We’re still cautious, but we’ve added some spice with this UK fund

Last month, we saw a significant improvement in the overall performance of the funds we track compared with August, September and October.

In August, only 12% of the funds that we analyse went up and the overall average one-month return was a loss of 1.7%. September was better, but the majority - 65% of the funds - still went down and on average the funds lost 0.6% over the month. October was the worst month so far this year, with only 8% of the funds making gains and the average loss being 3.2%.

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At the end of October, less than 3% of the funds had gone up in each of the past three months. No wonder our demonstration portfolios were predominantly in cash or funds from the two money market sectors.

In November, the tide turned and nearly 96% of the funds went up.

Past performance is not a guide to future performance.

The last couple of times that we have seen so many funds do well, the following month has been disappointing. However, with signs that inflation is coming under control and with interest rates holding steady, at least in the US and UK, maybe this time it will be different. What we really want to see now is some good news in Ukraine, Gaza, or ideally both.

We do not believe that now is the time to abandon the cautious approach that has served us so well in recent months, but that does not mean we are not willing to take a small position in some of the better-performing funds and see how they get on. Last week, we put a very tentative toe in the water.

In our weekly analysis we group the funds based on which Investment Association (IA) sector they are in, and how volatile those sectors have been in the past.

Our “Safe Haven” Group is made up of the two least volatile sectors, Standard Money Markets and Short-Term Money Markets. Then in the “Slow Ahead” Group are the UK Corporate, Strategic and High Yield Bond sectors along with the Mixed Investment sectors and Targeted Absolute Returns.

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Next up, the volatility scale is the “Steady as She Goes” Group. This is the home of the three UK equity sectors (UK All Companies, UK Smaller Companies, and UK Equity Income), the Flexible Investment sector, and the UK Gilts and Global & Global Emerging Market Bond sectors.

In last week’s reports, all these sectors were showing gains over the last four weeks. UK Smaller Companies was at the top, with a four-week return of 3.1%, followed by UK All Companies, which was up 2.7%. This is where we went searching for a slightly more adventurous fund to add to our “Ocean Liner” portfolio.

We were looking for something that had not only performed well over the previous four weeks, but had also done better than most over 12 and 26 weeks.

In the end we went for the Ninety One UK Special Situationsfund, which at the time featured in both our four-week and 26-week shortlists for the UK All Companies sector. It was also in decile one for the group over four, 12 and 26 weeks. Last week it gained a further 2.2%.

Past performance is not a guide to future performance.

We know that this fund can be volatile, which is why we have started with a very modest investment, but if it continues on its current trajectory then we will consider adding to our holding.

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