End 2016 - Personal Portfolio Review

As ever, an interesting year on the markets which have been dominated by our decision to leave the EU following the referendum in June.

The other main event for me this year was my house move which was completed in November after quite a long wait to find a suitable buyer. However, I am pleased to report the wait has been worth it and I am now settling in to my new home and thinking about the various jobs required to make it more how I want it to be for the longer term.

In 2015 I decided to review my whole investing strategy. The outcome was to begin to simplify and diversify - wind down my individual shares portfolio and reduce some of my managed funds. The proceeds were diverted towards an increasingly passive strategy - in particular, using the Vanguard LifeStrategy index fund.

Over the past year, I have sold a few more individual share holdings and a couple of investment trusts which did not seem to be contributing much to the basket. However, earlier this month I repurchased IG Group which now makes 6 remaining share holdings.

In the past year, I have also started to operate a more flexible approach to taking income from my investments which involves the sale of capital units from my VLS 60 fund. The fall in the value of sterling post Brexit gave a boost to the price of my VLS and I took the opportunity to sell 8% of my holding to provide income for this year and next.

Benchmark Returns

Turning to my portfolios and following on from my half year review at the end of June, I have just completed a review of my actual investments - sipp flexi drawdown and ISA - for the full year to the end of December.

The FTSE 100 started 2016 at 6,242 - after a few twists and turns, it has finished the year up 900 points closing at an all time high of 7,142 or 14.4% - if we add on say a further 3.5% for dividends paid, this will give a ballpark  total return figure of 17.9% for the full year. The second line FTSE 250 have not done as well as 2015 and the FTSE All Share index is up 16.5% for the year.

In the past I have used the return from the FTSE 100 to compare the performance of my diy portfolio returns. However as the portfolio has become more globally diversified and includes around 40% fixed interest and bonds so I now use an average of my remaining Vanguard funds. 

Total returns for these over the past 12 months are as follows :

LifeStrategy 60    18.6% and 

UK Equity Income  12.1%   

Average     15.3%

So far as cash deposits go, returns must surely be the lowest in a generation and the Bank rate has again been reduced to a new record low of 0.25% and the savings rate on my instant access account with the Coventry BS has fallen 0.35% to just 1.15%. Its really tough for cash savers out there!

Shares

As mentioned last year, my individual shares portfolio has been the main area of change following my review of strategy and is now reduced to just 6 holdings. This past year I have sold Unilever, Tesco, BHP Billiton and Sky and expect to offload some remaining shares in the coming year. Next raced ahead in 2015 reaching the heady heights of £80 per share but, almost inevitably, the higher valuation was susceptible to the slightest inkling of bad news and the price has retreated in 2016 by ~30%.

The total return including income on my individual shares has been a disappointing 1.5% which has put a damper on the overall portfolio return.

Investment Trusts

Over the 12 month period, I decided to sell the remaining holdings in Murray Income and Murray Intl. and I have added a couple of property trusts to provide a little more diversity to my basket.

The better returns came from Blackrock Commodities (unsurprisingly) with 69%, Murray International (prior to sale) +50%, Temple Bar +20% and Finsbury Growth & Income (again) up 12%   The only trust that has struggled for me this past year have been smaller companies specialist, Aberforth -5%

The total return for my basket of trusts over the year was a respectable 14.4%.

Income yield from the trusts portfolio has been steady at 4.0%. The highest increases were Finsbury 8.2%, City of London 4.9% and smaller companies specialist Aberforth 25.4% (incl. special divi).

Index Funds and ETFs

Over the past year I decided to take profits from my Vanguard All World High Dividend ETF and Asia Pacific ETF both of which were boosted by the fall in sterling post Brexit.

In March 2015, I added the Vanguard UK Equity Income fund to my portfolio. The fund gives me access to a broad range of around 130 dividend-paying securities from across the FTSE 350, while reducing the risk of being overly invested in a small number of high-yielding shares or particular industry sectors by limiting the percentage of the index invested in any one company or industry.

I have just received my second half-yearly dividend of 403.14p per unit which makes a total of £7.76 for the year and very similar to 2015. The current yield is 4.5%.

This fund is probably the nearest proxy for a higher yielding shares portfolio but obviously far more diversified.

Finally, a significant percentage of my redistribution has been invested in the Vanguard LS 60 index fund. The intention is to sell down units each year to provide ‘income’ and I have also set aside a cash buffer reserve representing 10% of the funds value from which I can draw upon for income in bear market years when returns on the index fund are negative.

Over the past year, the fund has advanced by 18.6% so I took the opportunity in July to draw the equivalent of 2 yrs income by selling 8% of my units.. The 10% cash reserve has therefore increased with an additional 4% plus interest on the 10% for the past year in my building society.

Due to the fall in sterling I have also top-sliced my holding with a sale of 30% in September and hope to repurchase at a more favourable price when the pound eventually recovers against the dollar and/or the markets retreat from their current high points.

The contribution from my index collectives has therefore been positive over the year with a total return of 17.3%.

In his book  “The Index Revolution” Charley Ellis suggests individual investors will be most likely to succeed if they stick with a straightforward buy-and-hold, long-term strategy and make few moves.

They will be rewarded, Ellis said, by joining the index revolution only to the point where they are capture market returns over time, using a few funds in a mix reflecting their age, time horizons, and risk tolerance.

There’s nothing particularly revolutionary about that thinking, except for its simplicity in an era when complexity is the norm. “A simple portfolio that has few funds, but that inspires confidence that you can reach your goals is very freeing,” Ellis explained. “It allows you to focus on the things that are really important, and we all have something better to do than to be managing our mutual fund portfolio every day.”

Fixed Interest

As ever, the PIBS and fixed interest sector has provided a steady and predictable income of 6.1% however capital values have only edged up slightly providing a total return of 6.7% for the year. 

The better returns came from my two investment trust holdings - New City +12% and City Merchants +11%.

My largest holding was the Coventry BS PIBS (held in both ISA and SIPP) and these were redeemed in June 2016 and the proceeds remain in cash. 

Likewise my Nationwide PIBS were redeemed earlier this month. I have used the proceeds to add HICL Infrastructure Trust and also iShares Corp Bond (ex financials) ETF (ISXF) to my income portfolio.

The Complete Basket

As a whole, the portfolio has delivered a total return of 11.4% over the past  year. This compares well with my portfolio returns in previous years 

2013 13.3%, 

2014   5.4%, 

2015   2.7%  

Conclusion

In these times of ultra low interest rates and corresponding low returns from cash deposits, for a little more risk, an average annualised return of over 8% over the past few years is for me very acceptable. Return on my investments have been positive in 7 of the past 8 years and I am thinking the wheel may be about to turn!

I am starting to feel comfortable with my revised strategy - less individual shares means less monitoring of dividend receipts, annual reports etc. The move to index funds provides more global diversity and in particular the equity/bond balance provided by the LS60 fund provides less volatility and more stability and makes life very simple as it is automatically rebalanced to maintain the 60/40 ratio. I hope this addition will make it easier to leave alone and avoid the tinkering.

I have no particular goals for the coming year. My needs are fairly modest so I do not need a fortune.

I really do not subscribe to a get-rich-quick philosophy - it seems to me the easiest way to grow wealthier is learning to live with less, because living with less has a higher success rate than attempting to earn a fortune, and fortunes tend to push aspirations and desires higher anyway. Some 50 years ago, my grandparents had much fewer possessions and much less income, they experienced two World Wars and the intervening depression of the late 1920s but they appeared just as happy. 

I will repeat my mantra...be patient, stay in the game and keep it simple....

Finally, wishing all readers a healthy and prosperous New Year!

As ever, I would be interested to hear how others have done over the past 12 months - leave a comment if you keep track of your portfolio.

Some Popular Posts of 2016 & a Final Farewell

Its been another quite unpredictable year in retrospect. The FTSE slipped to 5,600 in February but apart from a blip after the referendum result in June, the markets have been trending upwards and look set to finish the year above 7,000.

Writing my blog records my personal journey over the past 4 years as I try to navigate the ups and downs of the investing cycles. It helps me to focus, as well as holds me to account for the decisions I take. Sometimes I get it right and sometimes I get it wrong but this year has been mostly positive.

In 2016, once again, my main focus has been to continue the move towards more simplicity, more diversity and less volatility.

Here are a few of the more popular posts over the past year :

1. Vanguard LifeStrategy - A One-Stop Solution
Far and away the most viewed post this year (and last year) - currently approaching 10,000 page views. Some thoughts on helping friends with a simple, no frills investment plan.

2. Asset Allocation Revisited
I took the opportunity to update and expand upon my original article from 2013. Asset allocation is one of the most important decisions every investor needs to consider if they are to be successful.

3. Vanguard LifeStrategy 5 Yr Performance
As these popular index funds now have a 5 yr track record, I compare performance against other funds and also some of my investment trusts.

4. Selecting Your DIY Online Broker
Again, an update to my first article in 2013

5. Vanguard LS 60 - Year 1 Update
How has my largest holding performed since my initial purchase in 2015?


Just to say thanks to everyone who has followed my journey over the past year and special thanks to those who have taken the time to leave a comment. Total page views has just passed the half million mark which is quite a milestone.

Lets hope 2017 is another good one!    

Goodbye

Finally, a sad farewell to some people who have inspired and/or entertained over the years and who passed away in 2016

               

David Bowie

                   Terry Wogan

                                                         Frank Kelly (Father Jack)  

               Zaha Hadid (Architect)

           

Johan Cruyff

                                          Martin Crowe (NZ Cricket)

Alan Rickman  

That's it then. Cancel the kitchen scraps for lepers and orphans, no more merciful beheadings, and call off Christmas

                                                                                         
                                                                                                                          Victoria Wood

                     Ronnie Corbett

Prince

  Tony Cozier (WI Cricket Commentator)                                                         Carla Lane


                                                                                   

Jo Cox MP                                                                                                   Dave Swarbrick

Caroline Aherne

                                                       
 Ken Barrie (voice of Postman Pat)

                                                               Gene Wilder                             Arnold Palmer

Jean Alexander

                                                                                                                         Gary Sprake

                     Jimmy Perry  

                                                Bobby Vee

Andrew Sachs 

                                                                                                 Carlos Alberto (Brazil Football)                                                                      
               
                       Jimmy Young

           

Leonard Cohen

                  Fidel Castro

                                                               Rick Parfitt                                          George Michael

 gone but not forgotten - RIP.    

Finsbury Growth & Income Trust - Final Results

I have held FGT in my ISA for the past 5 years. It continues to deliver and remains one of the top UK Income Trust in terms of net asset value and share price performance over five and ten years, its returns far outstripping those of the FTSE All-Share index. A sum of £1,000 invested 10 yrs ago would now be worth £2,867 compared to a total return of £1,756 from the benchmark FTSE All Share index.

Its aim is capital appreciation and income combined, with a total return in excess of the FTSE All-Share.

Long standing manager Nick Train’s approach is based on that of Warren Buffett’s and involves building a concentrated portfolio of “quality” companies that have strong brands and/or powerful market franchises.

3 Yr Chart  FGT v FTSE All Share
(click to enlarge)

The characteristics that define a quality company for Lindsell Train are:

• durability – companies that can prosper through business cycles for many years to come;
• high return on equity – companies with the ability to grow earnings year-in, year-out are favoured over those with rapid short term growth, but uncertain long term prospects; and
• low capital intensity/high free cash flow generation – companies that do not have to make heavy balance sheet investment to generate earnings growth.

He holds shares for the long term regardless of short-term volatility, aiming for them to double or more in value over time. This results in extremely low portfolio turnover, which saves on transaction costs. These costs over the past year amount to just £799,000 or just 0.08% of net assets. The trust's total expense ratio remains reasonably low at around 0.7%.

Results

The trust has this week announced results for the full year to 30th Sept 2016 (link via Investegate). Share price total return is 20.8% compared to 16.8% return for the FTSE All Share.

Top five portfolio holdings are: Unilever 9.9%, Diageo 9.9%, Relx 9.7%, London Stock Exchange 7.3% and Sage Group 6.8%.

Over the past year the dividend has increased by a respectable 8.3% to 13.1p (2015 12.1p). Revenues were 15.2p (2015 13.5p) and therefore there is a surplus after accounting for payments of dividends which will further bolster the dividend reserves.

Nick Train holds 762,662 shares in the Company which represents the whole of his personal investment in UK equity and is a significant portion of his total assets


Commenting on the results, manager Train said  "I am more excited about the outlook for global and UK equities – and hence for the shares of your Company – than I have ever been. Almost every company we meet can see an opportunity for unprecedented growth or efficiency gains or both. Investors by and large are far too pessimistic about the outlook. And yet the pace of technology change – even as this creates the opportunities – means more and more potentially ruinous surprises for individual companies".

Over the past couple of years I have been moving some of my investment into index funds but I think most investors will acknowledge there are always going to be a handful of managers who can consistently beat the index and it seems to me Nick Train is certainly one of them. You cannot argue with the consistent returns he has provided for shareholders over many years.

I am very happy to continue holding.

IG Group - Repurchase

IG is a global leader in online trading, providing access to over 10,000 financial markets - including shares, indices, forex and commodities.

Established in 1974 as the world's first financial spread betting firm, IG's aim is to become the default choice for active traders globally. It is the world's No.1 provider of CFDs and a global leader in forex. It also offers an execution-only stockbroking service.

With a current market cap of around £2bn, it is a member of the FTSE 250. IG has offices across Europe, Africa, Asia-Pacific and the US, where it offers limited risk derivatives contracts via the Nadex brand.

I held IG Group for some time in my SIPP, however in 2012 it was sold along with some other individual shares to release funds for the tax-free lump sum. In 2014 I repurchased the shares at the price of 595p in my ISA but sold a year later as part of my revised strategy to move away from individual shares.


Never Look Back

Once I am settled on a revised strategy, I like to see it through - HOWEVER on Tuesday the share price of IGG plummeted by over 40% on the news that the FCA were seeking to protect retail investors in the CFD market. My gut feeling was that IGG were not the likely target for the FCA and the drop in share price was an over-reaction to the news.

In the past year IG have introduced their Limited Risk Accounts, which are a really big change. Prior to this introduction, they rejected about 30% of people who applied for a new account, either as being too poor or too inexperienced to have an account at IG. The introduction of Limited Risk Accounts will now allow the company to accept some of those accounts who formerly we would have rejected. So partly, it’s around accepting people and giving them an account, on which, as the name suggests, you can never lose money which you have not already put on the account, and that is guaranteed.

For this and other reasons such as global operation, I believe IG are unlikely to be dramatically affected by this investigation.

According to the latest trading update on 29th November "The Company continues to perform in line with expectations, after a strong second quarter.  Higher operating costs over the first half of the financial year, due primarily to the ongoing success in effective new client recruitment, have been offset by good revenue delivery". The first half results are scheduled for 24th January when we should have more on their response to the FCA paper.

My re-entry price was 480p which is around half of what it reached just 3 months earlier.

year-to-date share price

The company paid dividends of 31.4p for 2015/16 and if this is maintained for the current year, the yield on my recent purchase is 6.5%. There has been a rebound in the share price today but until the uncertainty is resolved, I expect some further volatility.

One of the big attractions of IGG from a valuation and risk perspective is its balance sheet. Not only does it have a net cash position, but it has the ultimate version of net cash, namely no debt at all.

I am unlikely to hold long term with this one but just could not resist the offer from Mr Market yesterday.

As ever please be sure to DYOR!

Berkeley Group - Interim Results

House builder Berkeley Group have today issued results for the half year to end October 2016 (link via Investegate).

Pre-tax profit are up 33.9% to £392m compared to the same period a year earlier, exceeding estimates of about £350m. Revenues were up 24% to £1.4bn driven by the sale of  2,076 new homes across London and the South East at an average selling price of £655,000. It compares to 2,091 new homes sold at a price of £506,000 in the first half of 2015.

In 2011, Berkeley put in place a framework to deliver £13 per share to shareholders over a ten year period, as the market began to recover from the global financial crisis. Berkeley now have cash due of forward sales of £2.9bn, an estimated land bank gross margin of £5.9bn and net cash of £208m, which means the group is on target to deliver a new five-year target of £10 per share or at least £3bn pre-tax profit beginning 1 May 2016.

However, the Board is proposing to introduce flexibility such that the remaining £10 per share payments can be made through a combination of share buy-backs and dividends, as opposed to solely dividends. They confirm that the next £1 per share will be returned by 31 March 2017 with the amount of this to be paid as a dividend to be announced in February, taking account of the cost of any share buy-backs made in the intervening period.

Berkeley remains ungeared with net cash of £208m.

Commenting on the interim results, CEO Rob Perrins said: "The prevailing environment is one of uncertainty and we expect this to continue with short-term fluctuations, both up and down, likely to be a reality. Our business is well set-up to perform strongly in these conditions and is centred around London and the South East.  Notwithstanding the UK's decision to leave the European Union, we believe that London will endure as a global financial centre and a place where people from all walks of life and corners of the world will continue to aspire to live and work.

We remain well positioned to deliver our existing earnings guidance for the three years ending 30 April 2018 of some £2.0bn of pre-tax profits".

There can be no doubt these are once again very good figures. The results were well received by the market and by lunch the share price was up over 5% £26.90.

In hindsight, it may have been better to dispose of my holding last year when the share price was ~£36 however, looking longer term, there is no reason to believe the price will not recover to these levels and beyond once the uncertainty surrounding Brexit is resolved and in the meantime I continue to receive a chunky dividend every 6 months.

I am happy to continue with this one for the foreseeable future.

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House move update - all went well on the day and new phone line and broadband connection was up and running after the first week. I am now busy with my long list of DIY jobs around the new house before my enthusiasm starts to wane - usually after the first couple of months!