Portfolio Review - End 2020

 Another year rolls by and this is now my 8th end of year review since starting my blog in February 2013...and what a year - one theme... Covid-19...  coronavirus         social distancing        lockdown       

The news of coronavirus outbreak in China started to emerge in February. The virus soon spread to Europe and the rest of the world, but I don't think anybody anticipated the huge global impact it would have and in such a short period. March saw a one-day fall of 10% on the FTSE and 3,000 point fall on the Dow Jones. At the same time the price of oil fell from $60 per barrel to $25 in the blink of an eye and at one point was trading at a negative price. This was a scary time for investors and one of the most volatile times I can remember. Certainly a good time to re-evaluate asset allocation!

Thankfully the panic subsided over the next couple of months and the markets bounced back led by the technology sector and by July had recovered most of the lost ground....well, apart from the FTSE which had yet another disappointing year.

Just when we thought we may be over the worst, the Covid rates started to increase again in September and by October we were moving back to regional lockdowns followed by another national lockdown in November and then a further tier 4 lockdown just before Christmas as new strains of the virus emerged. 

There was some light at the end of the tunnel when in November when it was announced by Pfizer that their trials were successful and subject to passing the regulation, they hoped to release a vaccine which was 90% effective. A week later and along came positive news from two others including the Oxford AstraZeneca trials. By early December we had delivery of the first batch of vaccine and ready to begin the roll-out starting with the most vulnerable people in care homes and front line health workers. We have 100m of the Oxford vaccine on order and with approval coming at the end of December, this will start to roll-out in January.

Hopefully the vaccines will work on the new strains and we can start to move back to something like normality in the coming months.

Climate Change

While Covid has dominated the year, the climate crisis has continued to get worse and the world gets warmer each year. 2020 is no exception. However, I feel this has been a breakthrough year for the climate - governments around the world are starting to take the issue seriously and everyone is more aware of the importance of the challenges we face and the need to make some significant changes to many aspects of our everyday living.

Here in the UK we saw the governments 10 point plan for climate in November confirming a four-fold increase in offshore wind to 40GW by 2030 and 5GW of hydrogen capacity by the same date. The EU has put in place it's green deal with a €1 trillion green stimulus plan, China has pledged to become carbon neutral by 2060 whilst Japan and S Korea announced plans for net zero by 2050 in October.

The bigly boost was the defeat of climate denier Trump in the US election. Joe Biden has pledged to tackle the climate crisis and will rejoin the Paris Agreement and will spend $2 trillion to support the transition to renewable energy by 2035 and make the US carbon neutral by 2050. China and the US are the world's dominant economies and account for over 40% of all global carbon emissions. Therefore the new pledges from these two countries will have a huge knock-on effect around the world and will inevitably mean increased investment into renewable energy such as wind and solar, energy storage, hydrogen, EVs and lots of other green technologies. Which is all good for my green investments! 

Trump has been one of the worst, most dysfunctional presidents of my lifetime and I was therefore pleased and relieved that Joe Biden eventually came out on top. However, I was really surprised at how many Americans still voted for the former president - more than voted for him in 2016 which shows the influence of carefully targetted social media campaigns and the likes of Fox News.

The pledges are welcome but they have to translate to implementation which will be challenging. I guess the coming decade will be a make or break period. We either make the changes to limit global warming or we fail and face the consequences. I fully agree with President Macron when he said that if the world can do the unthinkable to their economies to confront coronavirus, surely it can do the same to arrest the much bigger threats from catastrophic climate change.

But despite the economic slowdown from Covid, 2020 has been the warmest year on record...the past 6 years have been the hottest on record and unless we tackle the climate emergency, the Met Office have forecast that temperatures in the UK could be 3 to 4 degrees warmer on average by 2100.... ( they have risen by just 1.1C over the past 150 years).

Of course, there will be no vaccine to save us. "Once climate change becomes a defining issue for financial stability, it may already be too late." Mark Carney, former Governor of the Bank of England. Tom Slater, joint manager of the £17 billion Scottish Mortgage Trust says "The wholesale shift away from carbon is set to be one of the most significant societal and investment transitions of our lifetime". "What happens next is up to every one of us." Sir David Attenborough. The clock is ticking, the time to act is now.

The simple fact remains that whether we are cautious or adventurous, active or passive, DIY investors are part owners of everything we choose to hold in our portfolios. Back in 2018, I decided I did not wish to carry on being part of the climate-change problem by continuing to hold multinational fossil fuel companies which feature prominently in all the passive index funds, even the so called ESG offerings. I made the changes and feel better for bringing my investments into line with my values. So far, my move to embrace more climate-friendly investing options has proved very rewarding.

I published my "Climate Emergency" book at the start of the year...not yet as popular as DIY Pensions....but I remain hopeful! 

Brexit

It's been a long time coming but following the end of the remainer Parliament and a landslide victory of Boris Johnson last December, we left the EU at the end of January and, against all odds secured a Canada-style++ trade deal in just 11 months. So it was Merry Brexmas for all the 17.4m who took on the establishment in June 2016...democracy remains in tact.

Of course, the full details of the agreement have to be analysed and there is no guarantee that we will be economically better off as a result of leaving but for me, the important element is that democracy has prevailed. We were given a simple choice in 2016...leave or remain. Against all expectations the majority of the people voted to leave and that decision has now been respected. It's now time to move on.

Investment Strategy

So, a dramatic rollercoaster year in global markets. Fortunately, my green/tech investments have weathered the turmoil better than many other sectors. Sadly the FTSE had yet another year of underperformance. I cannot understand why the iShares Core FTSE 100 ETF is consistently the best selling fund on the HL platform.

It's now over two years since I started the move away from fossil fuel investments which inevitably include the global multi-asset index funds such as Vanguard Lifestrategy. I have now adopted a two-themed focus for my portfolio which are

1. sustainable fossil-free & climate-friendly

2. technology.

I expect these two areas to provide the better returns for my portfolio over the coming decade or more.

Unfortunately there are no collective funds which deliver on these themes in a combined way and so I have increasingly assembled my own mini fund which combines many individual company shares as well as some collective investment trusts and funds.

Over the past year I have (reluctantly) sold into the rising prices of many investments during the second half to release funds for my house purchase which completed in November.

Portfolio Returns

I have just put in the final figures for the spreadsheet of my investment portfolios - sipp flexi drawdown and ISAs - for the full year to 31st December.

The FTSE 100 has struggled for most of the year post Covid and has dropped from 7,542 to 6,460 and a total return of -11.5% for the full year. The FTSE All Share index is down -10.0%.

As a matter of interest, the FTSE 100 finished at 6,749 when I did my first annual review to the end of 2013. Not much progress over the past 7 years!

The Vanguard Lifestrategy 60 fund is a diverse mix of global equities and bonds and although I have disposed of my holding, it provides a good benchmark for a balanced global portfolio. The fund is up 6.9% over the past year and the VLS 80 is up 6.6%

Technology - Over the 12 month period, I sold TR Property trust and replaced it with Allianz Technology to complement my other tech trust Polar Capital. I have also added a few individual companies - Google, Microsoft, Ocado and Zoom

The total return for my tech sector over the year was 26.2%.

A Good New Year's Day Walk...

Green - Over the year I have continued to build my climate-friendly section which now represents over 75% of the total portfolio. Many of the investments have not had a full year so I am pleased that the total return for this sector compares very well with the wider market. It shows that you don't have to compromise on portfolio returns when investing for a more sustainable world, in fact just the opposite, returns have been enhanced.

The better returns have been provided by offshore wind specialists Orsted  +95% and  Vestas Wind  + 130%, iShares Global Clean Energy ETF +135%, green hydrogen smaller companies ITM Power +490%, Ceres +225%, AFC Energy (now sold) +325% and McPhy Energy +500% ....and in the US, Tesla 130%, Ballard 120% and Plug Power 135% Unfortunately, my renewable infrastructure trusts have been a drag on overall performance... TRIG -0.5%, NextEnergy (now sold) -11% and Bluefield Solar -1.5%. I will reduce my weighting to these trusts in the coming months.

Maybe some of these renewable energy companies will become a part of the small percentage (1 in 20) of stocks which are responsible for the wider equity market outperforming bonds. Here's the article from 2018...

The total return including dividends from my green portfolio has been 52.5% which is brilliant and shows that it's possible to invest ethically, align my investments with my values and still make a decent return.

Of course, after such a strong run this year, some pull-back is to be expected but I am confident longer term progress will be supported by the underlying fundamentals of a global shift from fossil fuels to renewables.

The Complete Basket

As a whole, the portfolio has delivered a total return of 43.8% over the past year which takes account of all dealing costs. It is my best ever year surpassing the 37% of 2009 which saw a big bounce after the economic crisis. Here's my portfolio returns covering the past 10 years. 

2011  -3.0%

2012 15.5%

2013 13.3%, 

2014   5.4%, 

2015   2.7%  

2016 11.4%

2017 11.3%

2018  -2.7%

2019  21.9%

2020  43.8%

A sum of £1,000 at the start of 2011 has increased almost three-fold to £2,890 and an average annualised return over the past 10 years of 11.3%.

Conclusion

In these times of low interest rates, low inflation and corresponding low returns from cash deposits which have persisted since 2008 - and is likely to continue for at least another decade - for a little more risk, an average annualised return of over 10% over the past decade is obviously very acceptable. Return on my investments have been positive in 8 of the past 10 years and the two negative years have been modest. And the returns from these investments - especially the past two years - have provided the funds for a nice retirement bungalow with garden and conservatory in the quiet leafy suburbs.

Obviously as a grandfather to five, I am concerned about the climate emergency and how badly it will impact the world over the coming years. The devastating images we have seen this past year - wildfires over huge areas of the west coast states of the US, disappearing polar ice caps should  be a warning of what's coming down the line for the planet if we carry on with business as usual. Hopefully in the coming year we will get some real leadership in the run-up to COP 26 and some real action to speed up the transition away from fossil fuels. I am in no doubt that the global economy will be affected including equities which is why I have moved my portfolio to climate-friendly alternatives.

For me at this stage, investing is more about directing my resources towards those areas that are trying to promote a sustainable planet and avoiding the fossil fuel companies and associates which refuse to change and that have little or no regard for our environment. If supporting those greener companies can also deliver a decent return on capital as I have seen these past couple of years, then that is a bonus but it's no longer my primary driver.

I don't have a crystal ball but my strong feeling would be that we passed peak oil in 2019 and the game could soon be up for the big oil companies that refuse to change their business strategies and fall into line on climate change. Likewise the banks and insurers that continue to support their operations. I hope the momentum of the past year can build in 2021 and we can avoid some of the dire consequences which lie in store with warming over 2.0C....as they say, it's going to be very interesting!

Finally, wishing all a happier New Year and thanks to all for dropping by during this challenging year and hoping we can enjoy a much better 2021.

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