Tuesday, 21 June 2022

SIPP Drawdown - Yr 10 Update

It's June, another 12 months have rolled by so it must be time to review my SIPP drawdown portfolio at the end of its 10th anniversary. Here’s a link to the previous update of June 2021.

The original plan when I started drawdown in 2012 was to generate a rising natural income from which I would withdraw 4% income. This would bridge the 10 year gap between early retirement at age 55 yrs and state pension.

In 2018 my state pension kicked in - currently £9,500 p.a. after a 3.1% uplift in April - so I am no longer so reliant on income from my SIPP which means I have more flexibility on investment choices. I am wondering if this government will honour their pledge to raise state pensions in line with inflation this year!

Portfolio Changes

My efforts to move towards a more climate-friendly portfolio are well documented and this includes my SIPP drawdown portfolio so there have been a quite few changes over the decade.

I have tried not to make too many changes this year - I have held TRIG and Bluefield Solar and added Greencoat UK Wind. I have my global clean energy ETF and my two technology trusts.

However, my main focus over the past 12 months has been to pull back a little on individual equity holdings, increase defensives and top up collectives - and therefore the sale of the likes of Vestas Wind, Plug Power, Enphase, Sunrun and Invinity... a reduction of individual holdings in ITM Power and Orsted, a reintroduction of the ‘steady Eddie’ Personal Assets Trust, the addition of iShares Gold and a top up of the iShares fossil-free global index ETF and also the index-linked gilts ETF.

(click to enlarge)

My portfolio currently consists of a mix of green investments, technology, gold and government bonds.


The big story over the past year has obviously been the invasion of Ukraine. It has been an inspiration to witness the strength and unity of the Ukrainian people to stand up to the huge Russian war machine against all the odds. Unfortunately this conflict has triggered a global food crisis, rising energy costs and of course inflation is rising and this has resulted in a lot of uncertaintainty and instability - especially around security of energy.

The conflict should speed up the efforts to transition to clean renewable energy and the EU have announced their plans to end its reliance on Russia’s oil and gas and speed up its roll out of alternatives. However in the short term we have sharply rising inflation - CPI hit a 40 year high of 9% in May - also the cost of living increases from the likes of transport, food and rising energy bills. Last week the Bank of England increased interest rates to 1.25% - the highest level since early 2009 and more hikes to come later this year. The cost of borrowing is rising sharply so inevitably people will be prioritising essentials and cutting back on the goods and services they consider they can manage without. This will impact the wider economy and many sectors of the market have seen quite a pull-back these past few months.

Interest Rate Rising Quickly

The oil and gas sector has benefited with huge profits declared from the likes of Shell and BP. In contrast the tech stocks are down 25% YTD, the popular Scottish Mortgage Trust is down 45% but also the traditional safe-haven of government index-linked gilts have also fallen back over 20% which is a bit baffling given the steep rise in inflation. I have a feeling we are now in bear territory which may play out for some time and I hope the larger allocation to defensive positions such as gold, government bonds and Personal Assets can help to preserve some of the gains made over previous years.

The situation in Ukraine combined with the global consequences is naturally dominating the news but the climate crisis continues to throw up more and more challenges every week - more flooding, more heatwaves and more wildfires. Unfortunately our political leaders and policy makers show little signs of acknowledging this crisis and acting decisively to address the issues. The momentum and promises made at COP 26 last year are soon forgotten. The UN Secretary-General says we are on the fast-track to climate disaster and an unlivable world. (link to video)

But getting back to the portfolio...I have had some excellent returns from some of my clean energy holdings. For the year to December 2020 my green portfolio returned over 50% but the green sector and techs have struggled this past year and the SIPP portfolio has failed to make progress. It’s been very mixed...Gresham House Energy Storage is up 30% and my iShares Gold ETF has gained 20%. I took some profits on ITM last year but the share price is currently down by 40% and my L&G Hydrogen holding is down 25%. Overall, with a small loss of just 6% since last June - in the current climate, not bad all things considered.

Here is the current portfolio

(click to enlarge)


In June 2012 when I started this series on my drawdown journey, the FTSE 100 was 5,500 and has risen to 7,120 - a gain of just 29.5%. If we add in average dividends of say 3.8% each year, this gives a rough total return of 68%

In June 2012, the Vanguard LS 60 (acc) price was £105 and today stands at £205.90 - down 7.9% over the past 12 months but a gain of 96% over the decade and CAGR annualised average of 7.2% p.a.

Taking account of the income withdrawn over the earlier years of £19,400, my self-managed SIPP total return including income is 160% which is very satisfactory and works out at an average annualised return of 10.2% p.a.

The past decade has been a relatively favourable one for investors and I am sure many will have generated some good returns...I’m not so confident the coming decade will be so kind so I need to give a little more thought to capital preservation rather than going for more growth. Obviously it helps that I no longer require income from my SIPP.

State Pension

I relied upon income from my SIPP to supplement my ISA income and bridge the 10 year gap between early retirement at age 55 yrs and state pension. This part of the journey became 'mission accomplished' in 2018.

My state pension has now been in payment for just over four years which is long enough for me to know that I do not need to continue with drawdown of income. As it is a flexi-drawdown arrangement, I can always dip in at any time for a lump sum withdrawal if required. I will therefore be less reliant on the income from my SIPP and it will very likely remain invested. When I took a look at inheritance tax last year, I realised it would be more tax efficient to take money from my ISA in future as the SIPP value does not currently count towards the £325,000 tax-free allowance for IHT.

Also, unlike an annuity which, once purchased means the capital lump sum is lost forever, any residue in my SIPP will pass on to my children and grandkids...tax free if I go before the age of 75 yrs and thereafter possibly 20% or tax free depending on circumstances. For those interested here's a link on the AJ Bell site.

Summer Solstice

Obviously I am really happy with a decade of self-managing a flexi-drawdown sipp portfolio. For the first few years, the dividend income predictably rolled in much as planned. During the next few years I withdrew significant lump sums tax free and placed the excess which I did not require for income in my ISA.

Since 2018 I have taken no income from my SIPP. The starting sum was £62,000 so the pot has more than doubled in value over the past 10 years but, as I say, I am not so confident that will be repeated over the coming decade. Maybe a little more growth but I think my main focus will be trying to maintain value in real terms after taking account of rising inflation. Hopefully the pot can be inherited by children and grandchildren possibly tax-free at some point in the future if not needed for care home fees!

For me, the big advantage of the SIPP is the flexibility it offers. I started off with a portfolio of income-generating investment trusts. I then introduced the multi-asset, globally diverse index funds such as Vanguard Lifestrategy and now I can focus on more climate-friendly options and do my bit for the planet. It certainly feels much better to have aligned my investments with my values and lifestyle and know I am no longer investing in fossil fuels which are continuing to add to global warming and undermine efforts to tackle the climate crisis.

If you are managing your SIPP (accumulation or drawdown) or you are planning to do this, or just want to comment generally - feel free to share your thoughts in the comments below.

Thursday, 9 June 2022

Personal Assets Trust - Full Year Results

This 'Steady Eddie' capital preservation investment trust was added to my portfolio back in 2013...sold a couple of years later but then re-purchased in 2020 as I was re-evaluating asset allocation following the Covid-19 shock to global markets. Given the unfolding situation in Ukraine this year, it’s looking like one of my better investment decisions.

It’s policy is to protect and increase the value of shareholders funds over the long term and the manager Seb Troy and his team aim to achieve this with a mix of diverse assets including global equities, government bonds, gold and cash.

Troy are committed to maintaining high standards of responsible investment and since 2019 have been members of several climate change associations including The Institutional Investor Group on Climate and Climate Action 100+.

In the past, I have also held Capital Gearing Trust but as it has a significant holding in fossil fuels, it is currently excluded from consideration.


The trust has this week published results for the full year to end April 2022 (link via Investegate)

Over the past year, net assets have increased by 7.1% (total return) compared to 8.7% for the FTSE All Share index. Over the past 3 years the returns were 26.3% and 14.1% respectively. The trust's share price is maintained close to NAV and the price has increased by £20.00 to £491 since April 2021.

Commenting on the results, investment manager Seb Lyon said:

“How do we invest amid these febrile conditions? We have been warning for some time that the barbell 'balanced' portfolio strategy of putting nominal bonds alongside equities is long past its sell-by-date. The short-term negative correlation between the two asset classes has been of great value to asset allocators in diversifying portfolios and producing consistent returns. Bonds have thrived on the back of low inflation and low growth, whilst equities performed during periods of improved economic activity. Over the course of decades however, falling interest rates supported ever-higher valuations for equities and bonds alike.

Today, the short-term negative correlation between the two asset classes seems to have broken down. In a new regime of higher inflation, the risk is that bonds and equities fall together. For this reason we have long preferred index-linked bonds and gold bullion, over conventional bonds, and they have held up relatively well in the recent bond market sell off and should thrive in a negative real interest rate environment, also known as 'financial repression'.

Investors are warned that 'past performance is no guide to the future'. The biggest mistake investors can make is to extrapolate historic earnings, share prices, or valuations. Money illusion, the tendency for people to view their wealth and income in nominal terms rather than recognise the real value adjusted for inflation, is hard to resist. This is the mirage between the nominal and the real and will be the enemy of investors seeking returns ahead of inflation. We will endeavour to continue to preserve and grow shareholders' funds in real terms, but we are under no illusion as to the scale of the challenge ahead”.

The trust has paid a small dividend of £5.60 p.a. (paid quarterly) for several years and this year will pay out an additional £1.40 as a result of the higher than expected income from US inflation bonds. The forward yield is 1.1%.

Ongoing charges are 0.67%.


 At the end of the period, asset allocation remained defensive with liquidity at 62% (cash, gold and bonds etc.). Currently equities make up 38% - down from 46% last year - and top portfolio holdings include Microsoft (5.0%), Google (4.7%), Unilever (3.2%), Nestle (3.1%), Visa (4.1%) and Diageo (2.8%). US index linked bonds make up 36% with cash and UK treasuries a further 17%. Gold Bullion accounts for around 9.5% of the portfolio.

The trust will make it much easier for investors to acquire shares via a 100:1 share split after which the purchase price will be nearer to £5.00 per share rather than £500!

The shares were re-purchased for my portfolio at £432 and have advanced to currently £491.

PNL v FTSE AS Index past 3 yrs

The decision by Putin to send troops into Ukraine in February has created huge global uncertainties. With rising debt levels resulting from Covid, global energy price increases, food and inflation on the rise, the invasion of Ukraine and the threats posed by climate change, I think in these uncertain times it's probably a sensible idea to think about the potential downside of the markets and with an eye on capital preservation. 

The shares are held in both my SIPP and ISA and make up around 12% of my portfolio.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation - always DYOR!