August 2014: Portfolio Update.

Two thirds of the year down, and my portfolio continues to run a small year to date loss of -0.34% v. the FTSE100's 1.05%.
Very disappointing but understandable given the difficulties and setbacks from my largest holding, Rolls-Royce, the 2 supermarket investments, Tesco and Morrison, and then the strength of the pound against the dollar.

Still disappointing, and probably should have seen me axe the supermarkets.

So the month is traditionally by best for dividends received as National Grid payout in August, with further contributions from Imperial Tobacco, Apple, Verizon, and Vodafone.

The only swings of note in the portfolio coming from a renaissance in Apple, +9.08%, and the sinking of Tesco, -10.87%.

Merchant Adventurer's Index
			Forecast	1 month	YTD	44 mth
	Price	% holding	Div. yield	% gain	% gain	% gain
R-R	1021.00p	26.78%	2.49%	-1.83%	-18.42%	55.53%
National Grid	899.00p	14.33%	4.82%	5.15%	14.09%	62.57%
Aviva	521.00p	11.08%	3.68%	3.37%	15.86%	54.20%
BP	481.65p	5.08%	5.18%	-0.49%	-1.31%	6.32%
Apple **	$102.50	6.99%	1.63%	9.08%	27.20%	69.61%
Vodafone	206.75p	2.05%	5.50%	4.42%	-18.05%	-18.05%
Verizon **	3001.31p	1.42%	3.79%	-0.58%	8.14%	8.14%
IG Group	607.00p	3.95%	4.71%	-0.49%	-1.46%	27.20%
William Hill	350.00p	2.89%	3.63%	-0.85%	-12.91%	90.04%
Imperial Tobacco	2627.00p	2.67%	5.34%	2.18%	12.36%	16.29%
BAT	3553.50p	2.44%	4.43%	2.02%	9.74%	5.94%
General Electric **	$25.98	1.84%	2.71%	5.09%	-7.80%	60.02%
Microsoft **	$45.43	2.04%	2.12%	7.08%	20.73%	52.88%
BAE Systems	445.10p	1.61%	4.69%	4.00%	2.32%	34.88%
Centrica	319.40p	1.45%	5.69%	3.37%	-8.14%	-3.68%
SSE	1518.00p	1.52%	5.92%	4.19%	10.80%	23.92%
Morrisons	177.50p	0.81%	6.95%	5.03%	-31.99%	-33.67%
BG Group	1201.50p	1.27%	1.70%	2.52%	-7.40%	-7.29%
Tesco	229.95p	0.67%	3.78%	-10.87%	-31.22%	-42.36%
Barrat Dev.	369.90p	1.19%	3.84%	5.99%	3.48%	3.48%
Cash		7.92%	0.00%
		100.00%	3.34%
				1 Month	YTD	44 mth
Virtual Portfolio gain (incl. Dividends)
- 1 month gain   2092.15 -	2132.02			1.91%
- YTD gain         1644.62	2132.02				-0.34%
- 44 month gain 1264.20 -	2132.02					68.65%
- 56 month gain 1000.00 -	2132.02					113.20%
FTSE gain (excl. Dividends)
- 1 month gain   6730.11 -	6819.75			1.33%
- YTD gain         5897.81	6819.75				1.05%
- 44 month gain 5971.01 -	6819.75					14.21%
- 56 month gain 5412.88 -	6819.75					25.99%
Transactions:
05/08/2014	Div	Verizon @ 26.56p per share
06/08/2014	Div	Vodafone @ 10.55p per share
18/08/2014	Div	Apple @ 23.59p per share
19/08/2014	Div	Imperial Tobacco @ 38.8p per share
20/08/2014	Div	National Grid @ 27.54p per share
Notes:
*     US Dividends are adjusted for exchange rate and 15% withholding tax
**   Sterling : Dollar exchange rate = £1: $1.65994 as at 31/08/14

Chartwise, things are back pushing the ceiling of all time highs so its not all bad news, more one of consolidation.

Click to enlarge, close to return.

So looking ahead, one topic I have chosen to ignore is the Scottish referendum, mainly because I don't understand the outcome but the sooner the better as it is the uncertainty that has the biggest effect. 

Anyway, I have added new funds to my portfolio, rather than re-invest, in the poor deals now on offer.
These have actually come from many years invested in the National Savings Index Linked certificates so it has been disappointing to give them up but at least allows me to recycle the funds back into my ISA.
I will be looking to invest most of this before the year-end and any traditional year-end rally, although I also like to get past October and its historic "Black" events


Previous Posts:
- July 2014: Portfolio Update.
- June 2014: Portfolio Update.
- May 2014: Portfolio Update.
- April 2014: Portfolio Update.
- March 2014: Portfolio Update.
- 2013 Dividends profiled.
- February 2014: Portfolio Update
- January 2014: Portfolio Update
- December 2013: Portfolio Update.

National Savings & Investments: Renewal Notification or eviction notice?

Really disappointed to receive a renewal notification for one of my National Savings Index Linked Certificates this week, which brings me to the conclusion that either the Government doesn't need to borrow anymore or is working on the basis that, for many savers, they are still the best option and are looking to exploit any savers needing money quickly.

What do I mean by this? Well, to begin with, its well documented that Index linked certificates are currently closed to new investment but for existing investors there is the option of renewing and rolling over existing certificates. 
However, the current renewal offer is now RPI +0.25% AER. 
Pretty measly even if the 0.25% does mean it beats the very "carefully" measured inflation figure.

More crucially though, if you do decide to cash in within the 3/5 year term, National Savings will now impose:
"a penalty equivalent to 90 days' interest on the amount you cash in...... and you won't earn any index linking on the whole certificate for the investment year in which you cash in, even if you only cash in part of it."

The second part of that statement seems particularly harsh raising the stakes to all or nothing.

So I can't really work out if National Savings are trying to empty the cash out or just looking to squeeze on the funds invested.
Feels like an eviction notice to me though.

Looks like the changes were made in September but only get posted out to savers once the 30 day countdown to an affecting anniversary is reached.

National Savings were originally set up as a further means for Government to borrow so I can only imagine that it is "currently" a more expensive option than the bond markets.

Given the current climate there is also a much wider responsibility for me though, and that is provide savers with a safe haven, and provide a competitive alternative to the abysmal rates offered by financial institutions. 
And let us not forget that, ultimately, it also means that savers are contributing to the UK Government's public sector borrowing requirement.

But then again it is the Bank of England that is creating this long term imbalance in markets that continues to encourage profligacy whilst allowing banks et al to run their own versions of pyramid schemes.
That being the case, is the Government also revealing to us in a not very subtle way that this abuse will continue for the foreseeable.

Seems neither subtle, clear or intelligent!

And, given recent talk of triple dip recessions and an increasing threat to the UK's credit rating, which might yet lead to higher borrowing costs on bond markets, it seems very short sighted to risk alienating savers even further via this avenue.
But, I can't think of any Government of recent times taken a view beyond the next election!

Beatings will continue until morale improves!

Article links:
- http://www.nsandi.com/savings-index-linked-savings-certificates

NS&I Savings Certificates withdrawn.

I notice that the NS&I Savings certificates have now been withdrawn after 4 months. Hopefully many of you will now be benefitting from the RPI+0.5% yield that comes with the 5 year Index linked certificates.

If you are also registered for notifications then you should soon receive the following from NS&I.

"I’m writing to let you know that all current Issues of NS&I Savings Certificates were withdrawn from general sale at close of business on 6 September 2011.

The latest Issues of Savings Certificates had been on sale for almost four months (since 12 May 2011) and have been very popular. When we launched the Issues we expected the amount invested to be substantial, and our expectations have now been met.

We’re sorry if you haven’t been able to invest on this occasion, but we will contact you again as soon as the next Issues go on general sale." (NS&I Customer Management).

Roll on the next issues!

Previous posts:

- The Return of the NS&I Index Linked Saving Certificates 

- Budget Musings / NS&I Index linked savings

Related articles/links:

- http://www.nsandi.com/

- www.nsandi.com: Year by year rates

- www.thisismoney.co.uk: New NS&I index-linked bond pays RPI+0.5%

- www.telegraph.co.uk: NS&I Index-Linked Savings: Q&A

The Return of the NS&I Index Linked Saving Certificates

Well, I am back online following my recent tour of the West country (boringly work related I'm afraid), and the fan fare this morning is the return of National Savings Index Linked savings certificates as promised by the Chancellor - George Osbourne in his most recent Budget speech.

Mentioned a few times in this blog (see earlier post: Budget Musings / NS&I Index linked savings) I have traditionally used them in the past to supplement savings as they provide a tax free return (previously over 3 and 5 year terms) of RPI + a tiered level of interest over the selected term (e.g +0.95% in year 1, 1% year 2 etc) which has been a very useful supplement once cash ISA limits are exhausted as up to £15,000 can be invested in each issue.

Not quite as flexible as some ISA's, the investment is for a term and generates RPI + % as stated but money can be withdrawn if required. 

However, if this is inside the first year then no interest will have been gained but once the certificates have been held longer than 12 months you are in the money, so to speak.

But, obviously aware that they are likely to be popular and quickly subscribed to the max. I notice that, at RPI + 0.5% and 5 year term, the "headline" rate and holding term is perhaps not as a attractive as most recent subscribers may have anticipated.

The tiered rate to achieve the compound 0.5% that is added to the RPI are: Yr 1  +0.25%; Yr 2 +0.35%; Yr 3 +0.4%; Yr 4 +0.65%; Yr 5 +0.86%

With the Retail Price Index currently at 5.3% this would still provide a useful 5.8% tax free which in a box standard tax deducted savings account would be equivalent to 7.25% for a basic rate tax payer and a hefty 9.6% for a higher rate tax payer!

A few things to note though:

- An investment in NS&I does not affect your ISA allowance. This would be the same for an investment in premium bonds and other NS&I products with the exception of an NS&I ISA of course!

- Any investment in NS&I is 100% backed by the government as opposed to the £85,000 that applies elsewhere.

- At maturity investments can also be rolled over without affecting the take-up of any new issue.

- Inflation can fluctuate as it has done particularly when "manipulated" by the basket of goods and interest rates.

But, even allowing for the so called negative inflation numbers that were quoted during the last few years, the RP element of the certificates stops at zero which means that previous issues still yielded 1%/1.05%/1.35% dependent upon issue, which was still more attractive than the rate offered by those well known philanthropists - the banking industry (yes that also includes building societies etc).

- The headline rate of RPI (which includes council and mortgage costs), is quoted as a year on year rate so, at 5.3% it means that prices are up 5.3% relative to the level 12 months previously So in calculating what you will actually get you need the most recently published index figure to provide your starting basis.

And, despite being for the period to the end of March, 5.3% is the most recently published headline figure as there is a consistent lag between for calculation and publication. But, the index figure that 5.3% is drawn from might be 232.5 which would be 5.3% up on the same period 12 months ago i.e. 220.8.

If RPI in 12 months time is still 5.3% (who do you believe?) then the index would increase to 244.8 (232.5 *1.053) and you would have achieved 5.3% + 0.35% for the first year of your investment.  

Probably, not the most popular product in the past due to a lack of understanding, the investment term, or just being too safe and boring, but they have at least provided some competition in the market for savers investments. 

This is competition that has been sorely missing for most of the last few years and depending which source you read they were withdrawn because either: the government couldn't afford the payments; or the banking sector complained that savers were moving their money into NS&I rather than keeping them in the generously yielding products that Banks and Building Societies were offering.

Hmmm, as NS&I investments effectively serve as a loan to the government, and they could have closed one issue and started another with a lower rate of interest, I know which one I choose to believe.

So a useful tool and one that has served me well in the past as for some time now I have also sought to maintain a balance of low risk cash based investments in interest paying products. 

One of the philosophies of Benjamin Graham (often referred to as the father of Value investment and teacher/mentor of Warren Buffett), was to maintain a balance of Fixed Interest (e.g. long term bonds etc) and stock market based investments. 

The balance would begin at 50/50 with a view to re-balancing on an annual basis however the imbalance occurs. 

Quite clever really because it mitigates risk in either of the investments and with the products tending to run counter cyclical to each other you should be moving some cash out an investment during a good period in preparation for an inevitable downturn (and switch) into the "opposite" style of investment. You might miss out on some gains in the short term but would probably catch that back with early gains/reduced losses in the switch.

Similarly, as the rule is set before hand it should be a mechanical re-balance rather than an emotional tussle of should I / shouldn't I.

I have to admit at this point that I don't automatically do it this way but I have managed to maintain a close balance between my chosen categories of ISA/NS&I/savings accounts.

Either way it ensures some diversification and that all your eggs are not in the same basket!

If you are considering them, they are likely to be popular, but I have no idea what kind of availability period that that would equate to.

Not sure at this point if I will take this issue up but I do applaud their re-introduction and the additional choice/competition that they will provide. I also hope that this will be the first of many. If nothing else it might, just might, provide another indication of normal service being resumed on the long road to recovery.

Related articles/links:

- http://www.nsandi.com/

- www.nsandi.com: Year by year rates

- www.thisismoney.co.uk: New NS&I index-linked bond pays RPI+0.5%

- www.telegraph.co.uk: NS&I Index-Linked Savings: Q&A

Budget Musings / NS&I Index linked savings

I personally haven't expected too much from the budget due to the parlous state of the country's finances but have taken note of a few things:

• Income tax bands: personal allowance frozen at £7,475 for 2011/12  but there is a decrease of £2,400 in the basic rate limit, taking it to £35,000 (added to the personal allowance this is the starting point for the higher rate i.e £7,475 + £35,000). 
• The 2010/11 personal allowance of £7,475 will increase to £8,105 in 2012/13, again with a corresponding decrease in the basic limit leaving the higher rate threshold unchanged at £42,475 (i.e. £8,105 + £34,370). Subsequent years will see the allowance increase by RPI at least, until the it reaches £10,000.
• In 2011/12, personal allowances will reduce by 50p for every pound that income (incl. interest and dividends) is above £100k, so make use of pensions contributions, or other tax efficient investments to maximise your allowances
• Indexation of direct taxes: the default indexation basis for all direct taxes incl. inheritance tax and capital gains tax will move to CPI from RPI from 2012/13
• ISA limits: from April 2011/12 ISA limits will increase to £10,680, of which £5,340 can be saved in cash. Again, going forward, the default indexation for ISA limits will be CPI rather than RPI.
• Pensions Tax relief: the annual limit will be £50,000 from 6 April 2011 but the lifetime limit will remain at £1.8m, reducing to £1.5m from April 2012 as previously announced. Unused annual allowances can be carried forward by up to 3 years.
• Pensions annuitisation: the effective requirement for annuitisation will be moved to 77 (previously 75) from 6 April 2011. Savers, from the age of 75, can align multiple drawdown pension funds under the same scheme to enable consistent annual valuations.
• Capital gains tax (CGT) annual exemption: rising in line with statutory indexation to £10,600. From April 2012 (as stated earlier), this will be in line with CPI not RPI

For business:

• Corporation tax rates: set at: 20% (profits up to £300k); 27.5% (up to £1.5m); and 26% (over £1.5m) for the next year, following which the main rate of 26% will be cut by 1% per annum for the next 3 years to 23%
• Bank Levy: will increase to negate any advantage from the reduction in corporation tax.

So, not too many brightspots. You can see that more people will steadily be brought into the higher rate tax threshold over the next few years. 

Most allowances will be indexed by the "Mickey Mouse" Consumer Prices Index (CPI), (no disrespect to Mickey Mouse intended), from the more realistic, and generally higher Retail Prices Index (RPI). Thanks again to Gordon Brown (the gift that keeps on giving) for bringing CPI in.

One bit of good news was the statement that National Savings Indexed Linked savings certificates are likely to resurrected in the coming year with a £2bn funding target being set by the government.

As ever there are terms and conditions but, in the past, these have proven a very useful investment tool for me, allowing me to balance my portfolio between cash investments and equities.

The investments are 100% government backed and have typically yielded a tax free RPI + 1% over a 3 or 5 year period. 

Maturing investments can also be rolled over without affecting any new issue take-up.

Until withdrawal, one could deposit up to £15,000 in each issue of the certificates.

Likely to be very popular, I just hope that they are left in place (rather than quickly withdrawn again) and subsequent issues made which, hopefully, will act as a competitive spur to the banks that they need to work harder to keep/raise funds.

We shall have to wait and see.