How risky is risky?

Posted on 19 February 2014 by Douglas Chadwick

I have had a long term discussion with Richard about the merits of introducing specialist funds into a low risk portfolio such as the Saltydog Tugboat portfolio. Specialist funds by their designation can be considered likely to have a more volatile performance than funds selected further down the risk chain from the “Steady as she Goes” group (UK Income funds) or the “Full Steam ahead Developed “group (UK small companies). His argument is that one should have a positive definitive financial gain when selecting such a fund. My approach is that there should be the opportunity to carry a small percentage of such a rogue fund. One that perhaps does not follow the rules, but has the future potential to fly. An example of such a fund is the “AXA Farmington Biotech” fund. This is one that I have carried on and off in my personal portfolio for the last three years. It is investing into companies which are working towards the future well -being of the world`s population-both in the development of drugs and also in medical technology, so this really ticks my interest box. However, following the Tugboat rules it would be ruled out for inclusion when compared with say “Miton UK Small Companies.” Here are the numbers.......

Fund	3years	2years	1year	6 months	3 months	1 month	1 week
Fram.Biotech	160%	80%	66%	25%	20%	9%	7%
Miton UK sml	N/A	72%	57%	44%	18%	1.5%	2.5%

With the power of hind-sight one might very well feel aggrieved if one had failed to invest in Framlington Biotech three years ago. That is of course assuming that you had heard of the fund.(It comes up regularly in the SDI numbers) However, the last six months have seen it trail the Miton UK small companies fund, only surging to the front in the last month. It is all a matter of where you want to start your timescale. It is a definite case of Lies, Damned Lies and Statistics. Here you can make the numbers support either case. Richard is probably correct with his argument, as the Tugboat Portfolio is aimed to be ultra cautious. But “hey- ho,” both funds are giving great returns and you readers of Saltydog numbers know about them, which is more than can be said for the bulk of the investing population.