The two UK funds we’ve recently bought

When considering your investment performance, how do you define success? Is it the total return over a certain period, the amount of income generated, preserving capital during market turbulence, or a combination of these?

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Following the US-Israeli attack on Iran, stock markets fell sharply and March ended up being the worst month for several years. Nearly all the Investment Association (IA) sectors made one-month losses.

For many investors, this kind of environment raises difficult questions. When markets drop suddenly, it’s not always clear whether to sit tight, reduce exposure, or try to take advantage of lower prices.

Periods like this also highlight an important point. It is not realistic to maximise returns, generate income, and avoid losses at the same time. There are always trade-offs. The key is whether your investments are set up in a way that reflects your financial goals.

At Saltydog Investor, we recognise that our members have different objectives. They have different financial circumstances, invest over different time frames, and are looking for different outcomes.

For many investors, funds offer clear advantages. They provide access to most major asset classes, are widely available, and offer greater diversification than investing in individual shares. They are also conveniently grouped into the IA sectors.

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We group these sectors into a small number of broad categories, from lower-risk areas such as money market funds to more volatile sectors such as emerging markets and specialist investments. This makes it easier to see how different parts of the market behave and how they can be combined to build a balanced portfolio.

Our demonstration portfolios show how this approach can be applied in practice. We have two portfolios: the Tugboat, which is very cautious, and the Ocean Liner, which is slightly more adventurous.

We are still sitting on quite a lot of cash. However, the bulk of the portfolios is invested in funds from our “Slow Ahead” group, which includes UK bond and mixed investment sectors. Current examples include Artemis Monthly Distribution I Acc and Premier Miton Multi-Asset Gr& Inc C acc.

Past performance is not a guide to future performance.

We then have a smaller allocation to funds from our “Steady as She Goes” group, which includes UK equity sectors along with the remaining bond sectors. We have recently added Vanguard FTSE UK Eq Inc Idx £ Acc and Artemis SmartGARP UK Eq I Acc GBP to the portfolios. These are typically more volatile than funds in the “Slow Ahead” group but can deliver higher returns when conditions are favourable.

Past performance is not a guide to future performance.

Finally, we hold a smaller number of funds from our more volatile “Full Steam Ahead” groups and the Specialist sector. These include Polar Capital Global Tech Inc GBP and WS Amati Strategic Metals B Acc, both of which have performed particularly well for us.

Past performance is not a guide to future performance.

By adjusting the amount invested in each group, and by moving in and out of cash, it is possible to control the overall volatility of a portfolio. This doesn’t mean that your investments will be immune to market movements, but it does make it possible to build a portfolio that reflects both financial goals and attitude to risk.

Both demonstration portfolios fell at the start of the recent conflict and, as expected, the Ocean Liner dropped by more than the Tugboat. However, following the temporary ceasefire announced in April, both have recovered.

The chart below shows how the Tugboat and Ocean Liner portfolios have performed over the past year.

Past performance is not a guide to future performance.

For more information about Saltydog, or to take the two-month free trial, go to www.saltydoginvestor.com