Investment Committee February - DMG Diversified Portfolio

Our meeting on 28th February 2018 saw us focus on the market falls in early February and then how we would respond now and in the event of a more sustained period of market falls. 

We challenged the commonly held view that the markets would see another year of good returns before suffering larger falls. We asked what if the experts were wrong ….. Again.

Generally we are able to manage the portfolio at our pace; working through our existing managers, reviewing them to determine if they continue to add value and should remain in our portfolio. We also change asset allocation (between defensive & growth) on a gradual basis. So what would it take for us to change more quickly and significantly and what would we do?

This was discussed in depth at the Investment Committee meeting and whilst recognising the need to be adaptable, particularly given the expected volatility, we agreed that losses above 10-12%, that did not recover reasonably quickly, would lead us to begin reducing risk in the portfolio. The reason for the fall would also impact our actions. Interest rate increases in excess of expectations would carry more weight than a tweet from the US President. 

Our first step would be to reduce those holdings that are more volatile and more likely to fall in line with or greater than the market. Smaller company funds are an example of this. 

Initially we would move the sale proceeds to cash, then when the storm had passed we would consider buying back in. If the falls appeared to be more entrenched we would turn to our alternative managers that make money from falling markets.

The good news is that we have addressed this and February has given us the opportunity to test our portfolio and plans. We are well prepared for whatever the future brings.

Aside from the events in February, the view of the Committee is that the economies of the world and financial markets are in reasonably good shape. Amongst the expected periods of volatility, we expect reasonable returns.

A review of the holdings within the fund

In general we remain happy with our holdings, however our review process has highlighted one or two funds that require closer attention and our research has identified a new fund that we are currently considering.

Summary of changes

So no change again this month, but we are ready to move.