My newspaper reported that “the FTSE 100 suffered its worst 12 months since the financial crisis, despite a year-end rally fuelled by the start of Covid-19 vaccine rollouts.” This index of the largest UK listed companies incurred a loss for the year (-14.3%) that “was its biggest annual fall since 2008, when it plunged by almost a third.” They added that the FTSE 250, comprised of mid cap companies, fell by less (-6.4%) but still compared badly to international indices such as the US S&P 500 (up +16%) (The Times, 1 January 2021).
My preferred measure is the FTSE All Share Total Return index which covers capital and income returns from all UK listed shares and that recorded a loss of -9.82%. That was its worst result since 2008 but only marginally worse than the -9.47% fall in 2018.
My investment return for the 2020 year was a fall of -4.62%. My holdings are recording a share price movement ranging from a loss of -27.12% to a gain of 6.78% with an average result of a loss of -10.81%. Looking at unweighted averages my share prices fell by -0.85% (Asia Pacific), -11.03% (global), and -12.53% (UK). My high yield bond fund (-13.62%) and property REIT (-27.12%) were the worst performers with the latter also cutting its dividend. Overall, I calculate the capital return in total as being a loss of -9.84%, but this was mitigated by an income return of 5.22% from dividends received. These percentages are calculated on the opening capital for the year.
Capital
This capital graph shows the portfolio value at each month end since 31 December 2013. Starting at an index of 100.00 this has varied between a low of 87.43 at 31 March 2020 and a new high of 127.04 on 31 December 2020. Including mid-month dates the low was 71.46 on 19 March 2020. Funds inherited this year, and growth on them, contributed 17.48 towards the new high, so without that the value would be 109.56. There is thus an underlying capital gain of 9.56% over seven years.
At the year end the capital value of my investment portfolio is up by 3.55% for the year. Investment returns were a loss of -4.62%, draw down expenditure deducted 3.21%, but funds inherited in early April added 11.38%.
The timing of that has boosted capital returns by 2.87% and I calculate the underlying capital result as -12.71% and total return as -7.49%.
Income
I have tracked the annual level of my dividends received since January 2014 as shown in the income graph. This income graph shows the annual dividend income as a percentage of the opening portfolio value. My income has increased from 3.37% on 31 December 2013 to 6.47% on 31 December 2020, a 92.21% rise. My income measure peaked at 6.58% on 31 July before my property REIT cut its dividend. The 6.47% includes 0.69% from funds inherited this year, so without that it would be 5.78%. There is thus underlying income growth of 71.75% over seven years.
During the year portfolio income rose in every month except August and September. Portfolio income is now 1.73% below the peak in July. The dividend cut on my property REIT cut my portfolio income by -2.97%. Income elsewhere is rising now mainly because of the re-investment of dividend income in more shares rather than from dividend increases which have become scarce.
With dividends received for the whole 2020 year my portfolio income has grown by 19.17% compared to the previous year. 9.74% of that is from funds inherited during the year and 9.43% is from funds already held.
Portfolio and cash
| Yield % | Capital % | Income % | |
|---|---|---|---|
| UK | 4.51 | 39.93 | 35.39 |
| Asia Pacific | 4.99 | 24.42 | 23.95 |
| Global | 4.47 | 19.10 | 16.75 |
| Bonds | 8.58 | 7.75 | 13.06 |
| Property | 7.76 | 7.07 | 10.77 |
| Cash | 0.24 | 1.73 | 0.08 |
| 5.09 | 100.00 | 100.00 |
This table shows the composition of my portfolio at the end of the month.
My annual draw down spending is around 3.32% of my portfolio value, based on the last two years spending and the opening and closing values for last year. My cash holdings are sufficient to cover about six months of spending. In addition to this, dividends being paid out each year are sufficient to cover about four months of spending. My other dividends received are being immediately re-invested in more shares in order to grow my income. This cash position means I will need to sell some investments in the next six to nine months in order to cover spending. I only made one sale to raise cash in 2020 but will probably sell something in the next three months before the end of the tax year. I aim to stay fully invested so as to maximise portfolio income, but as I am 98.27% invested at present, I recognise that I will need to raise more cash soon.
Expenditure
Draw down expenditure for the last twelve months was 62.54% of 2020 portfolio income receipts, compared to 79.63% for the previous year. This spending was 6.40% down on the previous year, whilst income was up by 19.20%.
Conclusion
This was an eventful year for my portfolio of investments during which I remained very inactive. I watched markets fall but did not sell out so I did not have to judge when to buy back in. Nor did I switch my portfolio in the hope of getting better returns. With hindsight one could have profitably sold during February and bought back in late March, and one could have profitably switched into the winning technology funds in March. I did none of this. In being inactive I missed out on some opportunities but I avoided making any major mistakes. Being confident in my portfolio positioning, being focussed on income rather than capital, not needing to make big gains, and not wanting to risk bigger losses, all helped me to stay inactive.
I watched my portfolio fall 41.75% up to 19 March and then, partly boosted by inherited funds, rise by 77.78%. The year-end capital position is 3.55% higher than a year ago. I have prioritised income growth and it is good to see portfolio income 16.38% higher than a year ago. I need to ideally sustain current income levels whilst seeking out more capital growth in the year ahead.