The Share Sleuth portfolio is Richard Beddard's hand-picked collection of mostly small-cap value shares. You can keep up to date with its progress here.
Saltydog's Tugboat portfolio weathers the storm
By Richard Webb | Fri, 5th July 2013 - 15:00
The Saltydog "Tugboat" portfolio is designed to be "low risk", and reducing our losses when the markets fall is as important as making gains when they are rising. It was launched in November 2010 to show how our data can be used to manage a portfolio of funds.
The founding members of Saltydog initially invested £40,000, which has now grown to £48,834 in 31 months - during this time we avoided the two significant market corrections, in August 2011 and May 2012, and have outperformed our benchmarks again as markets have fallen in the last month.
This year, having seen strongly rising stockmarkets around the world, we have been keen to demonstrate how our active management philosophy can also allow us to take advantage when conditions are favourable. From last September through until the end of January we were predominantly invested in funds in the sterling high yield, strategic bond and corporate bond sectors.
When we saw the performance of the bond funds tailing away, we sold up and started February holding two UK equity income funds (Chelverton UK Equity Income, and JO Hambro UK Equity Income), two global funds (Baillie Gifford Global Discovery and Invesco Perpetual Global Smaller Companies) and the Standard Life UK Equity Recovery fund.
Soon after we added GAM Global Diversified - these funds then formed the basis of our portfolio through until the end of March when stockmarkets started to fall as concerns grew following the indecisive elections in Italy, the poorly handled Cyprus bail-out, and mounting tensions between North Korea and the US.
The first fund to go was Standard Life UK Equity Recovery fund, which had gone up over 12% in the three months that we had been holding it. By the end of April we had sold GAM Global Diversified (up 5.6% in six weeks), Baillie Gifford Global Discovery (up 13.6% in three months), JO Hambro UK Equity Income (up 13.5% in four months), and Invesco Perpetual Global Smaller Companies (up 6.6% in three months).
Saltydog Investor aims to provide the most up-to-date performance data on unit trusts, open-ended investment companies, investment trusts and exchange traded funds through our monthly newsletter and weekly online updates. We sort funds by Investment Management Association sector into our unique Saltydog Groups - "Safe Haven", "Slow Ahead", "Steady as She Goes" and "Full Steam Ahead' - to help investors create portfolios that match personal appetites for risk.
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At the end of March, when most sectors were slowing, Japan kept on going up. The Nikkei 225 had risen by over 12% since the beginning of the year and the Japanese government had committed to increase its quantitative easing (QE) programme in an attempt to weaken the yen and boost their economy. On 28 March the Tugboat invested in Legg Mason Japan Equity and on 18 April we bought Neptune Japan Opportunities. These funds are in our highest volatility "Full Steam Ahead" Group, where we only invest when the recent returns justify the increased risk.
For the following month these funds were our star performers and by 15 May the Legg Mason fund was up 16.7% and the Neptune Fund was up 10%. The following week we decided to halve our holding in the former, but between us placing our instruction to sell and the sale taking place the Nikkei dropped over 7% and the fund lost a similar amount overnight.
By the end of May we had sold the balance of the Legg Mason fund and only just made a profit - a stark reminder that the more volatile funds can fall just as quickly as they rise.
In June we winessed markets falling and increased levels of volatility as investors prepare for the US Federal Reserve to reduce its programme of QE - the FTSE 100 (UKX) has dropped over 12%. During this time we have reduced our exposure to the markets and our cash holding has gone from below 25% to over 70%. This has helped us control our losses and yet again as markets have fallen the gap between our performance and that of our two benchmarks has widened in our favour.
At 30 June the overall return on the portfolio since November 2010 was 22%, which equates to an annualised return of 7.9%.