Bi-Monthly Review July 2020

Since the last review, the Covid-19 Coronavirus has spread further around the world and the worst affected areas are now the US, Brazil and India with Asia and Europe seemingly past the worst. As you will all be aware this had caused the markets to fall, however the markets have bounced back on optimism that the virus is controllable, and the worst may be over. The FTSE 100 is -18% for the year and the Dow Jones is down -2%. (as at 24/07/2020)

We believed that we could see some of this coming and thus we increased our defensive positions within your portfolios in both the January and March reviews and have remained defensive ever since. The markets have recovered significantly since the last review; however our defensive stance has continued to perform well. We have continued to beat the benchmarks and outperform the markets significantly.

An example of this is to compare one of our balanced portfolios; risk 5 with the 20-60% share portfolio benchmark over the past 3 years. As you can see in the table below and a graph at the bottom of the email the average market return has been 5% over 3 years whereas we have returned 19%. Thus, we have beaten the average market return by almost four times as much.

Portfolio / Index 3 year performance
Platinum Portfolio 5 19%
Mixed Investment 20-60 5%

Our goal is clearly to try and maintain this excellent performance during volatile headwinds and we will strive to keep these standards, although the level of outperformance we have achieved is not likely to be repeated to that extent in the future.

It is difficult to predict the markets however we believe the virus will have an impact on global economies for months to come. The virus will of course disrupt things over the next 6 months or until a vaccine is available, the economic effects with increased volatility is assured. Our job is really to steer through the headwinds as best we can. Our philosophy at present is to reduce risk with a diversity of funds and asset classes. Try to keep a level of hedging within the portfolios resulting in the portfolios being slightly more cautious than they would normally be.

We think that the worst of the lockdown are over in Europe and Asia and the virus may be peaking in the US, however all the bad economic news is now arriving which we think is likely to upset the markets and create more volatility.

The world has now dropped into recession with resulting high unemployment and certainly for the next quarter we expect the economic news to become worse. However, despite the fact we are in recession the economic news is improving in Asia and Europe.

We therefore intend to keep a higher than normal cash holdings and some funds which have none or negative correlation to most of the funds. Thus, if the market falls further then we should not be affected as badly, however if the markets actually recover more quickly then we could lag slightly. Overall we are more negative than positive regarding markets over the next few months so our portfolio’s will remain on the cautious side and we will assume you are happy with this approach unless we hear from you to the contrary.

Asset Class Review


These markets were hit badly with the recent worries over the Coronavirus but as the world demonstrated that they can at least control it with lockdown and the governments pumped money into the world economies, then the world markets have staged a recovery. We expect further volatility, as we believe there is more bad news ahead of us, however, so is the light at the end of the tunnel. We are slightly more negative than positive in the equity markets at present mainly because the markets have recovered a little too much.

We also believe it will be important to pick the right markets which will have the best ability to bounce back. We think Asia should be better equipped to have strong economic recovery and the huge stimulus in Europe should steady things somewhat. The US does not appear to have controlled the virus very well and the economic news may become worse, especially with the disruption that the US election will bring so we are making slight reductions in this area. The UK remains in the doldrums as we have had the problems with Covid-19 and now we have Brexit so our equity markets haven’t risen much but therefore offer some kind of long term value for money. We remain neutral on the UK.

Bonds / Government Debt

This market has performed particularly well as these types of securities are deemed to be a ‘safe port in a storm’, and as a result the market has risen significantly over the past 6 months. The main reason for the rise in this sector is the reduction in interest rates across the globe and when rates fall the value of Gilts and bonds rose. The bond values have fallen back in the past couple of months, however if the equity markets fall back again then gilts are likely to rise and have a stabilising influence on the portfolio.

Gold Miners

Over the past 3 months the gold Mining fund we hold has continued to rise, showing a return of 30% growth from late April to late July. Despite the fact gold generally performs well in recessions we think our gold holdings have grown a little higher than we would have anticipated so we intend to take the profits made over the past 2 months and return the gold holdings back to their May level.


With regards to property, this asset class is subject to the potential for fund managers to instantly reduce the price and potentially suspend any money in or out of a fund as a protective move. Because of the virus and BREXIT we don’t wish to risk this fund yet.

Emerging Markets

These markets can be unpredictable, and this area of the world is still insecure right now, so we wish to leave this market alone for the present. We are only prepared to invest into these regions via Asia or Global funds at present and not directly.


In all our portfolio’s, the level of cash is already relatively high due to the uncertainty in markets. We intend to keep relatively high holdings in this sector which can help stabilise the market in times of unpredictability. This sector of course does not grow so once we can see the markets recovering at future reviews, we will start to sell down some of this sector.

Absolute Funds

These funds ‘hedge’ the volatility of the market by buying long and selling short so reducing the overall risk, protecting against the falls and thus reducing the volatility. This sector fell in March but not as much as the equity markets due to the hedging effects of part of the fund and have recovered more slowly. Thus we wish to leave these funds as they are.


This fund should do well in a recession however some infrastructure projects may be cancelled due to lack of funding and staff shortages as this will not be a normal cyclical recession, but a technical recession caused by the Coronavirus. We don’t think this sector is quite ready to invest more into but we are keeping a watchful eye on this market for the next review.


Anyway, despite everything we have performed remarkably well due mainly to the cash, gilts and gold miners held on the portfolio. Also, the equity funds we hold have performed better than the market giving us an advantage over our rivals. The fund performances rounded down to the nearest 0.5% as of 22nd July 2020 over both 1 and 3 years are as follows:

  • Portfolio 3 has grown by 4.5% and 13%
  • Portfolio 4 has grown by 5.5% and 17%
  • Portfolio 5 has grown by 6.0% and 19%
  • Portfolio 6 has grown by 7.5% and 22.5%
  • Portfolio 7 has grown by 7.5% and 23.5%
  • Portfolio 8 has grown by 8.5% and 24%

Please note due to present levels of volatility these figures may differ significantly day by day. Please be aware your actual returns will be lower due to your annual 1% advice and provider fees.


All our portfolios are showing a profit year on year, and this is a result of outperformance when the market was rising and a lower downside whilst it’s been falling. We will do our best to continue to anticipate this to the best of our ability with no promises, however we will of course keep the situation under review.

Please be aware that all portfolios are lower risk than prescribed due the exceptional levels of market volatility because of the exceptional circumstances caused by the coronavirus.

This will give you a little more protection than you would otherwise have.

For our Portfolio Clients, Recommended fund adjustments:

New funds to buy – All Portfolio’s

Bailie Gifford European

We are recommending this fund as we are looking for an alternative to the US and we believe the huge stimulus in Europe combined with the reduction in lockdown give better short- term prospects. The Baillie Gifford European fund is a superb fund, Its FE 5 crown rated, it has been in the top European fund for 1 year and 5 years. What we like about this fund its a stock picker and it holds no assets at all in the weaker economies of southern Europe. Baillie Gifford track record is outstanding, not just in Europe, but US, China and Globally and they are fast becoming the Top fund house in the world for such outstanding outperformance over their peers. We believe in their processes and have increased our holdings in their award winning funds which consider how well they have performed are also doing this at a reasonable cost and see the European fund as a very good addition to our portfolio.

New funds to buy – Portfolio 8 only

JP Morgan US Small Cap Growth

JPM small cap growth fund. This fund has an exceptional track record with the top FE 5 crown rating. The fund has performed in the top quartile over all periods 1, 3 and 6 months plus 1 ,3 ,5 and 10 years. This has been managed without being heavily overweight in the booming technology sector with only a small1.8% overweighting. Whilst it is also classed as a small cap US growth fund, smaller companies in the US are not generally smaller companies when comparing them to other global markets. 36% of the companies invested in have a market capitalization of over $5 billion dollars which if you compared this to the UK would make them large enough to actually be in the top FTSE 100 index for the UK’s largest 100 companies. The US smaller companies sector has underperformed as a whole and is showing some good value, whilst certain sectors such as tech are very overvalued to the extent that these could be classed as the new value or bond proxy stocks as the world hunts for dividend growth in this new extremely low interest rate world. The sector as a whole has outperformed the general US markets and is even the 4th best performing sector over 3 months, admittedly after a larger fall over the last 12 months.
Smaller companies are growth stocks and hunt for growth via reinvestment and expansion into new markets. Trade between states in the US is similar to Europe trading between countries so new markets in this instance is very much Trumps mantra of America first and they could benefit from internal growth and don’t rely as much on global expansion something that Trumps trade wars seem to have reduced. Although not small companies per say they are certainly not mega cap companies and can be a lot more nimble and are able to innovate in changing markets in uncertain times.

It is because of this that we are keeping our very small holding in our highest risk portfolio 8 to try and capture any upside growth. However we are switching funds from Schroder US smaller companies which has underperformed for a while now to JPM small cap growth.

Fund to sell – Portfolios 5, 6, 7 and 8

Lindsell Train Global Equity

We are selling this fund as it seems to be not coping well in the current global crisis compared to its peer group. We are less keen on global funds as they incorporate the whole world and different parts of the world seem to be coping better than others. Furthermore, our other global fund Fundsmith has outperformed this fund 8.7% in a year whilst Lindsell Train is down -0.1%.

Fund to sell – Portfolio 8 only

Schroder US Smaller Companies

Whilst we still believe in this sector this fund has underperformed its peers over the last few years. The underperformance is the reason for the selling out of this fund as mentioned above.

Funds to reduce in all portfolios

Vanguard US Equity

We are recommending a reduction in this fund to simply reduce our exposure to the US because we think the market is relatively high, so we are profit taking. The virus is still spreading in the US and the election is now becoming closer so that may start having a negative effect on the markets soon. At this stage we don’t really know how the markets will react to a new president which is seemingly possible with Joe Biden presently being ahead in the polls. We are only reducing the US slightly as this market is still a strong economy.

Funds to increase – Portfolios 5, 6, 7 & 8

Fidelity Asia Pacific Opportunities

We feel that Asia is slightly ahead of the west in its management and recovery from the Coronavirus crisis. Furthermore, we believe the economies of Asia are in much better shape than the UK and Europe at least and it also offers a diversification from the US where you have the majority of your portfolios stock holdings. This fund is already held on the portfolio and has been very successful so far the fund is morning star 5 * rated and has top quartile performances over 1, 3 and 5 years. This fund has delivered a 6.6% return year on year with the sector average being -2%.

Fund to increase – Portfolio 7 only

Fundsmith Equity

We are recommending this fund due to its quality. It has a 5 crown rating, a gold rated morning star award, an Alpha fund manager rating and it has been top quartile over 3 and 5 years. We are increasing this fund as there was a disproportionately high amount in the Lindsell Train Global Equity fund and we wish to reduce global exposure but not by 6% in this portfolio. Therefore we are recommending a switch into a well tried and trusted fund; Fundsmith Equity and the remainder essentially into Europe which we like right now. As explained before Fundsmith Equity has outperformed Lindsell Train Global Equity by 8.8% over the last 12 months. So essentially, we are adding to this fund for strategic reasons and its superb reputation.

Liontrust Sustainable Future Global Growth

FP Argonaut Absolute Return

Kames Global Equity Market Neutral

Baillie Gifford China

Brooks Macdonald Defensive Capital

Jupiter Distribution

Fundsmith Equity Fund

Fidelity Asia Pacific Opportunities

Vanguard US Equity Index

Vanguard FTSE Developed Europe ex-UK Equity Index fund.

Baillie Gifford American B Acc Fund factsheet

Vanguard LifeStrategy 20% Equity

Blackrock Gold & General

M&G Global Listed Infrastructure

Vanguard FTSE UK All Share Index

Vanguard Lifestrategy 40% Equity

Vanguard UK Investment Grade Bond Index

Fidelity Cash

Lindsell Train Japanese Equity

Jupiter India

Baillie Gifford European

JP Morgan US Small Cap Growth