Saturday, 7 April 2012

March 2012: Portfolio Update.

OK so the balloon has certainly started to deflate towards the end of March with the FTSE100 pulling back 2.21%, driven hard by a sell-of in commodity and financial stocks amidst renewed concerns about Chinese growth, technical recessions, lack of growth, and European debt v. bailout funds.

Not a case of deja vu anymore though, more Alzheimer's, as it is the same issues of recent years and, despite very recent rhetoric to the contrary from the ECB ( ECB chief Mario Draghi says worst of euro crisis over), it certainly doesn't seem that the so called powers that be have put confirmed solutions in place.
To be fair though the ECB has been significantly more pro-active since the appointment of Mario Draghi in Nov. 2011.
You might also suggest that there are sections of the investment industry that actively promote and benefit from volatility hence the constant play on fear and emotion to drive markets up and down.

However, the FTSE100 does remain up a satisfying 3.05% year to date.
Within my own portfolio William Hill and Apple have been the strongest gaining performers in March with advances of 16.44% and 9.97% respectively, helping to offset losses on the 2 worst performers, Aviva and BP.
Welcome dividends from Microsoft, SSE, and BP also helped to shore up the portfolio to a flat performance for March and 7.89% year to date.
Actually, slightly disappointing that the portfolio is 3.15% down on its 2012 high though, which was achieved on the 14 March.

Controversially, the big news is that I have sold the portfolio's holding in Neil Woodford's highly regarded High Income fund following receipt of the fund's first dividend of 2012.
Many of you might have realised that it has been in my mind to do so for sometime now, particularly as many of my holdings have started to mirror those of the Invesco Perpetual fund. The 2 sector exceptions being Tobacco and Pharmaceuticals which I still hope to address at some point.
This fact coupled with the mystifyingly hard to track movements v. individual holdings in the FTSE100 (particularly his big plays on Astrazeneca, Glaxo, and BATs), is just too much opacity for me to be comfortable with.
Add in the annual management fee of 1.5% for a fund manager with such similar holdings only adds to my frustration.

At 6.64% of my portfolio, the fund doesn't seem to be a significantly influential factor either way although, to be fair, it has delivered an individual return of 27.6% (capital plus dividends) in 27 months.

It would be interesting to set up a little experimental measure by picking maybe 3 of his big playing dividend payers and measuring their collective performance against the overall performance of the Invesco Perpetual fund.
Its not really something that he could do with such a large fund, where more diversification is essential, but seems a reasonable investment strategy for an individual investor.

I also see that there is a slightly riskier but possibly more transparent means of investing in Neil Woodford's expertise, as he appears to be managing the Edinburgh Investment Trust as well. I say slightly riskier due to its access to gearing (issuing bonds) as a means of raising funds for investment much like a company would.

At just £1bn the Edinburgh Investment Trust is much smaller than the 2 Invesco High Income funds, appears to have a similar top ten in flavour and make up, and comes with a smaller expense ratio of around 0.66% v. the High Income fund's 1.5% annual management charge ( The 20 low-cost trusts that offered an average 24% return).

Anyway back to my portfolio which as mentioned earlier finished level for the month of March.
Note that for the purposes of illustrating individual performance I have shown Invesco Perpetual at its final portfolio valuation.

Merchant Adventurer's Index

Forecast 1 month YTD 27 mnth

Price % holding Div. yield % gain % gain % gain
R-R 812.00p 32.32% 2.40% -0.25% 8.77% 67.94%
National Grid 630.50p 16.71% 6.22% -1.71% 0.88% 16.17%
Aviva 331.50p 7.27% 8.49% -9.99% 10.21% -5.31%
Inv. Perp. High Inc. *** 540.47p 6.64% 3.68% 1.94% 5.20% 27.92%
BP 462.55p 4.08% 4.33% -6.06% 0.45% 6.26%
Apple ** $599.47 5.75% 0.00% 9.97% 43.60% 208.89%
IG Group 450.00p 2.87% 4.92% 1.72% -5.64% 49.57%
Morrisons 298.00p 2.26% 4.03% 2.76% -8.65% 17.77%
BG Group 1448.00p 2.54% 1.09% -4.58% 5.19% 32.84%
William Hill 261.40p 2.93% 4.01% 16.44% 28.90% 52.88%
General Electric ** $20.07 2.45% 2.54% 4.83% 8.72% 28.13%
Microsoft ** $32.25 2.49% 2.01% 1.10% 20.53% 30.47%
Centrica 316.40p 2.39% 5.21% 4.08% 9.37% 0.18%
SSE 1329.00p 2.21% 5.95% 3.02% 2.94% 15.47%
Vodafone 172.20p 2.01% 7.39% 1.68% -3.75% 6.87%
Tesco 330.00p 1.59% 4.59% 4.40% -18.21% -17.28%
BAE Systems 299.90p 1.80% 6.42% 4.09% 5.19% -6.06%
1.69% 0.00%

100.00% 3.94%

1 Month YTD 27 Mnth
Virtual Portfolio gain (incl. Divs)

0.02% 7.91% 52.10%
FTSE gain (excl. Divs)

-2.21% 3.05% 6.08%
- 1 month gain   5871.51 - 5742.03

- YTD gain         5572.28 - 5742.03

- 27 month gain 5412.88 - 5742.03


13/03/2011 Div Microsoft @ 10.74p per share (*)

14/03/2011 Sell Invesco Perp @ 540.47p per share

23/03/2011 Div Scottish & Southern @ 24p per share

30/03/2011 Div BP @ 4.3p per share


*     US Dividends are adjusted for exchange rate and 15% withholding tax
**   Sterling : Dollar exchange rate = £1: $1.60 as at 31/03/12

***  Invesco Perpetual Accumulation units (Dividends re-invested). Yield shown is based upon most recent payments.

And visually.

Click to enlarge, back/close to return

So Invesco has gone and I have yet to replace it but am looking to re-invest the funds gradually over the next six months as opportunities present themselves. A key objective will be to replace the dividend and, on that score, I am not averse to adding a pharma or tobacco such as Glaxo, Astra, or BAT to my portfolio. But I am also open to topping up existing holdings.

I am also starting to form the strong opinion that portfolio's (particularly buy and hold) eventually achieve a level of tracker status with the major indices except for when: new funds are added, individual holdings are "churned", or dividends re-invested all of which change the timing and entry point of investment relative to markets.
The pairing of this investment opportunity with market dips (buying when others are selling), appears to be a fairly understandable means of beating the index.

The comprehensively media covered indices understandably react to the macro-economic environment and, in most cases, the weight of all this sentiment (positive and negative), is enough to drag the majority of its constituents down but the year on year performance of an index is still anchored to the point it started the year at. 
But, an investment when the market is below its starting point obviously has a much better chance of going on to beat the performance of its index due to it having a lower (cheaper) starting point.
It still comes down to belief in, and doing some homework on, an individual company's prospects, and the longer term direction of markets and global recovery, but serves to give me a basis of further rationalising buying when others are selling and how it is still possible to outperform a seemingly sideways trading FTSE100.

Time will tell.

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