How to get your investments back into shape

January is the month of the year when we all think about getting back into shape. We exercise more, try to lose some of the weight gained at Christmas, and maybe even start some other good habits that we optimistically put on our list of new year resolutions.

But while we are detoxing and reassessing our gym membership, it’s also a good time to give our investments a health check. As different investments perform in different ways over the course of a year, the value of your savings can also shift quite dramatically. Some may have gained in value – or put on weight - while others may have literally shed the £s.

What was a perfectly diversified portfolio a year ago may now need some tweaking.

How 2021 may have reshaped your portfolio

2021 has been another difficult year for investors. It started off well, with economies reopening, but first the Delta then the Omicron variant put a spanner in the works.

This has had an impact on our savings. For example, the Indian stock market, which was held back in the first part of the year, had an incredible second half of 2021. The MSCI India is up some 28%* over the past year and funds such as Alquity Indian Subcontinent, which is on the Chelsea Selection, have done even better – it is up a whopping 44.4%*. The price of oil has also shot up, leading funds like TB Guinness Global Energy to return in excess of 41.4%*over the past 12 months.

If you had these options in your portfolio, they have done their job, but do you have too much of them now? Is it time to trim your holdings and take some profits?

Investors in China will not have enjoyed the same success. The MSCI China is down 21.5%* over the past year, as regulatory crackdowns have taken their toll. Funds like FSSA Greater China Growth – another Chelsea Selection fund – have managed to squeeze out a positive return of 4.2%*, but others have not been so lucky.

While stock markets have been volatile, inflation has only gone in one direction – up – which has caused problems in fixed income. The asset class has had a tumultuous year.

“If I had been asked at the beginning of the year where yields would be if US inflation were to hit 6.8% ‒ the highest since 1982 ‒ I wouldn’t have believed that 10-year Treasuries would be yielding just 1.4%,” said Jim Leaviss, manager of M&G Global Macro Bond. “In the UK, the Retail Prices Index reached 7.1%, yet 10-year gilt yields remain stuck at around 0.8%. Real yields are therefore in deeply negative territory.”
To maintain a balanced portfolio, investors may also like to consider topping up on areas that have done less well – maybe redirecting regular savings to these areas over time - or rethinking that part of their strategy.

Get a Personal (investment) Trainer

If you’re lacking motivation or the thought of rebalancing your portfolio is too much on top of everything else, you could opt to use the investment equivalent of a personal trainer – a multi-asset fund manager who will invest in all sorts of asset classes and adjust the allocation between them throughout the year to make the most of opportunities.

One of the best performing funds of this ilk over the past year has been TB Wise Multi-Asset Growth, which is in the IA Flexible Investment sector and returned 17.6%*. It is closely followed by Jupiter Merlin Growth Portfolio (15.7%*), which is run by a team we rate very highly.

In the IA Mixed Investment 40-85% Shares, our own VT Chelsea Managed Balanced Growth fund was the fifth best performing fund of 193 over the past year, returning 15.99%*. The VT Chelsea Managed Monthly Income fund has also done extremely well, returning 13.7%* as the third best performing fund in the IA Mixed Investments 20-60% Shares sector. It was closely followed by VT Momentum Diversified Income in fourth place – another peer we think is very good.

*Source: FE fundinfo, total returns in sterling, one year to 21 December 2021

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The author’s views are their own and do not constitute financial advice.

Published on 04/01/2022