Why not go 'bonkers' with your portfolio?

Punting all your money on the best-performing fund every six months is a bonkers strategy. But is there any merit to it? Cris Sholto Heaton investigates.

It's a "Bonkers portfolio" with returns to match, according to FundExpert.co.uk, a website run by financial advisers Dennehy Weller & Co. They calculate that if an investor had begun in September 1995 by buying the fund with the best performance over the previous six months and kept switching every six months into the new best performer, they would have outperformed the market by a vast margin. Over that time the FTSE 100 has gained around 250% (6.5% per year), including dividends, while a Bonkers portfolio would have returned 3,080% (almost 19% per year).

Obviously, no prudent investor would have followed this strategy, because it involves concentrating their wealth in a single high-flying fund. Doing so would have been far more volatile than thewider market: annualised volatilitywould have been 23%, compared to14% for the FTSE 100. More importantly, it would be very exposed to the possibility of sudden, devastating losses, since it would often be invested in bubblysectors, aiming to get out before the bubble bursts.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free
https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up
Cris Sholto Heaton

Cris Sholto Heaton is an investment analyst and writer who has been contributing to MoneyWeek since 2006 and was managing editor of the magazine between 2016 and 2018. He is especially interested in international investing, believing many investors still focus too much on their home markets and that it pays to take advantage of all the opportunities the world offers. He often writes about Asian equities, international income and global asset allocation.

Cris began his career in financial services consultancy at PwC and Lane Clark & Peacock, before an abrupt change of direction into oil, gas and energy at Petroleum Economist and Platts and subsequently into investment research and writing. In addition to his articles for MoneyWeek, he also works with a number of asset managers, consultancies and financial information providers.

He holds the Chartered Financial Analyst designation and the Investment Management Certificate, as well as degrees in finance and mathematics. He has also studied acting, film-making and photography, and strongly suspects that an awareness of what makes a compelling story is just as important for understanding markets as any amount of qualifications.