Another
year rolls by and this is now my 9th end of year review since starting my blog
in February 2013
Despite
the extensive roll-out of the vaccine, Covid and its delta variant has
continued to hang around and cause significant disruption. However the markets
generally have recovered from the shock of 2020...and then along comes Omicron
and yet another spanner in the works.
I guess
this virus and all its variants are going to be around for many years and we
will just have to learn to live with it and get our booster jab each year.
Climate Change
While Covid
has dominated the past couple of years, the climate crisis has continued to get
worse and the world gets warmer each year. 2021 is no exception... July was
officially the warmest ever month in our history, we've just had the warmest
New Year on record... we saw the devastating floods in Germany, Belgium and
China - hundreds killed, many more missing and thousands made homeless. The
increasing temperatures has also brought an increase in wildfires - Siberia,
California, Turkey and Greece. Sardinia recorded Europe's highest ever
temperature of 48.8C in August.
Governments
around the world are starting to take the issue more seriously following the
'Code Red' warning in August from the IPCC. However, the climate scientists
have delivered warnings for many years so I really do not have much confidence
in the ability of politicians to act with urgency and in co-operation around
the world to tackle this huge existential problem. But I am still hoping for
the best and with progress being made at COP26 I think 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. I am looking forward to seeing
the new film "Don't Look Up".
Another
concern is rising levels of debt...the monetary and fiscal response to the
pandemic was 3.5x higher than the response to the 2008/09 financial crisis. Global
debt is now at its highest since the end of WW2 and it will take at least the
coming decade to bring this down to more sustainable levels. This may be
manageable so long as interest rates remain low and I am sure central banks will
try to keep it that way but we are seeing inflation starting to rise and this
could create instability in the markets and much higher interest repayments.
As a
result of the climate situation and the significant increase in debts arising
from Covid lockdowns, I decided to take stock and re-evaluate the potential
impact to my investments and made some changes (see below).
I published
my "Climate Emergency" book at the start of 2020 and I am just about
to publish the updated second edition!
Uncertainty
So we
have seen some volatility due to Covid and its variants and we have the
significant threats posed by the climate crisis. We are living in uncertain
times which throws up even more challenges for small investors. We need to have
the strategies in place to deal with this uncertainty and the emotional
resilience to stick with the plan when things get choppy.
It's
therefore important to know yourself, your appetite for risk...and tolerance
for losses. Not to get over-confident when things are going well and
conversely, not to get too despondent and give up when the markets turn against
us.
A
well-thought through plan, attention to asset allocation and patience will go a
long way counter the uncertainties that will always be present for investors.
Investments
So, after
a rollercoaster year in 2020 due to Covid, global markets seem to have
recovered well this year. Last year I had an unexpected exceptional run with my
green portfolio and a return of over 50%...this year the bubble has deflated
and my renewable energy and hydrogen stocks have fallen back. Although this was
anticipated, it was still difficult to see portfolio valuations fall by 20% at
one point.
It's now
over 3 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 more focused theme for my portfolio which
are
1. sustainable
fossil-free & climate-friendly
2.
technology.
3.
defensives
The third
element has been reintroduced this year as I realised the 100% equity carried
too much risk as we face the uncertainties of global debt, inflation and how
the global economies respond to climate change. The past decade has been very
rewarding but maybe now is the time to remember Warren Buffet's rules of
investing...Rule #1...don't lose money! Rule #2...never forget rule #1.
Charlie
Ellis, author of "Winning the Loser's Game" has a strategy of winning
by not losing. He uses an analogy of tennis in which you win not by hitting
spectacular winners close to the line, but by constantly keeping the ball in
play and making your opponent keep hitting one more shot. I think Djokovic must
have read the book!
Since the
last financial crisis in 2009, cash returns have totalled a measly 6% on
average whereas UK RPI has been 39% so a 24% devaluation...there's more than
one way to lose money!
So, this
year I have sold around 40% of my equities - green and tech - and moved the
proceeds into more defensive assets such as gold, precious metals, index-linked
sovereign bonds and reintroduced the Personal Assets Trust which is now managed
by Troy.
Portfolio
Returns
I have
just put in the final figures for the spreadsheet of my investment portfolios -
sipp flexi drawdown and ISA - for the full year to 31st December.
The FTSE
100 has recovered this past year after a poor performance in 2020 and has risen
from 6,460 to 7,384 and a total return of 14% for the full year. 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 8 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 9.9%
over the past year and the VLS 80 is up 14.4%
Technology - Over the 12 month period, I sold Ocado and Zoom and have taken part
profits on Google and Microsoft which have had a really good run in 2021 with
share price returns of 67% and 54% respectively. Tech now accounts for just
under 10% of my portfolio.
The total
return for my tech sector over the year was 29.5%. Another good year after the 26% return in 2020.
Green - After triple digit gains for many
of my green portfolio holdings in 2020, I think it was inevitable that there
would be some pull back this year. Over the year I have taken profits on quite a few holdings - NIBE,
Orsted and Vestas and sold Nel in August as it breached my stop-loss and with a
50% loss (ouch). These now represents 55% of the total...down from 80% at the
start of 2021 After a stellar year in 2020 and gains of 52%, the green sector
has come back to earth with total returns down -13.9% ...but still averaging just under 21% in each of the past three years.
The
better returns have been provided by NIBE +85%, iShares World SRI +22.5% and Gresham
House Energy Storage +23%.
The Complete Basket
As a whole, the portfolio has delivered a total return of -6.5% over
the past year which takes account of all dealing costs. Here's my portfolio
returns covering the past 10 years.
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%
2021 -6.5%
A sum of £1,000 at the start of 2012 has more
than doubled to £2,800 and an average annualised return over the past 10 years
of 10.8%.
 |
| Past 10 Years (click to enlarge) |
Conclusion
Obviously an average annualised return of over 10% over the past decade
is very acceptable. It could have been much better this year had I locked in
returns from my green sector...investing is so much easier through the
rear view mirror! Of course, patience and the ability to stick with the plan are
key to successful investing and that has certainly been a lesson to be reminded
about this year. The clean energy and hydrogen sectors have had a bumpy 12
months but I am confident they will provide a good return over the coming years
as we transition the global economy away from fossil fuels to address the
climate crisis. Return on my investments have been positive in 8 of the past 10
years.
Obviously as a grandfather to five, I am concerned about the climate
situation and how badly it will impact the world over the coming years. The devastating
images we have seen these past couple of years - wildfires over huge areas of
the west coast states of the US and Siberia, devastating flooding and 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 after COP
26 and some real action to speed up the transition away from fossil fuels.
I am in no doubt that the risks to the global economy have increased
this past 12 months which is why I have
moved my portfolio to climate-friendly alternatives. However, if the climate
continues to get worse, the global markets may well become unstable and the
better green companies could be dragged down with the rest.
So, whilst I have been directing my resources towards those areas that
are trying to promote a sustainable planet and avoiding the fossil fuel
companies, I also trying to preserve capital in the event of a downturn.
How we tackle the climate crisis over the coming few years will be the
defining story of our generation. I hope the momentum of the past year can
build in 2022 and we can speed up the transition away from fossil fuels and 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 the past year...
all best wishes for 2022.
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.
