Damien’s portfolio update – clearing out the deadwood

10 days have passed since I wrote my piece Damien’s portfolio update: Steady as she goes and a lot has happened since then!

For starters the UK General Election delivered a majority Conservative Government which was unexpected. In my last weekly note I said that:

The Election result certainly makes things interesting from an investing point of view. Back in March I wrote a piece called FTSE 100 – Where will it go next & how will the Election affect it?. At the time I concluded that:

• 'In the absence of geopolitical events and uncertainty in the UK General Election that could spark a sell-off there is nothing to stop the FTSE 100 testing new highs this year.

Well now we seem to have some political certainty. Interestingly, in that same article I included a chart showing that a Conservative win is almost always positive for the UK stock market that year. There is only one instance since 1945 when this hasn't been the case.'

It's something I've been pondering since the Election result came in. In my recent portfolio update I stated that last month I got one call right (investing in China) and one wrong (avoiding the UK). Also the 80-20 Investor Best of the Best Fund Selection now includes a UK equity fund, such has been the sector's resilience of late.

When I updated the 80-20 Investor Best of the Best Fund Selection this month I explained how it was all change. A big trend was the omission of North American equity funds as well as Global funds, the latter often just being quasi-North American equity funds.

When you look at the returns over the last month from the funds within my £50,000 portfolio you can understand why:

 

Fund	1 month return since fund switch
Henderson - China Opportunities	4.59
Neptune - Japan Opportunities	0.18
Jupiter - European	0.13
Fundsmith - Equity	-0.08
Fidelity - Multi Asset Defensive	-1.58
JPM - Cautious Managed	-2.06
AXA - Framlington Global Technology	-2.09
Artemis - Global Select	-3.13

 

My cautious funds disappointed, but, as can be seen from the chart (below) these losses occurred in last week's bond market sell-off. At present I am going to leave those as they are for now. JPM Cautious Managed remains in its sector's best funds list while the Fidelity Multi Asset Defensive is a decent 'buy and forget' fund.

 

 

My previous decision to reduce my Axa Framlington Global Technology fund in favour of China was a wise one, as the remaining money in the fund has fallen by 2% since. Similarly the Artemis Global Select fund has disappointed. Meanwhile Fundsmith Equity has flatlined.

All three of these funds have significant exposure to US equities which have faltered because the strong dollar has hit many US companies' profits. I will follow the 80-20 Investor Best of the Best funds' asset mix and reduce my US equity exposure in favour of UK equities and a more balanced mix of assets. At the moment I am sticking with my China exposure but I am getting closer to reducing it.

Below I list my fund switches and the reasons for my choices:

1. Switch completely out of Artemis Global Select and into Old Mutual UK Mid Cap
2. Switch completely out of AXA Framlington Global Technology and into Henderson UK Smaller Companies
3. Switch completely out of Fundsmith equity and into 7IM Balanced
4. Switch completely out of Neptune Japan Opportunities and into M&G Japan

Reasons for the new fund choices:

Old Mutual UK Mid Cap - this UK equity fund is now part of the 80-20 Best of the Best fund list. In fact the 80-20 Investor algorithm chose it as one of the best medium risk fund opportunities at present. It does have a small bid/offer spread although it's less than 1%.

Henderson UK Smaller Companies - when switching out of AXA Framlington Global Technology I've decided to go for a higher risk play in the UK. UK Smaller Companies funds do tend to be a touch more volatile than ordinary UK All Companies funds. The reason that I've gone for a smaller cap fund is to take advantage of the value opportunities that lie in that portion of the market - see my article The UK stock market: where the City's smart money is investing. The Henderson UK Smaller Companies fund is identified, by the 80-20 Investor algorithm, as one of the UK Smaller Companies funds with the most momentum and consistency of returns. See the Best funds by sector section.

7IM Balanced - this fund is in the current 80-20 Investor Best of the Best list under the low risk section. With markets high and a fair bit of uncertainty about the future direction of a number of markets (such as China, the US, UK etc) this is a defensive way to gain exposure to global stock markets. Its defensive nature comes from the fund's 28% global bond exposure.

M&G Japan - if you go back to when I originally constructed the portfolio I chose Neptune Japan Opportunities because it hedges out exposure to the Yen. While the fund has been a profitable investment for me I am still switching to M&G Japan. The fund has continually been in the 80-20 Investor Best of the Best selection (& outperformend the Neptune fund) and has been identified as one of 7 funds for consistent returns.

So my old portfolio was:

 

7% Axa Framlington Technology

13.5%  Artemis Global Select

15% Fidelity Multi Asset Defensive

14% Fundsmith Equity

7% Henderson China Opportunities

15% JPM Cautious Managed

14% Jupiter European

14.5% Neptune Japan Opportunities

and it will now become:

 

7% Henderson UK Smaller Companies

13.5% Old Mutual UK Mid Cap

15% Fidelity Multi Asset Defensive

14% 7IM Balanced

7% Henderson China Opportunities

15% JPM Cautious Managed

14% Jupiter European

14.5% M&G Japan

 

So it has been a case of clearing out the deadwood and investing in the better performing funds identified by the 80-20 investor algorithm.

 

(image by Photo by adamr - freedigitalphotos.net)

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