The two top-performing funds we just bought

Saltydog analyst keeps putting cash to work, taking a stake in one small-cap fund and a UK portfolio.

Up over four weeks and going strong

When is a trend worth investing in? With the benefit of hindsight, it is easy to tell when a trend starts and when it finishes, but it is not so easy at the time.

After a significant downturn, it is not unusual for there to be several false starts before a sustained trend emerges. This is why we at Saltydog Investor like to wait a few weeks before getting too committed.

In our fund and sector analysis, the smallest period that we consider is a week. We also calculate cumulative returns over four, 12 and 26 weeks.

We use the four-week cumulative return when ranking the sectors within the Saltydog Groups. When the four-week returns turn positive it shows that a trend is gaining momentum.

It does not guarantee that it will continue, but it has passed our first test.

Last week, when we reviewed our latest sector analysis, it showed that nearly all sectors had made gains for the second week in a row. The only exception was the property sector which went down by 0.3%.

When we had looked at the reports the week before, even though all the sectors had gone up in the previous week, a lot of them were still showing cumulative losses over four weeks.

This was mainly due to the disastrous week at the beginning of the four-week period. This was particularly obvious in the 'Steady as She Goes' Group.

The best-performing sector for that week was UK Smaller Companies, having gone up 10.4%, but it was still at the bottom of the table based on its four-week return. The reason that the four-week return was so bad was because four weeks before it had gone down 17.9% in just one week.

Moving on to the following week's data and the table looks quite different.

The four-week average now includes a new week, which was mainly positive, but no longer includes the negative numbers that were now five weeks ago.

Suddenly, all of the four-week returns in this group were positive and three of them were up in double digits.

This was the most encouraging set of numbers that we had seen for quite some time. There had been a similar effect in all our Saltydog groups and every sector was now showing a gain over four weeks.

The best, UK Smaller Companies, was up 17%. 

While it is always possible that markets could fall further, the longer they stay above the recent lows the more confident we become.

However, it still feels like we're a long way away from the end of the coronavirus pandemic and being back to anything like business as usual.

We have made a few small investments over the last couple of weeks and both portfolios - Tugboat and Ocean Liner - have gone up since the beginning of the month. Last week we added to some of these funds and also selected some new funds based on the latest data.

In the ‘Steady as She Goes’ group, the three UK Equity sectors (UK Smaller Companies, UK All Companies and UK Equity Income) had moved up to the top of the table.

Last week, we invested in the Liontrust UK Smaller Companies, from the UK Smaller Companies sector.

We also invested in one of the funds from the UK All Companies sector, Kames UK Opportunities.

We are now in a position where our most cautious demonstration portfolio, the Tugboat, has gone from being 100% in cash to being 70% in cash, with 30% invested. In our ‘Ocean Liner’ portfolio the cash has now dropped below 50% of the total portfolio value.

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