Sunday, 2 January 2022

Portfolio Review - End 2021

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.

6 comments:

  1. Thanks for posting.
    You do a good job of focusing on what you care about and putting your money where your mouth it.
    It's funny to see that you made a negative return this year, most or all of the year end portfolio blog reviews that I've read show decent positive returns (then again who advertises their losses?)
    The green energy market took a bit of a battering in the early part of this year due to the big bubble in 2020 - which you've pointed out.
    My own investments in green / renewable energy have returned decently in 2021 but I'm less exposed to the tech / growth areas and more in boring old renewable energy (essentially a utility) which have been helped by the rise in energy costs (weighed down by future corp. Tax and dividend taxes).

    Good luck for 2022!

    ReplyDelete
    Replies
    1. Thanks GFF...good to hear from you and all best wishes to you and family for the new year.

      Yes, having had such a good year with clean energy in 2020, it was probably asking too much for the run to continue and I guess many would be taking profits and rotating into underperforming sectors. So yes a negative return this past year but a decent average over the three years I have been with my green portfolio...fingers crossed for a better return in '22!

      I expect the rising wholesale energy prices will benefit the renewable energy infrastructure ITs this coming year and I have modestly increased my weighting with the likes of more TRIG, UKW and Gore St in recent weeks.

      Delete
  2. Happy new year, DIY - great update and shame the green investments dragged you into negative territory after a stupendous performance in 2020. I got cold feet with some of my green investments and offloaded some of them at a slight loss. Still got investments in the likes of TRIG and Blue Solar so not totally lost hope there.
    All the best for 2022!

    ReplyDelete
    Replies
    1. Thanks weenie and likewise, Happy New Year. I hope your new home works out as hoped and also that you can make some progress on the cladding issues with that BTL.

      Good luck with your investing and future fund this year.

      Delete
  3. Hi John

    Happy New Year and well done on making it to your 9th year! Keep up the good work as your blog is an interesting window into the world of green investing.

    John

    ReplyDelete
    Replies
    1. Great to hear from you John and Happy New Year to you.

      Yes, how the time flies...next Feb will mark 10 years! It's interesting to look back and see the changes in thinking and how underlying values and life experiences influence my investing process. It will be interesting to see how the fossil-free strategy works out over the longer term.

      Delete