Personal Portfolio Review - End 2017

Well time marches on relentlessly and this is now my 5th end of year review. Over this period, some things have changed - at the start, I did not hold Vanguard Lifestrategy - today it is by far my largest holding. Some other things remain the same - I still hold many of the original investment trusts - Aberforth Smaller Companies, City of London trust, Temple Bar and Edinburgh.

As ever, an interesting year on the markets and even more so politically.

The decision to go ahead with Brexit was triggered in March and, as it stands, we are on course to leave the EU in 15 months time. In June we had a snap general election designed to strengthen the PMs negotiating position but which backfired leaving the Government without a majority in the Commons and needing the support of the DUP. Thankfully we managed to get past phase 1 and can now start negotiations on a transition period and trade deal...I have a feeling this will be very tricky but remain hopeful that we get a good outcome in readiness for leaving the EU next March.

Meanwhile, President Trump is coming up to celebrating his first year in charge and hardly a day has passed without him hitting the headlines...'fake news' entered the OED!

Despite the political uncertainties, the markets seem to have sailed through all these events without missing a beat, which I did not expect at the start of 2017 and which just reminds me how difficult (and unwise) it is to try and second-guess the markets.

By the way, did anyone invest in Bitcoins at the start of the year? If so, I believe you will have done well as the price has gone up from $1,000 to currently $14,000... it was $19,000 just before Xmas. To be honest, I really do not understand this whole area of finance but I will be looking to learn more about this blockchain revolution over the coming year as I suspect it may become a significant advance to the way our financial systems operate. It will be interesting to see how the various cryptocurrencies - Bitcoin, Litecoin, Ethereum, Ripple, Dash etc. evolve and become more established as alternatives to the way we have traditionally done business.

Recently, Vanguard announced it will looking at using blockchain to simplify and automate the process of sharing index data. They said its blockchain will enable index data to move instantly between index providers and market participants and should result in a cost saving which they can pass on to their customers.

On a personal level I experienced my own WTF episode in March when my computer hard drive crashed. I thought I had a back up disc but turned out I had not done the backup procedure correctly so lost all my files! It has taken some time to reconstruct documents and spreadsheets on my replacement laptop but some of my research material is locked away on my old HD.

Also, in January, I published my books in paperback format. It seems to have been a popular addition and sales of the paperbacks are roughly double that of the ebooks, which in turn have seen an increase in sales. As the books were already written, all that was required was a little updating and then an upload to Kindle's paperback version. On the downside, Amazon take 40% of the sales (30% for ebook) and also there are print costs deducted so the cover price has to be higher to provide a similar net income. The most popular book is 'DIY Pensions' which accounts for over 60% of sales...it's encouraging to know there are lots of people out there getting to grips with personal finance and saving for the future.

Investments

So, moving on to investments. 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 funds.

Over the past year, I have completed the sale of all individual share holdings and a couple of investment trusts which did not seem to be contributing much to the basket.

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 funds.

Portfolio 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 investment portfolios - sipp flexi drawdown and ISAs - for the full year to the end of December.

The FTSE 100 started 2017 at 7,142 - and has steadily progressed to finish the year up 546 points closing at an all time high of 7,688 or 7.6% - if we add on say a further 3.8% for dividends paid, this will give a ballpark total return figure of 11.4% for the full year. The second line FTSE 250 has done better and the FTSE All Share index is up 13.0% for the year.

My Vanguard Lifestrategy funds are a diverse mix of global equities and bonds and provide a good benchmark for a balanced global portfolio. The 60 & 40 funds are up 8.6% and 6.5% over the past year.

So far as cash deposits go, returns must surely be the lowest in a generation however there is a little ray of hope for savers. In October the Bank rate increased for the first time in a decade from a record low of 0.25% back to 0.50% with the prospect of a couple more increases in the new year. The savings rate on my instant access account with the Coventry BS has increased by 0.25% to 1.40%. This may not seem much but the interest I will receive increases by over 20%. However, inflation is creeping up - currently 3.1% so it's still really tough for cash savers to keep ahead of the game!

Shares

As mentioned last year, my individual shares portfolio has been the main area of change following my review of strategy and I have recently completed the sale of all remaining shares - Unilever, Amec Foster, Legal & General, IG Group, Berkeley Homes, IMI and Next.

The total return including income on my individual shares has been just over 20% which makes up for the disappointing returns of just 1.5% in 2016.

Some of the proceeds have been recycled into Capital Gearing and AJ Bell Passive with a view to preserving gains made in recent years. The rest of the proceeds remain in cash awaiting better opportunities down the line.

Investment Trusts

Over the 12 month period, I purchased a holding in Scottish Mortgage for my SIPP from the sale of Invesco Income Growth. I have also added HICL Infrastructure. In my ISA, I disposed of Dunedin Income Trust which was replaced with the more defensive Capital Gearing.

The better returns came from Finsbury Growth & Income (again) up 22%, new addition TR Property up 36%, Scottish Mortgage +31% and smaller companies specialist Aberforth up 24%.  The only trusts that has struggled for me this past year have been Blackrock Commodities Income -9% and new addition HICL Infrastructure which I hold in both ISA and SIPP.

The total return for my basket of trusts over the year was a respectable 10.8%.

Income yield from the trusts portfolio has been steady at 3.6%.

Index Funds

Over the past year I have added VLS 40 to my SIPP flexi-drawdown, also iShares Corp. Bond fund (replacing Law Debenture) and AJ Bell Passive fund and most recently, Kames Diversified Income to my ISA.

Finally, a significant percentage of my redistribution of shares and active funds have been invested in the two Vanguard LS index funds - 60 and now 40 added. 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.

Last year, the LS 60 fund advanced by 18.6% so I took the opportunity to draw the equivalent of 2 yrs income by selling 8% of my units.

My Vanguard UK Income fund provided a nice uplift in dividend this year - up 82p or 10.5% compared to 2016 which is probably due to the fall in sterling and is not likely to be repeated next year.

The contribution from my index collectives has therefore been positive over the year with a total return of 8.4%.

Fixed Interest

As ever, the fixed interest sector has provided a steady and predictable income of 5.8% plus capital appreciation of  6.5% providing a total return of 12.25% for the year. 

The better returns came from my two investment trust holdings - New City +12.5% and City Merchants +10% and also my Lloyds Bank Pref Shares chipped in a nice 29%.

My last remaining PIBS with the Skipton BS were redeemed in April 2017 and 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 11.3% over the past  year and almost the same as 2016. Here's my portfolio returns in previous years 

2011  -3.0%

2012 15.5%

2013 13.3%, 

2014   5.4%, 

2015   2.7%  

2016 11.4%

A sum of £1,000 at the start of 2011 has now grown to £1,700 and an average annualised return over 7 years of 7.9%. This has enabled me to take my 4% annual income leaving some held back to build reserves.

I am hopeful of continuing to withdraw this level of income for the foreseeable future but as my state pension will be due this coming year I will not be so reliant upon the investment income.

Most Popular Posts

As the shares are sold down there seems less to report on and therefore the number of posts has reduced.

The most popular this year have been:

1. Work Out Your Retirement Figure (link)

2. Vanguard LS 60 - Year 2 Update (link)

3. A Logical Investment Strategy Revisited (link)

Conclusion

In these times of low interest rates and corresponding low returns from cash deposits, for just a little more risk, an average annualised return of almost 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! However, I have no special insight and I would not be surprised to see the bull keep running. Over the past year I have lost out by reducing my equities and moving to cash and defensives.

However, it's difficult to put a price on peace of mind and I am starting to feel more comfortable with my revised strategy - removing the 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 LS funds provides less volatility and more stability.

One bonus from the changes means it easier to leave the portfolios alone and therefore avoid tinkering. I am reducing equities and gravitating towards an allocation which I hope will continue to provide a reasonable level of return which keeps ahead of inflation without too much volatility. I remain mindful of the words of Ben Graham 'The investors chief problem...even his worst enemy...is likely to be himself'.

I subscribe to the 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 make a fortune, and fortunes tend to push aspirations and desires higher anyway.

Be patient, stay in the game and keep it simple....

Finally, thanks to all for dropping by during the past year and wishing everyone all good things for 2018.

As always, if you keep track of portfolio returns, feel free to leave a comment and share with others how you have fared over the past year.