Interactive Investor

The table-topping fund we’ve just bought

23rd January 2023 15:32

Douglas Chadwick from ii contributor

Saltydog Investor has spotted an investment market that is performing well and added a new fund to its ‘Tugboat’ portfolio.

This content is provided by Saltydog Investor. It is a third-party supplier and not part of interactive investor. It is provided for information only and does not constitute a personal recommendation.

Although they dipped a little at the end of last week, most stock markets have had a pretty good start to 2023.

The UK and European indices have done particularly well: the FTSE 100 has risen 4.3%, the FTSE 250 is up 4.5%, and the German DAX, French CAC 40, Spanish IBEX, and Italian MIB have all gained more than 8%.

Stock Market Indices20222023
IndexCountry1 Jan to 31 March1 April to 30 June1 July to 30 Sept1 Oct to 31 Dec1 Jan to 20 Jan
FTSE 100UK1.8%-4.6%-3.8%8.1%4.3%
FTSE 250UK-9.9%-11.8%-8.0%9.8%4.5%
Dow Jones Ind AveUS-4.6%-11.3%-6.7%15.4%0.7%
S&P 500US-4.9%-16.4%-5.3%7.1%3.5%
Nikkei 225Japan-3.4%-5.1%-1.7%0.6%1.8%
Shanghai CompositeChina-10.6%4.5%-11.0%2.1%5.7%

Data source: Morningstar.

After the first nine months of last year, the European markets, like most others, were showing significant losses. The IBEX had dropped by 15.5%, the CAC 40 had lost 19.4%, the DAX had fallen by 23.7%, and the MIB was down 24.5%. However, in the final quarter of last year they started to recover.

At Saltydog Investor, we believe in buying and holding funds when they are going up and selling them when they start falling. We are momentum – or “trend following” – investors.

The theory of momentum investing, like all the best ideas, is simple: the greater the amount of money being invested in a fund, or asset class, the quicker its value will rise. This, in turn, will attract further investment, pushing the price even higher. Obviously, the opposite also applies. As a fund or asset class loses investors, the upward momentum ceases and it will reverse, gaining impetus in the opposite direction.

One of the challenges is defining when a trend has started. Trends come in all shapes and sizes, with some working for us and others not. Short-term trends that last hours or days are of no interest to us, and we are happy to leave those to the day traders. We are interested in trends that develop over weeks and last for months or even years. These are driven by global macroeconomic and geopolitical factors.

Over recent years it's been low interest rates, quantitative easing, the growth of the large US technology stocks, and more recently the Covid pandemic, inflation and the war in Ukraine.  

Our start point is to look for sectors that have made gains over four weeks. That is when we might first consider making an investment in our demonstration portfolios. When we see positive returns over 12 and 26 weeks, we start to feel more confident that a trend is developing. We avoid going all-in at the beginning and usually make a small initial investment and then add to it if it performs well.

For most of last year our portfolios were predominantly in cash or the money market funds. However, in November our Ocean Liner invested in the Man GLG Continental European Growth fund. It had a bit of a choppy start, but by the end of the year was showing a gain of 0.2%. Since then, its performance has improved and it is now up 6.3%. Last week, we decided to add to our holding.

The European sectors have recently been top of our “Full Steam Ahead Developed” group table where we compare funds from the European, Global, North American and Japanese sectors. A few weeks ago, we bought the M&G European Sustain Paris Aligned fund and, although we have only held it for a couple of weeks, it has already risen by 1.3%.

Last week, we decided to add another European fund to our Tugboat portfolio: the LF Brook Continental European fund.

In our weekly analysis, there are various reports that help highlight the best-performing sectors and the leading funds in those sectors. You can see the top funds in each sector over four, 12 and 26 weeks and there is also a report that shows all the funds that were in decile one over the last four weeks. The decile rankings are based on all the funds in each of our Saltydog groups and the report sorts them by four-week decile, then 12-week decile, and finally the 26-week decile. It makes it easy to spot funds that have been in decile one over each timeframe.

When sectors are doing well, it is not unusual to find funds in decile one over four, 12 and 26 weeks, but in recent months they have been more elusive.

In last week’s report there was only one fund in our “Slow Ahead” group that had done it. The Baillie Gifford Managed fund, which we have held in our Ocean Liner portfolio since November. The “Slow Ahead” group is made up of sectors from the Sterling Fixed Income and Mixed Investment categories. Here are the top five funds based on their decile rankings.

Slow Ahead

SectorFund4-week decile12 -week decile26-week decile4-week return12-week return26-week return
Mxd Inv 40-85% SharesBaillie Gifford Managed1116.1%11.3%7.9%
Mxd Inv 40-85% SharesTB Wise Multi-Asset Income1125.3%12.6%6.3%
Mxd Inv 0-60% SharesJanus Henderson Cautious Managed1135.0%12.8%4.5%
Mxd Inv 0-60% SharesAXA Distribution1144.2%11.0%3.4%
Mxd Inv 0-60% SharesAXA Ethical Distribution1154.9%12.7%2.9%

Data source: Morningstar.

There is also only one fund in our “Full Steam Ahead Emerging” group with a one in each of the decile ranking columns: the Invesco China Equity Fund, which we invested in a couple of weeks ago.

Full Steam Ahead Emerging

SectorFund4-week decile12-week decile26-week decile4-week return12-week return26-week return
China/Greater ChinaInvesco China Equity Fund11112.7%28.1%10.6%
China/Greater ChinaPictet-Greater China11614.4%30.3%4.4%
China/Greater ChinaFidelity China Consumer11612.3%27.3%4.3%
China/Greater ChinaLiontrust China11813.5%26.3%1.6%
China/Greater ChinaCT China Opportunities11813.0%25.1%1.5%

Data source: Morningstar.

It is encouraging that a few more funds in our “Steady as She Goes” group are now in decile one over four, 12 and 26 weeks. There are nine in total, seven from the UK All Companies sector, one from the UK Smaller Companies sector, and one from the UK Equity Income sector. Here are the top five, based on their four-week return.

Steady as She Goes

SectorFund4-week decile12-week decile26-week decile4-week return12-week return26-week return
UK All CompaniesNinety One UK Special Situations11111.8%21.9%17.4%
UK All CompaniesArtemis UK Select11111.3%23.7%15.4%
UK All Companiesabrdn UK Value Equity11110.8%23.1%19.0%
UK All CompaniesPremier Miton UK Value Opps11110.3%23.5%14.8%
UK All CompaniesES R&M UK Alpha11110.0%19.3%13.6%

Data source: Morningstar.

The “Full Steam Ahead Developed” group has the most funds in decile one over the three periods. There are 11 of them and they are all from the Europe including UK and Europe excluding UK sectors. Here are the top five.

Full Steam Ahead Developed

SectorFund4-week decile12-week decile26-week decile4-week return12-week return26-week return
Europe inc/ex UKLF Brook Continental European11112.8%21.5%32.7%
Europe inc/ex UKSchroder European Opportunities11112.3%23.2%23.1%
Europe inc/ex UKBaillie Gifford European11112.1%24.8%18.8%
Europe inc/ex UKCT European11110.9%20.0%20.6%
Europe inc/ex UKCT Pan European Focus11110.6%19.2%19.4%

Data source: Morningstar.

The leading fund, LF Brook Continental European, also features in our regular 26-week data table and was the best-performing fund in the last three months of 2022. This is the one that we have just invested in.

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These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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