Wow, the last couple of months have proven a torrid for this trial strategy as the market casts doubts over the growth prospects of "defensive's".
This has seen the constituents of the 3 picks pull back from year highs causing the mini portfolio to slump against its 2 alternatives.
Not altogether surprising given that the 3 picks was given the biggest handicap to begin with, these being:
- the greatest costs to set up with, from both dealing and stamp duty (New Trial Investment Strategy: 3 ways to follow Neil Woodford!). In contrast the HIF had zero set up costs as could be the case from a fund supermarket.
- 2 of the 3 picks were trading ex.dividend at inception. In contrast due to lead time between ex dividend and payment these 2 dividends would subsequently benefit the other 2 options.
- more concentrated/low diversification with just 3 picks from 3 sectors.
- as well as the dealing charges, the 3 picks also started life with the highest amount of uninvested "residue" funds, £3.68 (£2000 tranches and you can only buy whole shares), which also means it started life with the lowest actual investment amount.
- lastly, the 3 picks are also building up an uninvested amount of cash from dividends whereas this is more immediately re-invested into the HIF and its accumulation units.
Despite these handicaps the 3 picks did rise to the top of the pile during August and September before falling foul of recent volatility which possibly highlights the risk of low diversification.
But the fact is that the table has been turned on its head with the Invesco Perpetual High Income Fund seeming to defy gravity at present despite including large weightings in the 3 picks (their selection being derived from the fund's top 10 holdings at the time New proposed investment strategy based upon Neil Woodford's top 10.).
As feared last month though, Vodafone's slump has seen it fall outside of the HIF's top 10 but I think that I will retain it for the 12 months though (effectively setting a guideline for holding against short term volatility).
The alternative being to trade it for BT as my original premise was to pick one from each of the 3 most represented sectors in the HIF's top 10, and Telecom's continue to be 1 of the 3.
So 2 of the 3 ways remain in positive territory (and both managed by Neil Woodford).
Which just leaves the 3 picks as the only one in negative territory then, by £64.93, or 1.08%, which is also roughly equal to the estimated £67.15 that was used to cover the set-up cost of the portfolio.
So really it is still up on its -1.2% starting point! (New Trial Investment Strategy: 3 ways to follow Neil Woodford!).
|
|
|
Qty |
£price | £value |
%gain |
| Inv.
Perp. High Income |
1110.14 |
5.53 |
6143.87 |
2.40% |
|
Residue |
|
|
|
0.00 |
|
|
Dividends |
|
|
|
|
|
|
Total |
|
6000 |
|
6143.87 |
2.40% |
Edinburgh
Investment Trust |
1182.00 |
4.99 |
5898.18 |
-1.70% |
|
Residue |
|
|
|
0.43 |
|
|
Dividends |
|
|
|
167.58 |
|
|
Total |
|
6000 |
|
6066.19 |
1.10% |
| 3 Picks |
|
|
|
|
|
|
| BAT |
|
|
61.00 |
30.70 |
1872.70 |
-6.37% |
| Glaxo |
|
|
138.00 |
13.87 |
1914.06 |
-4.30% |
| Vodafone |
|
|
1191.00 |
1.70 |
2020.65 |
1.03% |
|
Residue |
|
|
|
3.68 |
|
|
Dividends |
|
|
|
123.98 |
|
|
Total |
|
6000 |
|
5935.07 |
-1.08% |
|
|
|
|
|
|
|
| Transactions
in the month: |
|
|
|
|
| Invesco
Perp. High Income |
N/A |
|
|
|
| Edinburgh
Inv. Trust |
|
N/A |
|
|
|
| 3 Picks |
|
|
|
|
|
|
|
Glaxo |
|
04/10/2012 |
Div |
23.46 |
|
The only transaction in the month was a £23.46 dividend received by the 3 picks from Glaxo.
And the chart, which is starting to look like a roller coaster (a loop the loop would be interesting!), is as follows:
 |
| Click to enlarge, close to return. |
Looking at the chart, it is Interesting to see that the performance of each of the 3 options was very closely aligned for the first 2 months before embarking on more volatile journeys.
Will they come back together again or continue to swing wildly around each other, only time will tell.
But it has been an interesting first 7 months for the "3 ways" to follow Woodford trial and a new guideline is in place ie. to hold a share for the 12 months despite it dropping out of the HIF's top 10.
This is still a developing trial though, which includes the guidelines. And, at this stage, 2 further complications to the new guideline haven't been crossed yet, which are:
- slipping out the top 10 results in the selected industry sector no longer being one of the top 3 weightings in the to 10.
- the share being sold by out of the HIF which might seem an extreme scenario but one that Neil Woodford appears to have enacted on a number of occasions exiting banks, BP, regulated utilities, and most recently, Tesco.
What I do also need to give some thought to though, is the question of timing and dividend re-investment, which could affect both the Edinburgh Investment Trust, and the 3 picks options. The 3rd option, HIF accumulation units automatically re-invest dividends.
My thoughts were to allow them to build up before re-investment but what is a suitable level and, in the case of the 3 picks (I need a better title!), what to re-invest back into, the options being,
- equally into the 3 companies,
- split in the same way as the dividends were issued, ie back into the issuing share
- into just one of the shares, worst/middle/best performing
or if allowed to build up sufficiently (that could take 5/6 years), add a 4th holding at £2000.
If left to drag on without a plan, this might give a further advantage to the HIF option which will always be fully invested.
A bit of thought required then.
Related article links:
Earlier related posts:
Note: Unlike my Portfolio updates (Portfolio Updates.) which reflects an actual investment portfolio, following Woodford is an experimental strategy and a virtual portfolio.
However, I do hold an investment in Vodafone.
