The Telegraph reported that “the global market rout has wiped $13 trillion off world stocks in the worst start to any year on record as business and consumer confidence collapses amid surging inflation. The MSCI World Equity Index has shed more than 20pc so far this year in the steepest first-half decline since its creation, led by a plunge in loss-making tech companies as investors panic over the end of ultra-low interest rates. In the UK, the FTSE 100 fell 1.96pc on Thursday to close out its worst month since the early days of the Covid pandemic.”
The Spectator World, which usually concentrates on US political news, reported that “this is the worst first six months for the S&P 500 in fifty years. The index is down 20.6 percent since January 1. The only first-six-months that were worse for [US] investors: 1970, 1962 and 1932.”
I can report that my portfolio total return is a loss of -4.99% for the last six months. As at the end of May my portfolio was showing a positive investment return of +1.43% for the year to date, but June was my third worst month of the past eight and a half years of drawdown. The worst two months were February and March 2020 at the onset of the pandemic.
June
The FTSE All Share Total Return index, my chosen benchmark, was down by -5.98% in the month, and down by -4.57% for the year so far. My investment return for the month was a loss of -6.37%, and a loss of -4.99% for the year so far. My individual holdings recorded widely different share price movements for the year so far. My worst performer is a UK small company investment trust that is showing a loss of -40.63%. My second worst performer is a commercial property REIT that is down -23.00%. I added to my position in that one during the month. Only three holdings are in positive territory. The best performer is up by +6.75% and is invested in global equity income. My other commercial property REIT is up by +1.60%. My best performing UK equity income holding is up by +1.65%. The unweighted average result of all of my holdings is a share price loss of -10.33%.
Capital
Starting from an index value of 100.00 at 31 December 2013, my capital is now 131.31, as shown in the graph above. This is 6.88% down from March’s peak, the high-water point for my portfolio. My capital value has fallen below its ten-month average for the first time since 2020. This is a worrying trend if it continues. There has been a decrease of -6.33% in the year to date. Investment return of a capital loss of -7.44% and dividend income of +2.48%, totalled an investment return of a loss of -4.95%. Draw down expenditure deducted -1.38% during the year so far.
Income
Annual dividend income as a percentage of the opening portfolio value on 31 December 2013 has increased from 3.37% to reach 6.81% at this month end, as shown in the graph above. This is another new peak. My current portfolio dividend income yield is 5.19%, i.e., 6.81 divided by 131.31.
Investment changes
I took advantage of changes in the relative pricing of my holdings in a bond trust and a commercial property REIT to make a small switch from the former to the latter. Both are now yielding close to 9%, whereas the property REIT used to yield about 1% less than the bond trust. The effect of this is to reduce my exposure to a high yielding (“junk”) bond trust and increase my exposure to a property REIT that is out of favour, whilst maintaining my income yield. I’m reluctant to add to my high-income holdings but I will switch between them to try and get a better return or to try and reduce the risks to 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 % | |
|---|---|---|---|
| UK | 4.29 | 37.97 | 31.41 |
| Asia Pacific | 5.28 | 25.29 | 25.72 |
| Global | 4.35 | 18.87 | 15.82 |
| Property | 7.87 | 8.93 | 13.56 |
| Bonds | 8.73 | 7.91 | 13.32 |
| Cash | 0.90 | 1.02 | 0.18 |
| 5.19 | 100.00 | 100.00 |
I also analyse the portfolio by the income or growth category of each holding. I have amended the yield criteria for these groupings this month following the market falls.
| Yield % | Sectors | |
|---|---|---|
| High Income | above 6% | Property, Bonds, Asia Pacific |
| Income | 4.5% to 6% | UK, Asia Pacific |
| Income & Growth | 3% to 4.5% | Global, Asia Pacific |
| Growth | below 3% | UK, Asia Pacific |
My global holdings are now all in the income and growth category.
| Yield % | Capital % | Income % | |
|---|---|---|---|
| High Income | 8.34 | 24.24 | 38.98 |
| Income | 4.97 | 35.17 | 33.67 |
| Income & Growth | 4.28 | 25.79 | 21.30 |
| Growth | 2.21 | 13.78 | 5.88 |
| Cash | 0.90 | 1.02 | 0.18 |
| 5.19 | 100.00 | 100.00 |
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 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. I will need to sell some shares to raise cash again in the next few months, so I’m hoping for an uplift in prices. The share price of the holding I would probably choose to sell is down by about 14% this year.
Expenditure
Draw down spending was 62.55% of my portfolio income in the last twelve months which is in line with the figure of 61.16% for the previous twelve months. Portfolio income rose by 1.59% and expenditure rose by 3.90%.
RPI and CPI inflation reached annual rates of 11.66% and 9.03% at the end of May. Analysis in the Sunday Times this week suggested that most households (excepting the very highest income ones) needed between £98 and £164 extra cash each month to cover cost of living increases. For us the higher energy bills will account for all or most of those amounts. We don’t routinely use much petrol so are not much impacted by petrol price rises. I think, however, that this inflation may be beginning to impact on our grocery spend based on the last four weeks, but the last six months overall is still in line with last year’s spend.
Conclusion
My portfolio income is stable and rising at present, so I’m not too perturbed by the fall in portfolio capital values. I need to consider when next to raise cash to spend, and I will also look for any opportunity to make small switches to the portfolio. These would be small moves involving less than 1% of the portfolio. Otherwise, I expect to continue to sit tight through this market storm.