UK funds are driving this investment portfolio higher

Switching to cash early in the crash paid off for this portfolio, and its value is increasing again.

It has been a difficult few months for investors. In fact, it has been a difficult couple of years. Even before the Covid-19 outbreak, markets felt nervy.

Investor sentiment hung on President Trump's every tweet as tensions between China ebbed and flowed.

We saw a cycle of threats, sanctions, counter-sanctions, talks, more friendly talks, improving relations, breakdown, and then it started all over again.

Central banks tried to smooth the waters. On one hand they wanted to play hard ball and reduce quantitative easing, increase interest rates and reduce government debt.

Yet the minute markets started to wobble they had to intervene and do 'whatever it takes' to keep the boat afloat.

In the UK, we have had our own issues as Brexit negotiations made effective government almost impossible, forcing a change of leader followed by a general election.

Our currency fluctuated dramatically as one minute it looked like we were going to remain part of the union, and the next minute we might be out. We all know how that particular episode ended, but we are far from the end of the story.

In spite of these headwinds, equity markets picked up during 2019, after a disappointing 2018, and earlier this year some went on to all-time highs. 

It was the coronavirus pandemic that eventually brought the 11-year bull run to an end. Within a few weeks, stock markets were showing double-digit losses and commentators were comparing it with the Wall Street Crash of 1929 that led to the Great Depression.

In the past month, we have seen signs of a recovery. The table below shows the performance of some of the world's leading stock markets since the beginning of 2018.

After a poor January 2020, a bad February, and an even worse March, all of these indices have made gains in April. We may not be in calm waters, but at least it is possible that the worst of the storm may be over.

The recent gains may be significant, several markets have gone up by 20% from their 2020 lows, but they have still got a long way to go to get back to their all-time highs. On 22 May 2018, the FTSE 100 had an intraday high of 7,903.50. Last week it closed at 5,763.06. To get back to where it was it would still have to go up by just over 37% - when the time is right this could be a great investment opportunity.

The recent improvement in market conditions is also reflected in our weekly analysis.

When we look at the relative performance of the sectors in our Saltydog Groups, we rank them based on their four-week returns. Towards the end of March, all sectors were showing losses over four weeks. This is how the 'Steady As She Goes' sector was looking at the time.

Our most cautious demonstration portfolio, the Tugboat, was 100% in cash and the slightly more adventurous Ocean Liner was only holding one fund, Investec Global Gold (now Ninety One Global Gold).

Last week's analysis painted a very different picture as all sectors were showing gains over four weeks. 

Look how the returns have changed in the 'Steady As She Goes' group.

The cumulative four-week return for the UK Smaller Companies sector has gone from a loss of 36.1% to a gain of 11.4%. If that is not a change in momentum, then I am not sure what is?

It is a similar story in the UK All Companies sector. A four-week loss of 34% has transformed into a 6.2% profit.

As I mentioned last week, our portfolios have recently invested in funds from both of these sectors: the Liontrust UK Smaller Companies fund, from the UK Smaller Companies sector, and the Kames UK Opportunities fund, from the UK All Companies sector.

After several weeks without moving, it is nice to see the portfolio values starting to creep up again. Since the middle of March, the Tugboat portfolio has gone up by 0.6%. The Ocean Liner, where we started reinvesting slightly earlier, and a little more aggressively, is up over 2%.

For more information about Saltydog, or to take the 2-month free trial, go to www.saltydoginvestor.com.