Sunday 25 June 2023

SIPP Drawdown - Yr 11 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 11th anniversary. Here’s a link to the previous update of June 2022.

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

In 2018 my state pension kicked in - currently £10,500 p.a. after a very nice 10.1% inflation uplift in April under the triple lock provisions - so I am no longer reliant on income from my SIPP.

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 been reducing exposure to equities and moving to a more defensive mix in recent years and in the past 12 months this has continued. So, a disposal of my two technology trusts, individual shares in Orsted and ITM Power, my clean hydrogen ETF and my iShares global equity ETF. The proceeds have been reinvested in additions to my renewable energy trusts plus ‘steady Eddie’ Personal Assets Trust which currently accounts for over 25% of the total portfolio. The emphasis now is mainly on capital preservation.


The conflict in Ukraine over the past year or so has triggered a global food crisis, rising energy costs and high inflation and this has resulted in a lot of uncertaintainty and instability - especially around security of energy.

This war and the weaponisation of oil and gas by Putin 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 10% in April - also the cost of living increases from the likes of transport, food and rising energy bills. Also our borrowing has risen sharply and net debt is currently over 100% of GDP...the highest for over 60 years.

The Bank of England last week increased interest rates to 5.0% - the highest level since early 2008. 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. One positive is that savers are getting much better returns after more than a decade of rock-bottom savings rates.

The situation in Ukraine combined with all the ongoing fallout has naturally dominated the news but the climate crisis continues to throw up more and more challenges every week - more flooding, more heatwaves and more intense wildfires. Will we see 40C+ again this year in the UK? 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 27 last year are soon forgotten.

I have had some excellent returns from some of my clean energy holdings in recent years. However in 2023 sentiment has turned negative for my renewable investment trusts and share prices have fallen back significantly as premiums have reversed and most now trade on big discounts to underlying NAVs. Consequently the SIPP portfolio has failed to make progress. My Gold ETF has held up well over the year but I was not prepared for the significant drop in my index-linked gilts ETF...down 40% following the Truss/Kwarteng fiasco last September but has since recovered a little. It really provides food for thought when government bonds start to behave like volatile small cap equities...the whole financial system appears to be more fragile than we are led to believe which has raised a red flag of warning for me going forward.

Overall, with the additional dividends from my renewable energy investments a small gain of just 1% 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 7,460 - a gain of 35.5%. If we add in average dividends of say 3.8% each year, this gives a rough total return of 77%

In June 2012, the Vanguard LS 60 (acc) price was £105 and today stands at £215 - up 3.9% over the past 12 months and 105% since June 2012 and CAGR annualised average of 6.8% p.a.

Taking account of the income withdrawn over the earlier years of £19,400, my self-managed SIPP total return including income is showing a gain of £103,400 which is very satisfactory and works out at an average annualised return of 9.2% 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 rewarding which is why my focus is on 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 5 years. As the SIPP is a flexi-drawdown arrangement, I can always dip in at any time for a lump sum withdrawal if required. However, I have not withdrawn any income from my SIPP over the past 5 years and it will therefore very likely remain invested. When I took a look at inheritance tax, 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 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.

Obviously I am really happy with the past 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.

The starting sum was £62,000 so the pot has more than doubled in value over the past 11 years but, as I said last year, I am not so confident that market conditions will be so favourable 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 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, feel free to share your experience in the comments below.

Tuesday 13 June 2023

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.

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 2023 (link via Investegate)

Over the past year, net assets have fallen by -0.9% (total return) compared to 6.0% for the FTSE All Share index. Over the past 5 years the returns were 32.4% and 24.2% respectively. The trust's share price is maintained close to NAV and the price has decreased by 22p (-3.0%) to 481p since last April.

Commenting on the results, investment manager Seb Lyon said:

"The past two years have seen us exit a hall of mirrors. We are now emerging from a prolonged period of distortion, born of zero (and even negative) interest rates, combined with quantitative easing. Economies and financial markets are slowly absorbing the effects of much tighter monetary conditions. While the dominos have been falling since early 2021, with the peaking-out of cryptocurrencies and retail investor speculation, the process of unwinding excess will take time and requires patience. The consequences are the unravelling of the 'Everything Bubble', which has inflated all assets and is likely to end with prices falling back down to earth. Despite the market declines in 2022 in equities and bonds, valuations remain high as investors are anchored on multiples of the last decade.

We are no longer in a buy-and-hold market, in which valuations expand as lower yields support higher prices. We expect that inflation has become embedded. This is the product of several factors, but of particular importance is the increased bargaining power of labour in the aftermath of the pandemic. Wage inflation is the most important component in driving higher prices on a more sustained basis. This is coinciding with slowing globalisation and increased intervention from governments, often in pursuit of more nationalist agendas. These factors are inflationary, and they come at a time when central banks have less room to manoeuvre. We expect that interest rates can only rise so far without severely injuring indebted economies. This unfamiliar backdrop has called time on a 40-year bull market in bonds, with all the implications that brings for investors".

He concluded...

"As it stands, index-linked bonds are pricing in a world where interest rates remain higher than they have been in over a decade, but where inflation returns to the Federal Reserve's 2% target. In such a world, real growth needs to be structurally stronger than it has been. For the reasons alluded to in this report, namely the continued indebtedness of Western economies and the recent rise in the cost of capital, we do not believe this to be consistent with the likely reality.

In light of all of this, investors are talking bearishly. But they are acting bullishly. It will take time for positioning to shift from the benign environment of the past decade. Investor focus seems to be on coincident indicators as opposed to looking forward to the effects of higher interest rates and tighter lending conditions. These are likely to lead to a recession. Bond markets, often a more reliable and rational indicator than more emotional and volatile stock markets, are indicating the most inverted yield curve since 1981. The lower yields in longer duration bonds are a clear warning of a hard landing. This is currently being ignored. Ayrton Senna said, "You cannot overtake 15 cars when it's sunny…but you can when it's raining". We know the companies we want to own should attractive valuation opportunities present themselves and we are ready to increase our equity exposure, from currently prudent levels, as conditions become more treacherous".

The trust has paid a small dividend of £5.60 p.a. (paid quarterly) for several years and will pay a special additional dividend of 2.1p this year to reflect the higher than usual income from US TIPS .

Ongoing charges are 0.65%.


At the end of the period, asset allocation remained defensive with liquidity at 76% (cash, gold and bonds etc.). Currently equities make up just 22% - down from 38% last year and the lowest allocation since 2008. Meanwhile the allocation to ‘liquidity’ comes from short-dated US and UK government bonds that are starting to deliver respectable nominal returns for the portfolio.

Top equity holdings include Unilever (3.7%), Nestle (3.0%), Visa (2.8%), Diageo (2.4%), Microsoft (1.8%) and Google (1.5%). US index linked bonds make up 35% with cash and UK treasuries a further 21%. Gold Bullion accounts for around 9.2% of the portfolio.

The shares were re-purchased for my portfolio at 432p (adjusted for 100:1 share split) and have advanced to currently 472p.

PNL 3 Yr share price/NAV

The decision by Putin to send troops into Ukraine in 2022 has created huge global uncertainties. With rising debt levels, global energy price increases, food and inflation on the rise, and also the significant 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 9% 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!