Focus on UK

UK equity is the best investment in the next 1 year, and for 2 year horizon it’s US and Europe. Japan is oscillating converging so I am avoiding it at the moment. Bond has been poor since May so we should avoid it, including bond in mixed investment and IL gilts. Strategic bond is better, but I would avoid as there are better places (for now). China had a sharp drop in June, but has been better ever since. Still, I would avoid China because there are better places. It is possible that strategic bond and china are investable in 2014, but at the moment they are not. EM is also not investable in 2013. Absolute Return looks like bond: less risky. Avoid gold and commodity, they are not investable (loss making and risky).

I prefer a portfolio of something like: 40% UK Equity, 10% US Equity, 10% Europe Equity, 10% Absolute Return, 10% Healthcare, 20% Asia Property. Or make UK Equity 50%, reducing both Absolute Return and Healthcare to 5%. For UK, US and Europe equities, I prefer small cap. But I’m open to equity income and absolute return if they are brilliant, for example IM Argonaut European Absolute Return (33%, 10), Cazenove European Income (34%, 16) and Cazenove UK Opportunities* (39%, 10). Numbers in brackets are 1y return and vol. Star indicates that I have it in my portfolio.

Best small cap for UK are Cazenove* (45%, 7) and Fidelity* (52%, 8), who have been in the top spot for a long time. For Europe, best small cap are Ignis* (50%, 14) and Schroder (45%, 13). For US, Threadneedle (32%, 16) and GAM* (27%). For Absolute Return the best one is Cazenove Absolute UK Dynamic* (19%, 9). For Healthcare my preference is Schroder* (32%). One factor that limit me from getting the best fund in FE is if the fund is not available in my brokers (HL & TD), or if there is a big spread. For example, in Absolute Return CF Odey is legendary, but it it’s not available.

If those good funds are currently down, it is important that we wait until it has bottomed and goes back up. We should never catch a falling knife. But leave it drops to the floor and pick it up on the way up. Classic I know, but very important. With funds, which lag 1-2 days to equity, it becomes more important that we wait until it has bottomed. The other thing I keep reminding myself is that if the price has rocketed to the sky, such as Argonaut European Absolute Return, the risk of it dropping is big. Especially if it is long only. With Absolute Return it is possible to sustain the phenomenal growth because it is long short hedged.

One word about Asia property. Hong Kong, Dubai, India and Indonesia (Jakarta, Bali) have been enjoying good growth for years. In Jakarta & Bali, return of 25% is a normal case, 40% happens quite often. Dubai is behind, about 15-20%. One drawback we have to be careful is FX. Since August, India and Indonesia had FX issues. We are talking about 20% down here. Rupiah which has been 15k for years is now 18k. Which means that a return which should be 10k became only 8k. Shanghai and HK are question mark, so is Manila (we are talking 10% there). Nairobi and Thailand’s time has passed. India has just burst. My preference is Jakarta.

The focus of investment today should be UK. 40-50% allocation. In the next 6 months small cap will still give better return than large cap, and equity income. March 2014, we need to look at large cap. We should not balance it, but should tip heavily towards the high growth area. And for the next 3-6 months that area is UK.

Focus on UK

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