Damien’s December 2019 portfolio review – waiting for the dust to settle

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

As is usual in my portfolio reviews, the chart below shows how my portfolio has outperformed since I started the challenge in March 2015, four and a half years ago. The green line is the performance of my portfolio while the red 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 blue line shows what the average multi-asset fund with comparable equity content achieved. In other words, the red 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 blue 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.

In November I made a couple of changes to my portfolio to reduce the currency and style bias within it. I took some profits and reduced my exposure to the volatility in the value of the pound in the face of the impending UK general election. I also reduced my portfolio's exposure to defensive equity sectors. You can see the benefit of doing so in the chart below which shows the performance of my portfolio since my last update (the green line) versus a portfolio assuming that I had not made any fund switches.

There was nothing prophetic about the fund switches it was purely about mitigating rising risks. Doing so paid off.

As I wrote in my research article an 'Update to Damien’s alternative risk portfolios' I would have usually reviewed my £50k portfolio around the beginning of last week, however, three potentially market-moving events were due to occur in a matter of days. The three key events in question were the US Federal Reserve rate-setting meeting, the UK general election and the US-China tariff deadline on the 15th December.

The possibility of a spike in volatility and aggressive market moves as a result of these events meant that I deemed it prudent to wait until this week to review my portfolio. Especially given that the violent market moves experienced in the aftermath of the Brexit referendum in 2016 still play their role in separating the winners from the laggards since then within the investment management world. There was always the potential for a market move similar in scale to that seen in 2016 to occur last week, particularly surrounding the UK general election result.

As we now know the latter of the three key events did have a marked impact on investment markets, which is still playing out. In the case of the US-China trade war, stocks have been driven higher by the fear of missing out (FOMO) after both sides announced a phase 1 trade deal (again). In the immediate aftermath of the UK general election, the pound leapt over 2% and UK assets outperformed. This explains why my revised portfolio performed better in the chart above between the 12th and the 18th of December.

The removal of three big macro worries hanging over markets has been enough to drive global stock markets higher. The chart below shows how major stock market indices have performed since the start of December. The odds of a positive December (a Santa rally) are now much higher.

However, we are already starting to see the post-election enthusiasm moderate in the UK. The pound has already given up much of its post-election gains. With currency markets remaining volatile and equity market seasonality starting to cloud things I think it is prudent to leave my portfolio alone (rather than sit out of a rising market while fund switches are completed) until the new BOTB & BFBS tables are published in January. Hopefully by that time investment markets will have settled into a new phase having had time to digest the implication of the UK general election and the US-China phase 1 trade deal. Remember there is no compulsion to always tinker with my portfolio each month (read my article - The lazy 80-20 Investor – how often should you change funds?

More importantly, due to the Christmas holiday period, there is only a maximum of 6 trading days until the new BOTB is published anyway. With trading volumes likely to be light, volatility could well pick up, which is always a bad environment to make portfolio changes.

So while I plan to avoid any FOMO knee-jerk reactions and wait until the New Year to make any changes, for the sake of tradition the table shows whether the funds within my portfolio are in the current BOTB or BFBS tables or not. Those funds in green are still in the BOTB while those in yellow are not in the BOTB but remain in the BFBS list. Meanwhile, any funds in red have dropped out of both shortlists.

Fund	Allocation %	Risk	Sector	ISIN Code
Fidelity Global Enhanced Income	5	Medium	Global Equity Income	GB00BD1NLJ41
M&G Global Listed Infrastructure	7	Medium	Global	GB00BF00R928
Janus Henderson Fixed Interest Monthly Income	16	Low	Sterling Strategic Bond	GB0001920486
BNY Mellon Real Return	11	Low	Targeted Absolute Return	GB0001642635
ASI Emerging Markets Bond	10	Low	Global Emerging Markets Bond	GB00B5L9HN22
Vanguard LifeStrategy 20% Equity	6	Low	Mixed Investment 0-35% Shares	GB00B4NXY349
Jupiter Japan Income	9	High	Japan	GB00B0HZTZ55
VT Gravis Clean Energy Income	11	Medium	Global	GB00BFN4H792
TB Evenlode Global Income	6	High	Global Equity Income	GB00BF1QMV61
ASI Global Real Estate Share	7	High	Property Other	GB00B7MR5W47
Fidelity European	7	Medium	Europe Excluding UK	GB00BFRT3504
Slater Growth	5	Medium	UK All Companies	GB00B0706C66

My Portfolio asset mix

As there were no changes to my portfolio the asset mix remains the same:

• • UK Equities 11%
  • North American Equities 13%
  • Global Fixed Interest 19%
  • Japanese Equities 10%
  • Other International Equities 0%
  • Emerging market equities 0%
  • European Equities 13%
  • UK Fixed Interest 0%
  • Cash 2%
  • Alternative Investment Strategies 11% (including absolute return)
  • Emerging Market Fixed Interest 9%
  • Gilts 0%
  • Asian equities 0%
  • Commodities and energy 5%
  • Property 7% - most of which is equities in the US.

 

Damien's higher risk and low risk portfolios

Using the logic described in my post: Update to Damien’s alternative risk portfolios I create hypothetical higher and lower risk versions of my portfolio below:

Higher risk

Fund	Allocation %
Fidelity Global Enhanced Income	8.77
M&G Global Listed Infrastructure	12.28
Jupiter Japan Income	15.79
VT Gravis Clean Energy Income	19.30
TB Evenlode Global Income	10.53
ASI Global Real Estate Share	12.28
Fidelity European	12.28
Slater Growth	8.77

 

Lower risk

Fund	Allocation %
Fidelity Global Enhanced Income	6.41
M&G Global Listed Infrastructure	8.97
Janus Henderson Fixed Interest Monthly Income	20.53
BNY Mellon Real Return	14.10
ASI Emerging Markets Bond	12.82
Vanguard LifeStrategy 20% Equity	7.69
VT Gravis Clean Energy Income	14.10
Fidelity European	8.97
Slater Growth	6.41