Damien’s Portfolio update: Keep calm & carry on

It's been a fascinating month in the markets. June was an awful month for DIY investors and fund managers alike. Incredibly 96% of funds LOST money and those few that didn't made almost nothing.

The reason for this has been the escalating Greek debt crisis, as I've covered in my weekly market commentaries. So how is my portfolio doing? If you recall I invested £50,000 at the top of the market back in March. Between then and now we've experienced a bear market in Chinese equities with falls of over 20%. Plus the Greek debt crisis has exploded and continues to unfold hour by hour into one of the biggest market events in years, triggering stock markets to tumble globally.

My portfolio had been invested in the following funds:

• 8.75% Henderson UK Smaller Companies
• 13.5% Old Mutual UK Mid Cap
• 15% Fidelity Multi Asset Defensive
• 14% 7IM Balanced
• 3.5% Henderson China Opportunities
• 15% JPM Cautious Managed
• 14% Jupiter European
• 16.25% M&G Japan

Yet despite the market sell-off (the FTSE is down over 3.29% since I started this exercise) my portfolio now sits at £49,518.68. Or in other words it is down just 0.96%, helped by healthy profits I made early on.

Obviously like anyone investing their money I don't want to lose money but I'm only marginally down, at least on paper anyway. Yet given the collapse of the Chinese stock market and the fallout from Greece (to give you context the FTSE 100 has fallen 6% in the last month) I'm pretty pleased with my result.

Don't forget I've also been pretty aggressive with my selection in order to make the most of any upside.

So what changes am I making now?

Well at the time of writing I have completed my exit from the Chinese stock market, a process I started in my last portfolio update. I have now just sold the remaining small Chinese holding that I had and put the proceeds into cash. After I entered the Chinese market there was an initial rally before the market tumbled.

Below I've created a chart to show my experience in investing in Chinese equities. You may recall that I went in with my eyes open about the fact that it was a bubble waiting to pop.

Successful investing is all about having a process as you can never time a market perfectly. You can see from the chart there was scope for me to lose 13% in this market, but we only know that with the benefit of hindsight. When I entered the market there was also the chance of making 13%, which is what happened, as shown by the spike just after I bought. At the time I said my alarm bells were ringing following such a quick rise (you can read it here). I also warned that the Chinese authorities might shortly clampdown on borrowing and speculative investing which in turn could lead to a market crash. That's exactly what happened.

So as you can see from the chart above I timed my entry well. I then dripped out of the market in two stages, as shown. Interestingly I got the timing of my first exit spot on but the timing of my second sale couldn't have been worse. But by dripping out in stages (1 month apart) I managed to minimised the impact of market timing (and getting it wrong). That's why I exited in stages.

So how did i do in a market that collapsed pretty spectacularly? The mainland Chinese stock market is down by 28% since 12th June alone. Through a combination of a good entry and a staged exit I managed to invest across the top of a bubble (which then burst) and ended up where I started, with a small loss of £74.44.

So now my portfolio looks like this.

• 8.75% Henderson UK Smaller Companies
• 13.5% Old Mutual UK Mid Cap
• 15% Fidelity Multi Asset Defensive
• 14% 7IM Balanced
• 3.5% Cash
• 15% JPM Cautious Managed
• 14% Jupiter European
• 16.25% M&G Japan

It could well be that the Chinese stock market rallies again as the Chinese Government are throwing the kitchen sink at it to try and turn it around. However, I'm happy to sit on the sidelines for now. My foray into China equities, while not profitable, was a great demonstration of how to play the top of a bubble.

I recently suggested that I would wait for the 80-20 Investor Best of the Best Selection update for July before making sweeping changes. There is a tendency to make knee jerk reactions to news headlines, with the Greece debt crisis being a good example. I was ensuring that I remained disciplined and not emotional. The situation is changing hourly and markets are extremely volatile. We are now facing a referendum in Greece this weekend, the result of which could see markets steady slightly or sell-off (and my portfolio fall along with it). So while I want to make tweaks to my portfolio, particularly to include some of the latest Best of the Best funds, I will wait until the dust settles. When markets are lurching from one extreme to the other making trades during that period can work hugely for you or against you while you are mid-trade. Don't forget fund trades don't happen instantly.

Summary

To sum up, I've now exited China, kept a bit of cash (which is never a bad thing in volatile markets) and will wait for the dust to settle so that I can hopefully make some changes in the next week or so. I'll be sure to update you when I do.

 

 

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