Our Model 10-year Growth Portfolio has taken a beating from turbulent stock markets in the past six months, with an overall decline of just over 10%. But we’re confident in its long-term potential and are making only one change to its holdings.
From 2003 to mid-2007 world stock markets moved up pretty steadily with only small wobbles. The US sub-prime crisis changed all that and since last summer we have seen far higher levels of volatility in all world stock markets.
Daily moves of over 3% - almost never seen in 2003-07 - have been almost a weekly event in the past two months.
And with almost all world markets registering falls of 10-15% over the last six months, an overall decline of 10.1% over that period by our 10-year Growth Portfolio is not too bad.
Lump sum investment: take advice here
Time to switch out of one of our funds
The portfolio’s performance would have been even better but for the failure of one of our ‘safe’ investments to deliver what we’d hoped. The AXA Framlington Pan European Bond fund invests in corporate loans in Europe, and the sub-prime crisis had damaging effects.
But Framlington Pan European Bond lost 6.6% in the past six months whereas Aegon Global Bond, our other fixed interest holding, lost a mere 0.2%. So we are switching all our fixed interest holding to the Aegon fund (see the portfolio list below).
How the 10-year Growth Portfolio funds have performed
| Fund | 6 months | 1 year | 3 years |
| Aegon Global Bond - more info | -0.2% | -0.7% | +8.3% |
| # AXA Framlington Pan European Bond - more info | -6.6% | -7.7% | +6.4% |
| SLI Select Property - more info | -13.0% | -17.3% | NA |
| New Star International Property - more info | +4.7% | NA | NA |
| SLI UK Equity High Income - more info | -6.5% | -8.9% | +35.1% |
| AXA Framlington UK Smaller Cos - more info | -23.6% | -17.3% | +13.9% |
| M & G International Growth - more info | -3.3% | +5.8% | +45.0% |
| JPM Global Equity Income - more info | -8.9% | NA | NA |
| Threadneedle European Smaller Cos - more info | -16.3% | -6.6% | +65.3% |
| Jupiter Financial Opportunities - more info | -4.5% | -3.9% | +49.6% |
| JPMorgan Japan - more info | -16.1% | -17.2% | -13.2% |
| AXA Framlington Biotech - more info | -5.3% | -11.5% | +1.5% |
* Including reinvested net income. Data to 28/1/2008. Source: Financial Express
# Replaced in new portfolio, see below
Positive world outlook
When we last reviewed this portfolio in July 2007, it had made gains of 20% over 12 months. So do not be too disheartened by the recent downturn. The world faces a slowdown in economic growth in 2008, perhaps most acutely in the US, which may experience a short recession, but with China embarking on a huge infrastructure investment boom, a full-blown world recession is not at all likely.
Already central banks have started to cut interest rates, which usually deliver an economic stimulus within 9 – 18 months. So the likelihood is of resumed annual growth of 2.5-3% for the developed world from late 2008.
A stake in the US
Our 10-year Growth Portfolio has widely spread investments in fixed interest, property and shares. One area that looks under-represented is North America; but M&G International has some 40% of its capital invested there and JPM Global Equity Income has 25% in the US. So overall the Portfolio has about 7% invested in the US.
Another under-represented area is emerging markets and Asia. We think the risk-reward ratio looks much better in Japan, a market written off by many commentators but one we believe has big potential over the next few years.
The £20,000 10-year growth portfolio for new investors
| Asset Class | Investment | Amount | Proportion of total |
| Cash | | £0 | 0% |
| Fixed interest | | £2,000 | 10% |
| Aegon Global bond | £2,000 | 10% |
| Property | | £3,000 | 15% |
| New Star International Property | £1,500 | 7.5% |
| Standard Life Select Property | £1,500 | 7.5% |
| Shares | | £15,000 | 75% |
| UK (25%) | Standard Life Equity Hi Income | £3,000 | 15% |
| Framlington UK Smaller Companies | £2,000 | 10% |
| International (50%) | M&G International | £2,000 | 10% |
| JPM Global Equity Income | £2,000 | 10% |
| Threadneedle Euro Smaller Co's | £2,000 | 10% |
| Jupiter Financial Opportunities | £1,000 | 5% |
| JPM Japan | £2,000 | 10% |
| Framlington Biotech | £2,000 | 5% |
| Total | | £20,000 | 100% |
*New holding
Our aim is to have core holdings which remain the same for many years: in this portfolio, the core holdings are Aegon Global Bond, SLI Select Property, SLI UK Equity High Income, M & G International Growth and JPM Global Equity Income and account for just over half of the capital invested. The remainder are funds where we hope to be able to bank profits of 20-30% over a year or two and will sell if they fail to meet expectations or produce a stonking profit.
The fund selections
Fixed interest - 10%
Aegon Global Bond: a ‘strategic’ fund where the managers can invest in almost any form of fixed interest but are very focused on not losing money.
Property – 15%
New Star International Property: invests in physical property, mainly in Europe, which is still a much less developed property market than the UK.
SLI Select Property: invests in a mix of property shares and stock market-listed property companies, so will have greater volatility than the New Star fund but also has greater growth potential.
UK shares- 25%
SLI UK Equity High Income: Manager Karen Robertson has an excellent long-term record and the relative cheapness of many large UK companies means there is good growth potential.
AXA Framlington UK Smaller Companies: Manager Roger Whiteoak has a high proportion of the fund’s investment in AIM shares, which have been hard hit in the recent bout of volatility. When confidence returns it is likely to make a sharp recovery.
Overseas shares - 50%
M&G International Growth: the one area where this fund doesn’t invest in is the UK, so there is no overlap with the UK funds in the portfolio. It has 40% invested in the US.
JP Morgan Global Equity Income: the ‘equity income’ concept has worked well over several decades in the UK and JPM is one of several groups to have launched funds applying it internationally.
Threadneedle European Smaller Companies: this is more volatile than mainstream European funds but with a vast range of opportunities has scope to go on generating good returns.
Jupiter Financial Opportunities: manager Philip Gibbs is cautious at present but will probably make excellent returns when confidence returns to the sector.
JP Morgan Japan: David Mitchison is one of the best managers in this sector, and though the whole market has done badly in 2007-08 we believe there is great potential here.
AXA Framlington Biotech: biotech is where major advances in the life sciences get turned into medical applications. A raft of new drugs is on the way to market and many of their makers will probably get bought by ‘big pharma’ at fancy prices.
Important Notice and Risk Warning
The EveryInvestor model portfolios are for general guidance only and do not constitute a recommendation for any investor. EveryInvestor does not provide individual investment advice.
Your own personal circumstances and tax position must be taken into account in selecting investments. EveryInvestor recommends that you obtain advice from an independent financial adviser before making investment decisions. The value of your investment and the income from it can go down as well as up and you may not get back a significant proportion of your investment. Past performance is not an indication of future performance.
