Don’t lose your balance

There are many different factors to take into account when deciding which funds to invest in, but the main determinant of your overall return will almost certainly be your asset allocation. The proportion of your portfolio that you have in each of the different markets will often dictate your performance and this was certainly the case during the first quarter.

It was a volatile three months, with many of the large-cap technology stocks giving back their strong early gains, the latest losses being triggered by the data privacy issues surrounding Facebook and President Trump’s scathing criticism of Amazon. The performance of the FANG stocks – Facebook, Amazon, Netflix and Google (now Alphabet) − seems to have dominated world markets for some time, but the reality is a lot more complex than the headlines suggest.


Most UK investors have core holdings in their home market and it is likely that this will have made it a difficult start to the year with the FTSE 100 falling 7.2% in the first quarter. Many of the constituent stocks conduct a significant proportion of their business overseas and the strong recovery of the pound against the euro and the US dollar has reduced the value of these earnings when translated back into sterling. UK Equity Income funds were particularly badly hit with the sector losing an average of 6.1%.

There were only two sectors that made money over the quarter, with one of them being UK gilt funds, with a small average increase of 0.3%. March was especially strong with Baillie Gifford Active Long Gilt Plus, iShares Over 15 Years Gilts, and Vanguard UK Long Duration Gilt Index being amongst the top five performing funds for the month. This would have been virtually impossible to predict given the headwind of higher interest rates, and shows how important it is to keep the right balance in your portfolio.

This would have been virtually impossible to predict.

The other area that finished in positive territory was the Japanese Smaller Companies sector with a gain of 1.6%. In many ways this was just as surprising given the poor performance of the majority of risk assets, but Japan is arguably the cheapest of the major markets with investors in Baillie Gifford Japanese Smaller Companies benefiting to the tune of 7.1%, and those in the broader Legg Mason IF Japan Equity making 10.7%.

An honourable mention should also go to City Financial Absolute Equity, the only absolute return fund to make it into the top five with a gain of 6.7%.

It would have been natural to expect gold funds to flourish in this sort of risk-off environment, yet these were some of the worst performers. Gold had a volatile three months and although it finished marginally higher UK investors would have lost money due to the 3.6% increase in the pound against the US dollar.

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Gold mining funds offer a geared play on the price of gold, as an increase in the value of the precious metal means higher earnings and healthier profit margins, which helps boost the share price further. The trouble is they are also part of the equity market and get buffeted about with the other stocks, hence the double-digit loses of Smith & Williamson Global Gold & Resources, Charteris Gold & Precious Metals and Blackrock Gold & General, which were amongst the five worst performing funds in the quarter.

If there is one lesson to learn from all of this it is don’t try to be too smart. Put together a well balanced portfolio that meets your objectives and risk appetite and then do your best to stick with it.