Damien’s Portfolio update – Sitting tight for now

A few days ago I published a performance review of my £50,000 portfolio - Damien’s portfolio performance review Sept 2016 – Up 12.72%. In the article I identified 3 funds that I would 'look to remove from the portfolio over [last] weekend notwithstanding any sudden surge in market volatility. That's not to say the highlighted funds are suddenly appalling funds, just that there are better opportunities elsewhere'.

Well no sooner were those words published there was an incredible surge in volatility from late on Friday into this week. In the weekend's newsletter I talked about the possibility of a second taper tantrum unfolding. It's an interesting read, especially now that markets have carried on falling for both bonds and equities.

I decided to hold fire on my fund switches, at the start of the week, to see how markets pan out in the short term. Especially as two of the funds I'm looking to replace were my low risk defensive holdings. However, another reason why I decided to remain invested is that I invest in unit trusts, in order to replicate the experience of most DIY investors. As you will be aware unit trust transactions can take up to a couple of days to clear. This is one of the main disadvantages of using unit trusts as markets can move against you while you are out of the market. In the current heightened volatility the chances that markets move significantly while your transaction is processed are that much higher. Investment trusts and ETFs don't tend to have these issues as they trade like shares i.e. without undue delay.

In the long run any negative impact, as a result of markets moving against you during a fund switch, will tend to even itself out as there will be times when the market moves in your favour. One strategy which I may well employ is to stagger any fund switches (see my answer to a question in August's Chatterbox for more details) to try and mitigate the problem if things don't calm down. Of course with the level of market volatility and uncertainty rising it doesn't hurt to pause for thought. It makes sense to launch into calmer waters rather than a raging storm.

It might also be worth bearing in mind that the Bank of England has a policy meeting this Thursday while the US Federal Reserve meet next week. The prospect of a US rate rise as early as next week is one of the catalysts driving the current market volatility.