Reducing my home bias, October 2022

Source: Pixabay

October saw the implosion of the Truss-Kwarteng economic policy in the UK. Markets continued to drift mostly downwards in the first half of the month. I was, however, inspired to make some portfolio changes that further reduced my holdings in UK equities.

October

The FTSE All Share Total Return index, my chosen benchmark, rose by +3.11% in the month, but has now fallen by -5.00% for the ten months of the year to date. My investment return for the month was a loss of -0.13%. Cumulatively I have a loss of -8.77% for the year so far.

My individual holdings recorded an unweighted average share price movement of a loss of -15.15% for the year so far. My worst two performers continue to be a UK small company investment trust (-45.15%), and a commercial property REIT ( -28.86%). My best performer continues to be a global equity income trust that is up by +5.54%. That is my only holding where the share price has risen in the year to date.

Capital

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Starting from an index value of 100.00 on 31 December 2013, my capital is now 124.52, as shown in the graph above. This is a return to where I was in January 2021. It is -11.18% down in the year to date. Investment return of a capital loss of -12.56% and dividend income of +3.90%, results in a loss of -8.66%. Draw down expenditure deducted a further -2.52% during the year so far.

Income

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Annual dividend income as a percentage of the opening portfolio value on 31 December 2013 has increased from 3.37% to reach 6.91% at this month end, as shown in the graph above. This is a small rise to a new peak. My current portfolio dividend income yield is 5.55%, i.e., 6.91 divided by 124.52.

Investment changes

When you have no control or influence over political and economic events you can at least choose your own response to them. In the time between the Chancellor’s sacking and the Prime Minister’s resignation my response to the events then unfolding was to reduce my home bias. The UK stock market represents about 4% of the world stock market so if you live in the UK and hold more than that in your portfolio then you are said to have a home country bias. I used to hold over 80% of my portfolio in the UK stock market but have reduced that over the past eight years such that it was about 38% in September. One of my UK equity income investment trust holdings has continued to disappoint. It’s share price was -21.43% down in the nine months to the end of September. I sold a position in it in a tax-sheltered account that represented about 4.5% of my portfolio. I used that partly to top up a commercial property holding but mostly to add a new property holding that has investments in the UK and in Europe. This could be risky with interest rates rising. These property holdings are out of favour now, but I am hopeful for their prospects. In the meantime, I am collecting nearly an 8% dividend yield on my property holdings. I still have a position of nearly 4% in that same UK equity income investment trust in my trading account. I will sell that over the next few months to build up my cash position and maybe to fund next year’s ISA. I won’t incur any Capital Gains Tax on disposing of it given its recent performance. The losses will help reduce any Capital Gains Tax liabilities on any other trading account disposals I do. My UK equity position is now down to 34% and could soon fall to 30%.

Also, during the month dividends received in my tax-sheltered accounts were re-invested and dividends received in my trading account were paid out.

Portfolio

The table below shows the composition of my portfolio at the end of the month. I now have more exposure to property and less exposure to UK equities.

 Yield %Capital %Income %
UK4.2334.3926.21
Asia Pacific6.0824.0426.32
Global4.4719.1715.45
Property7.8912.8818.31
Bonds8.758.5813.52
Cash1.080.940.18
5.55100.00100.00

I also analyse the portfolio by the income or growth category of each holding.

 Yield %Sectors
High Incomeabove 6%Property, Bonds, Asia Pacific
Income4.5% to 6%UK, Asia Pacific, Global, Property
Income & Growth3% to 4.5%Global, Asia Pacific
Growthbelow 3%UK

Nearly 84% of my capital is now yielding 4.4% or higher and that gives me over 93% of my portfolio income.

 Yield %Capital %Income %
High Income9.3124.1940.58
Income4.9352.9146.96
Income & Growth4.1110.757.95
Growth2.1411.214.33
Cash1.080.940.18
5.55100.00100.00

Cash

My annual drawdown spending is now around 3.87% of my portfolio value, based on the last two years spending and the opening and closing values for that period. My cash holdings are now sufficient to cover only about three months of spending. In addition, dividends being paid out in cash each year from my dealing account are sufficient to cover only about three months of spending each year. I will soon need to sell some shares to raise cash again.

Expenditure

Draw down spending was 62.34% of my portfolio income in the last twelve months which is less than the figure of 67.73% for the previous twelve months. Portfolio income rose by 2.95% as more dividend income was received. Expenditure fell by -5.24% mainly because discretionary spending this year was less than last year. Luxury and discretionary spending are about 60% of our spending so the choices we make on this are the dominant factor in determining our total expenditure.

Essential spending was also lower because car service costs and income taxes were lower this year. Groceries are our biggest item but were only up 3% year to year. Energy costs were lower because we were overcharged by the energy suppliers last year as they went bust. Insurance costs were reduced by 27% as we changed insurers, but petrol costs rose by 119%. Neither of these two are a big part of our spending.

RPI and CPI inflation reached annual rates of 12.64% and 10.14% at the end of September. This is now having an impact on our weekly grocery bills which are up by more than 10% compared to one year ago. We are paying for energy on a month-by-month based on our actual meter readings. The heating is on but is set at 18 degrees Celsius. We are still waiting for the first big bill to arrive. The cost of living is certainly no crisis for us at the moment.

Conclusion

I think the events of last month were a useful prompt for me to reduce my bias to the UK and to drop an investment that had disappointed. Rather than increase my international holdings I have chosen to increase my position in property because that seemed to offer better value and perhaps a timely opportunity. I still retain enough exposure to the UK to benefit from any recovery in the UK stock market.

An end and a beginning, September 2022

Source: Pixabay

September saw the end of the Queen’s reign and the beginning of the new King’s reign. Alongside that we saw the end of one Prime Minister’s time in office and the beginning of the new Prime Minister’s government. The combination of a new fiscal budget, monetary policy changes (quantitative easing), interest rate rises, and changing perceptions in financial institutions has led to much turbulence in the financial markets, especially for UK government bonds. Is this the final ending of the post lockdown bull market in the UK and the beginning of a new bear market?

I know that the world stock market, and especially the United States stock market, and the price of growth shares has suffered steep declines in recent months, but in 2022 the UK stock market and my portfolio had suffered much less. The FTSE All Share total return was only down -2.11% and my portfolio total return was a loss of only -1.62% for the eight months to the end of August. Including drawdown spending my portfolio capital was only down -4.02% from its peak in March. That changed in September.

September

The FTSE All Share Total Return index, my chosen benchmark, fell by -5.88% in the month, and has now fallen by -7.87% for the nine months of the year to date. My investment return for the month was a loss -7.20%. Cumulatively I have a loss of -8.64% for the year so far.

My individual holdings recorded an unweighted average share price movement of a loss of -14.79% for the year so far. My worst performers are a UK small company investment trust (-46.79%), a commercial property REIT ( -31.95%), and a UK equity income trust (-21.43%). My best performer is a global equity income trust that is up by +1.21%. The share prices of my other holdings have all fallen.

Capital

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Starting from an index value of 100.00 at 31 December 2013, my capital is now 125.06, as shown in the graph above. This is a return to where I was in February 2021. It is -11.31% down from March’s peak, the high-water point for my portfolio. My capital value is now -8.50% below its ten-month average. There has been a decrease of -10.79% in the year to date. This is comprised of the following elements. Investment return of a capital loss of -12.21% and dividend income of +3.67%, totalled an investment return of a loss of -8.54%. Draw down expenditure deducted -2.25% during the year so far.

Income

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Annual dividend income as a percentage of the opening portfolio value on 31 December 2013 has increased from 3.37% to reach 6.88% at this month end, as shown in the graph above. This is a small dip from last month’s peak. My current portfolio dividend income yield is 5.50%, i.e., 6.88 divided by 125.06.

Investment changes

Unfortunately, one trading day after that budget and at a time of falling prices I had to sell some shares to fund my drawdown spending. The sale amounts to about three months spending and is about 0.8% of my portfolio. When sold the share price was down about 17% since the start of the year, so my realised loss amounts to only about 0.16% of my portfolio. Unrealised losses at present are much higher! This was my first sale to raise cash since April and could not be postponed for much longer. As it was those shares fell a further 4% before the month end, and a further 3% since then, at the time of writing.

Also, during the month dividends received in my tax-sheltered accounts were re-invested.

Portfolio

The table below shows the composition of my portfolio at the end of the month. Income yields on my property holdings are especially high, but I’m not sure that I want more exposure even at current low prices.

 Yield %Capital %Income %
UK4.5537.7231.17
Asia Pacific5.4825.9725.89
Global4.6218.4615.48
Property9.358.0813.73
Bonds8.628.6713.58
Cash0.731.090.14
5.50100.00100.00

I also analyse the portfolio by the income or growth category of each holding.

 Yield %Sectors
High Incomeabove 6%Property, Bonds, Asia Pacific
Income4.5% to 6%UK, Global, Asia Pacific
Income & Growth3% to 4.5%Global, Asia Pacific
Growthbelow 3%UK, Asia Pacific

Dividend income yields have increased such that more holdings are in the 4.5% to 6% income category at this month end. In fact, 83.86% of my portfolio is now yielding 4.4% or higher. They give me 93.66% of my portfolio income.

 Yield %Capital %Income %
High Income8.9724.2639.55
Income5.1645.8343.01
Income & Growth4.4413.7711.10
Growth2.2715.056.19
Cash0.731.090.14
5.50100.00100.00

Cash

My annual drawdown spending is now around 3.76% of my portfolio value, based on the last two years spending and the opening and closing values for that period. My cash holdings are now sufficient to cover about four months of spending. In addition, dividends being paid out in cash each year from my dealing account are sufficient to cover about three months of spending. Not having much of a cash position means that I will need to sell some shares to raise cash again in the next few months.

Expenditure

Draw down spending was 63.12% of my portfolio income in the last twelve months which is consistent with the figure of 64.90% for the previous twelve months. Portfolio income rose by 1.57%. Expenditure fell by -1.22%, so was not much changed. Grocery costs were up only 2% up. Electricity and gas costs were lower because of overestimated bills in the previous year. Discretionary choices remain the dominant factor in our spending at present.

RPI and CPI inflation reached annual rates of 12.30% and 9.81% at the end of August. This is beginning to impact on our grocery bills. This September was 11.46% higher than last September. Energy bills are rising but the main impact on us will begin with the November bill for October charges after the increase in the price cap. We have put on the heating but are aiming to keep the temperature at 18 degrees Celsius. Currently we are paying for energy on a month-by-month basis according to our actual meter readings. We expect annual costs in the year from 1 October 2022 to be more than double our costs for the 2019. This includes the impact of government capping prices and providing £400 of support. Without that it would have been at least treble our 2019 costs.

Conclusion

It was disappointing to have to realise a loss on selling shares to cover our drawdown spending. That is the price of staying fully invested with only a minimal cash holding. After a difficult month my portfolio capital value is at a twenty-month low with probably more difficulties ahead. I am hopeful that my portfolio dividend income will continue to be sustained but I will need to be ready to respond if any of my dividends are cut. We spend less than the current portfolio income and we can spend a bit less if we choose to. Given all that I am not overly concerned about a hopefully temporary fall in share prices. I have seen that happen before on many occasions.

On holiday, August 2022

Source: Pixabay

In August I enjoyed a couple of weeks away from home with my family and paid little or no attention to the markets during that time. I certainly wasn’t looking to buy or sell. Despite the cost-of-living crisis and a significant rise in energy bills, markets have been reasonably stable. I’m also fairly comfortable with the make-up of my portfolio. My portfolio total return was a loss of -1.62% for the eight months to date. That’s just one or two down days in the markets that could be recovered by one or two up days.

August

The FTSE All Share Total Return index, my chosen benchmark, fell by -1.70% in the month, and has now fallen by -2.11% for the eight months of the year to date. My investment return for the month was a gain of +0.77% buoyed by it being a high dividend month. Dividends received fall unevenly across the year. Cumulatively I have a loss of -1.62% for the year so far. I am slightly ahead of my benchmark, probably helped by my overseas holdings gaining from a fall in the value of sterling.

My individual holdings recorded an unweighted average share price movement of a loss of -7.78% for the year so far. My worst performers continue to be in a UK small company investment trust that is down by -36.83%, and in a commercial property REIT that is down by -26.30%. My best performers are a global equity income trust that is up by +8.48%, and a UK equity income trust that is up by +1.27%. The share prices of my other holdings have all fallen, and by up to -10.70%.

Capital

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Starting from an index value of 100.00 at 31 December 2013, my capital is now 135.35, as shown in the graph above. This is -4.02% down from March’s peak, the high-water point for my portfolio. My capital value remains below its ten-month average. There has been a decrease of -3.46% in the year to date. This is comprised of the following elements. Investment return of a capital loss of -5.24% and dividend income of +3.64%, totalled an investment return of a loss of -1.60%. Draw down expenditure deducted -1.86% during the year so far.

Income

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Annual dividend income as a percentage of the opening portfolio value on 31 December 2013 has increased from 3.37% to reach 6.90% at this month end, as shown in the graph above. This is yet another new peak. My current portfolio dividend income yield is 5.10%, i.e., 6.90 divided by 135.35.

Investment changes

During the month dividends received in my tax-sheltered accounts were re-invested. Dividends received in my dealing accounts were paid out to my bank. Otherwise I took a holiday from any trading activity.

Portfolio

The table below shows the composition of my portfolio at the end of the month.

 Yield %Capital %Income %
UK4.1438.7531.49
Asia Pacific5.1425.5725.82
Global4.3118.2515.45
Property8.198.4513.58
Bonds8.528.1113.55
Cash0.660.870.11
5.10100.00100.00

I also analyse the portfolio by the income or growth category of each holding.

 Yield %Sectors
High Incomeabove 6%Property, Bonds, Asia Pacific
Income4.5% to 6%UK
Income & Growth3% to 4.5%Global, Asia Pacific
Growthbelow 3%UK, Asia Pacific

 Yield %Capital %Income %
High Income8.3823.9339.34
Income5.0327.7327.35
Income & Growth4.2632.5227.21
Growth2.0414.955.99
Cash0.660.870.11
5.10100.00100.00

Cash

My annual drawdown spending is now around 3.47% of my portfolio value, based on the last two years spending and the opening and closing values for that period. My cash holdings are now sufficient to cover about three months of spending. In addition, dividends being paid out in cash each year from my dealing account are sufficient to cover about four months of spending. I will need to sell some shares to raise cash again in the next few months.

Expenditure

Draw down spending was 61.82% of my portfolio income in the last twelve months which is a small reduction from with the figure of 62.40% for the previous twelve months. Portfolio income rose by 0.93%. Expenditure fell by -0.01%, so was essentially unchanged.

RPI and CPI inflation reached annual rates of 12.34% and 10.06% at the end of July. This is beginning to impact on our grocery bills. Energy bills are higher than they were but the main impact on us will be after 1 October when the price cap rises and when we put on the heating. Currently we are paying for energy on a month-by-month basis according to our actual meter readings. We will pay a low amount in September based on our August meter reading so are benefiting from being on holiday for two weeks. This will change for the worse, although government support will provide some mitigation.

Conclusion

It is good to feel able to ignore the markets when you’re on holiday and it is of comfort that markets, as they affect us, appear to be relatively stable. It would be good to see share prices rise as I will need to sell some shares to support our drawdown spending soon.

On the rebound, July – August 2022

Source: Pixabay

Markets and my holdings have rebounded in July and in August so far. That is despite increasing inflation, predictions of a prolonged recession, a cost-of-living crisis, and a war in Europe.

My portfolio total return was a loss of -4.99% for the six months to June, but as I write, in mid-August, my total return is a loss of only -0.93% for the year to date. That’s just one down day in the markets.

July

The FTSE All Share Total Return index, my chosen benchmark, was up by +4.36% in the month, and down by only -0.41% for the year so far. My investment return for the month was a gain of +2.79%, and a loss of -2.36% for the year so far. That’s some underperformance against my benchmark.

My individual holdings recorded an unweighted average share price movement of a loss of -7.39% for the year so far. My worst performer continues to be a UK small company investment trust that is now showing a loss of -35.32%. My second worst performer is a commercial property REIT that is down -21.94%. My third worst performer is an Asia Pacific small company investment trust that is down by -14.55%. These are all positions that I have added to in recent months, so I’m hoping for better times ahead. The best performer continues to be a global equity income trust that is up by +7.27%.

Capital

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Starting from an index value of 100.00 at 31 December 2013, my capital is now 134.67, as shown in the graph above. This is -4.50% down from March’s peak, the high-water point for my portfolio. My capital value remains below its ten-month average. There has been a decrease of -3.94% in the year to date. Investment return of a capital loss of -4.90% and dividend income of +2.56%, totalled an investment return of a loss of -2.34%. Draw down expenditure deducted -1.60% during the year so far.

Income

Chart by Visualizer

Annual dividend income as a percentage of the opening portfolio value on 31 December 2013 has increased from 3.37% to reach 6.83% at this month end, as shown in the graph above. This is another new peak. My current portfolio dividend income yield is 5.07%, i.e., 6.83 divided by 134.67.

Investment changes

In July I made a small switch from my best performing global equity income trust to my worst performing UK smaller companies trust. This was only about 0.6% of my portfolio and only slightly shifts their weightings in my portfolio. This is part of my ongoing but slow-moving shift towards more growth holdings and less income holdings in the portfolio. There were also some dividends re-invested in my tax-sheltered accounts during the month.

Portfolio

The table below shows the composition of my portfolio at the end of the month.

 Yield %Capital %Income %
UK4.0639.4631.61
Asia Pacific5.2624.8025.75
Global4.3418.1315.50
Property7.708.9913.66
Bonds8.627.8413.32
Cash1.050.770.16
5.07100.00100.00

I also analyse the portfolio by the income or growth category of each holding.

 Yield %Sectors
High Incomeabove 6%Property, Bonds, Asia Pacific
Income4.5% to 6%UK
Income & Growth3% to 4.5%Global, Asia Pacific
Growthbelow 3%UK, Asia Pacific

My growth holdings are now 14.95% of the portfolio compared to 7.81% in February 2021 just before I began my shift to growth. This is intended to improve the long term growth returns of the portfolio by including more growth oriented holdings including smaller companies.

 Yield %Capital %Income %
High Income8.2823.9139.05
Income4.9228.2927.43
Income & Growth4.3232.0827.31
Growth2.0514.956.05
Cash1.050.770.16
5.07100.00100.00

Cash

My annual drawdown spending is now around 3.51% of my portfolio value, based on the last two years spending and the opening and closing values for that period. My cash holdings are now sufficient to cover about three months of spending. In addition, dividends being paid out in cash each year from my dealing account are sufficient to cover about three months of spending. I will need to sell some shares to raise cash again in the next few months.

Expenditure

Draw down spending was 63.49% of my portfolio income in the last twelve months which is almost identical with the figure of 63.55% for the previous twelve months. Portfolio income (+0.02%) and expenditure (-0.08%) was essentially unchanged.

RPI and CPI inflation reached annual rates of 11.84% and 9.43% at the end of June. This impacts us in higher energy bills and grocery bills that are beginning to rise.

Conclusion

I am pleased to see capital values rising again. That is helpful in that I will need to raise cash to spend by selling some shares soon. My portfolio income continues to rise, albeit slowly, and my shift towards growth is progressing, also slowly.