5	Medium	UK Smaller Companies	GB0007220360	722036	KR20
TwentyFour - Dynamic Bond	7	Low	Sterling Strategic Bond	GB00B5KPRZ34	B5KPRZ3	JZU3
Wise Funds Limited - TB Wise Income	12	Medium	Flexible Investment	GB00B0LJ0160	B0LJ016	TJ63

My new asset mix

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

• UK Equities 19% (18%)
• North American Equities 11% (19%)
• Global Fixed Interest 16% (13%)
• Japanese Equities 3% (0%)
• Other International Equities 0% (0%)
• Asian equities 3% (3%)
• European Equities 10% (13%)
• UK Fixed Interest 5% (6%)
• Cash 5% (6%)
• Alternative Investment Strategies 16% (13%)
• Emerging Asia equities 12% (9%)