BLOG: Building a balanced portfolio for 2021
2020 really has been the strangest 12 months of my 25 years in financial services. But I’m broadly positive going into the new year.
I’ve seen a few stockmarket crashes in my time, but nothing like the one we saw when the pandemic rocked global markets to their foundations over the course of three weeks in February and March.
Since then, the world has almost had to find a new way of working as it continues to grapple with Covid-19. Although the global economy is now in recession, with job losses continuing to mount, I’m actually broadly positive going into 2021. We have more than one vaccine in the offing, Brexit will be completed one way or another, and we have an incoming US president who is likely to be less ‘unsettling’.
Don’t get me wrong, there are going to be many more bumps in the road, but we can actually see some light at the end of tunnel – particularly with central banks and governments around the world fully committed to supporting a recovery.
With this in mind, I thought I’d build an example of a balanced portfolio that could serve investors well in 2021. Please note that these funds and allocations are just suggestions and may not be suitable for all types of investor.
Core holding – Rathbone Strategic Growth Portfolio – 40% of the overall portfolio
With uncertainty still rife it’s probably a good idea to hedge bets somewhat by having a fund with a proven ability to limit the damage when markets fall.
Managed by David Coombs, the Rathbone Strategic Growth Portfolio fits the bill as a potential core holding. It targets cash plus 3-5% per annum over a minimum five-year period and has a big focus on delivering this via a risk-controlled framework. It’s also well diversified and relatively cheap, with an ongoing charge of 0.65%.
Going global – JOHCM Global Opportunities – 20%
You can never really go wrong with flexibility – so a global fund is almost a must have in the portfolio.
Managed by Ben Leyland, this 30-40 stock fund has a strong bias towards larger and medium-sized multi-national businesses. The philosophy of this fund is ‘heads we win, tails we don’t lose too much’, and, if markets do struggle again, I believe the fund’s strict valuation process will help in this regard. The manager can also hold large cash positions if valuations are unattractive.
Income and value – Schroder Recovery – 15%
Killing two birds with one stone, I’ve also chosen the Schroder Recovery fund. This is because not only do I expect dividend payments to pick-up in 2021 (following the mass cuts this year) but this fund also has a value-style of investing which means the managers look to find companies that the market has been underestimating.
To find these companies, the team will perform in-depth analysis on a company’s financial statement, looking to answer seven key questions ranging from how a company turns profits into cash, to how well it can manage its debt levels.
Corporate not government bonds – Artemis Corporate Bond – 15%
When it comes to bonds, I prefer investment grade and high yield funds, which offer better yields and again should do better in a recovery environment.
For this part of the portfolio I really want an experienced manager such as Stephen Snowden who runs the Artemis Corporate Bond fund. With an excellent track record in the asset class, Snowden combines his knowledge and understanding of the macro-economic backdrop with his credit analysis and technical understanding of the bond market.
Tapping into emerging markets and Asia – Matthews Pacific Tiger – 10%
Not only are long-term secular trends like demographics and the rise of the middle-class benefiting Asia, there are also some recent trends that indicate a positive outlook for 2021.
Asia in particular has generally handled the pandemic well and has just struck a new inter-regional trade agreement. The Matthews Pacific Tiger fund’s philosophy is to ignore short-term economic noise and focus entirely on the long-term.
Fund manager Sharat Shroff and his team invest in high-quality, capital-light businesses, with good corporate governance, and will typically have a bias to consumer-facing businesses.
Darius McDermott is managing director of Chelsea Financial Services