Bi-Monthly Review May 2020

Since the last review, the Covid-19 Coronavirus has spread around the world and has resulted in a global lockdown. As you will all be aware this has caused the world equity markets to fall drastically at first and although there has been a partial recovery the equity markets are still in negative territory. The FTSE 100 is -17% for the year and the Dow Jones is down -6.1%. (as at 12/05/2020)

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. As a result, we have managed to defy market conditions and THE GOOD NEWS IS ALL OUR PORTFOLIOS ARE POSITIVE YEAR ON YEAR. We believe this is our best year ever compared to the market’s benchmarks.

An example of this is to compare one of our balanced risk portfolio 5 with the 20-60% share portfolio benchmark and the AFI balanced index over the past 12 months

Portfolio / Index 12-month performance
Platinum Portfolio 5 6.48%
Mixed Investment 20-60 minus 2.77%
AFI balanced minus 3.19%

As you can see our Portfolio 5 is 9.25% and 9.67% respectively higher than each benchmark, thus we have made you a profit when the norm has made a loss.
Our goal is clearly to try and maintain this superb excessive performance during volatile headwinds and we will strive to keep these standards up, however due to the fact we don’t have a magic wand and can’t predict the future please be aware that funds usually fall in poor market conditions and may well do in the future. The whole situation is difficult to predict since this type of problem hasn’t occurred since the Spanish Flu in 1918/19 and the world was a very different place then.

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 12 months and 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 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 lockdowns are over now, however all the bad economic news is yet to come and we probably will have further waves of Covid 19. We expect the world to drop 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 heading for a recession we expect to see the economic statistics improving certainly from Q3 onwards.

Therefore, this is mixed news and not great for the next couple of months. We therefore believe its better to be relatively prudent and keep high cash holdings and some funds which have none or negative correlation to most of the funds. Thus, if the market falls further then we shouldn’t 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 markets have staged a partial recovery. We expect further volatility, as all the economic bad news is 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 but feel we will know a lot more regarding the virus once countries have eased the lockdown and we start to slowly return to normal.

We also believe it will be important to pick the right markets which will have the best ability to bounce back. We think Asia and the US should be better equipped to have strong economic recoveries than the UK and Europe. We think BREXIT and the divisions between northern and southern Europe may put further pressure on the EU. Asia has demonstrated they can control the Virus whilst in the USA they don’t seem to care although they will eventually get ‘herd protection’. Asia and the US seem to have the strongest economies, and these are the areas we are more bullish about in the medium to long run.

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 few 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 rise. We think the main boom in this market is now over and also expect this market to be volatile over the next 2 months,

Gold Miners

Over the past 2 months the gold Mining fund we hold has exploded and has risen significantly in the past 2 months showing a return of over 50% growth from the middle of march to the middle of May. despite the fact gold generally performs well in recessions we think our gold holdings have grown a little higher than we would have expected so we intend to take the profits made over the past 2 months and return the gold holdings back to their March 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 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. We are also planning some reductions in cash holdings in the higher risk portfolios to keep them closer to their risk profiles.

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 has fallen but not as much as the equity markets due to the hedging effects of part of the fund. We believe we need more diversification of these funds to reduce risk further.


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 could be too predictable at present, so we are reducing our holdings further.


The Coronavirus has spread around the world starting in Asia, then Europe and latterly the USA. As a result, the world equity markets have fallen and most of the world is in some level of lockdown. We believe this is now plunging the world into a technical recession as we predicted. Markets are likely to remain ‘down in the dumps’ until ‘the light at the end of the tunnel’ is seen, we are not there yet. We have no real way of telling if the market is really offering value or not thus, we intend to keep a defensive slant on your portfolios for the next couple of months. The good thing about the way we run the portfolios we can be slightly more defensive in poor markets and more aggressive in bear markets by the funds we choose on your behalf.

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 12th May 2020 over both 1 and 3 years are as follows:

  • Portfolio 3 has grown by 4.5% and 8.5%
  • Portfolio 4 has grown by 5.5% and 12.0%
  • Portfolio 5 has grown by 6.0% and 13.0%
  • Portfolio 6 has grown by 7.5% and 16.0%
  • Portfolio 7 has grown by 7.5% and 17.5%
  • Portfolio 8 has grown by 8.0% and 17.5%

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 portfolio fee.


All our portfolios are still 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 therefore are uncertain as to where the market will go over the next 2 months but are slightly more cautious than optimistic. More importantly we hope you all keep well and if you do get the virus then your symptoms are mild, good luck for the next couple of months.

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:

Funds to buy

All Portfolio’s

Lion Trust Sustainable Futures Global growth

This fund is showing a year on year profit of 7.9%. This is one of the few equity funds to show a profit. The fund has a point to invest in companies that meet the rules for environmental and social responsibility. This is something I believe the world is even more keen on after this current lockdown and whilst global equities as a whole could still be volatile for the foreseeable future, but with peoples attitudes changing towards how we treat the planet then this sector could outperform generally. This fund has been awarded the top FE 5 crown rating whilst achieving a top quartile ranking over 3 and 6 months, 1, 3 and 5 years.

Kames Global Equity Market Neutral fund

This fund was launched in 2016 initially with limited success however the fund has really come into its own over the past 12 months and has successfully hedged the market. As we think market conditions to be volatile over the next few months we would hope for more of the same. This fund has risen by 4.2% over the past 3 months and 9.8% over the year. The fund uses a mix of long and short assets to hedge the market we have purchased this fund and trust it will help hedge through volatile markets.

All except portfolio 8

FP Argonaut Absolute Return fund

Again, we are purchasing this fund to be a greater market hedge then Brookes MacDonald whilst we are still in an unpredictable world. This fund recent performance has been nothing short of spectacular giving a return of 34% over the last year to 13.7% over the past 3 months. This fund is not really correlated to any market thus acting as another fund to diversify your risks further into other asset classes. However, we are looking for funds that have been able to exploit the present market volatility as we believe there is more to come. The fund is only a small fund 22m therefore we are keeping our asset allocation relatively low.

Funds to sell:

All Portfolios

Vanguard FTSE Developed Europe ex UK index

We have decided to sell down Europe for this review as we just can’t see that it looks attractive compared to the rest of the world. The issues they are facing are mainly the divergence between the Northern and southern European nations and the fact the northern European nations now seem reluctant to bail out their poorer neighbours. They also have BREXIT at the end of the year and then even the potential for other countries like Italy to follow. Furthermore, in a crisis its difficult for so many nations to make a decision to help all so often nothing happens if all nations can’t agree, this is a case of ‘too many cooks spoiling the broth’. If things improve, we will be more than happy to reinvest into Europe in the future.

Funds to reduce:

All Portfolios


We are maintaining a high level of cash to reduce the overall portfolio risks; we dare not put too much in in case the markets suddenly recover drastically in the next 2 months. We have reduced cash in portfolios 6,7 and 8 as they are by nature high risk and we do not want to choke off any recovery if the markets surge.

M&G Global Listed Infrastructure

We are reducing this fund as we are concerned that any infrastructure projects may be disrupted by staff shortages. Business and governments may cancel projects if money is used up supporting the economy whilst the outbreak is occurring. Consequently, we are only selling part of this fund because if we go into a recession the governments may spend more on infrastructure to create jobs in the future. As usual things are very difficult to predict in a very unusual situation. We again are selling this fund for strategic reasons not based on the quality of the fund in all but portfolio 3 & 4 which only hold 1% each.

Brooks MacDonald Defensive Capital

This fund is an Absolute fund designed to ‘hedge some of the risk’ the fund has a good past performance and a decent reputation. What has concerned us is it fell by 20% when the market fell by 30% from top to bottom and we have been concerned that this is not hedging enough .The fund has recovered nicely since and its only showing a modest loss but its volatility has concerned us. We have therefore decided to sell down around 50% of the fund and add 2 more Absolute funds that did hedge the market in the falls. Thus, again diversifying your risk.

Funds to increase:

All Portfolios

Baillie Gifford American fund

This fund has performed exceptionally well over the past 12 months compared to the US market as a whole, over the current Covid19 crisis. Their philosophy is to keep a long- term plan over 5 years with 30-50 companies in the portfolio whom they consider have growth potential such as Amazon and Netflix. This fund is actively managed and is a nice compliment to the Vanguard US tracker fund thus increasing diversity and reducing volatility. The fund has always been in the top quartile over the past 5 years and has an FE 3 crown rating.

Portfolio 6, 7 and 8 only

Lindsell Train Japanese Equity

This fund invest in Japanese equity so completes our Asia exposure with a good degree of diversification in the region. It is the 3rd largest economy in the world and has a different macroeconomic environment to the rest of Asia such as very low interest rates and low inflation. The larger Japanese companies invest into the rest of Asia and hence are also linked to the wider Asian economy. The fund has the top FE 5 crown rating and a Silver morning star rating. The fund has performed in top quartile over 3 and 6 months and 1, 3 and 5 yrs. We are recommending this fund as a high-quality fund to diversify away from the UK and Europe.

Portfolio 7 and 8 Only

Fidelity Asia Pacific Leaders

We feel that Asia is slightly ahead of the west in its management and recovery form 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%

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 Global Equity

Lindsell Train Japanese Equity

Jupiter India

Schroder US Smaller Companies