November was marked by a strong bounce in my portfolio and in its benchmark the FTSE All Share total return index. That index is now at an all-time peak for a month end according to my records. This despite the Ukraine war and other recent events. Is the market anticipating better times ahead perhaps?
November
The FTSE All Share Total Return index rose by +7.14% in the month and has now risen by +1.78% for the year to date. My investment return for the month was a gain of +8.22%. Cumulatively I have a loss of -1.39% for the year so far.
My individual holdings recorded an unweighted average share price movement of a loss of -9.05% for the year so far. My worst performers are in the UK small company (-38.27%), and commercial property ( -36.50%) sectors. These are some of my smaller positions. My best performer, up +15.57%, is in the global equity income sector. Overall, my portfolio choices this year have underperformed my benchmark UK index.
Capital
Starting from an index value of 100.00 on 31 December 2013, my capital is now 134.28, as shown in the graph above. This is a return to where I was in July and August this year before the excitement of September. It is -4.78% down from its all-time peak in March this year, and-4.22% down in the year to date. Investment return of a capital loss of -6.35% and dividend income of +4.98%, results in a loss of -1.37%. Draw down expenditure deducted a further -2.85% 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 a new peak of 7.02% at this month end, as shown in the graph above. My current portfolio dividend income yield is 5.23%, i.e., 7.02 divided by 1.3428. Annual income rose by +1.62% in the month. That is one of my best months for rising income. Two holdings increased their dividends but that contributed less than one third of the rise. More than two thirds of the rise is from reinvested dividends. That is an example of the importance of reinvestment to growing both your capital and your income.
Investment changes
During the month dividends received in my tax-sheltered accounts were re-invested and dividends received in my trading account were paid out. This was my second-best month for portfolio income received. No other trades were made.
Portfolio
The table below shows the composition of my portfolio at the end of the month.
| Yield % | Capital % | Income % | |
|---|---|---|---|
| UK | 3.95 | 34.36 | 25.93 |
| Asia Pacific | 5.50 | 25.33 | 26.65 |
| Global | 4.13 | 19.36 | 15.29 |
| Property | 7.98 | 11.97 | 18.27 |
| Bonds | 8.75 | 8.11 | 13.56 |
| Cash | 1.82 | 0.86 | 0.30 |
| 5.23 | 100.00 | 100.00 |
I also analyse the portfolio by the income or growth category of each holding. The rise in share prices has resulted in some global and Asia Pacific holdings moving from the Income category to the Income & Growth category this month.
| Yield % | Sectors | |
|---|---|---|
| High Income | above 6% | Property, Bonds, Asia Pacific |
| Income | 4.5% to 6% | UK, Property |
| Income & Growth | 3% to 4.5% | Global, Asia Pacific |
| Growth | below 3% | UK |
Only 11.34% of the portfolio is now classified as growth. Income & Growth, however, includes a small company investment trust that pays higher income from capital. If that were added, then 15.02% would be in “growth” holdings. I will look to further add to my growth holdings in the future but not just yet. In the short term the volatility in the market, as shown by the fall in my UK small company trust, is off-putting.
| Yield % | Capital % | Income % | |
|---|---|---|---|
| High Income | 9.04 | 23.53 | 40.66 |
| Income | 4.88 | 26.95 | 25.15 |
| Income & Growth | 4.15 | 37.31 | 29.62 |
| Growth | 1.97 | 11.34 | 4.27 |
| Cash | 1.82 | 0.86 | 0.30 |
| 5.23 | 100.00 | 100.00 |
Cash
My annual drawdown spending is now around 3.52% of my portfolio value, based on the last two years spending and the opening and closing values for that period. Cash holdings cover about three months of spending. Dividends being paid out in cash each year from my dealing account are sufficient to cover about three months of spending each year. I will soon, maybe this month, need to sell some shares to raise cash again. That will slightly reduce portfolio income.
Expenditure
Draw down spending was 63.17% of my portfolio income in the last twelve months which is less than the figure of 65.74% for the previous twelve months. Portfolio income rose by 0.89% as more dividend income was received. Expenditure fell by -3.06% mainly because last year included higher tax costs than this year.
RPI and CPI inflation reached annual rates of 14.17% and 11.09% at the end of October. For us this mainly impacts on our weekly grocery bills which in recent weeks are up by about 10% to 15% compared to one year ago. The current year is only 3.41% higher than last year because these rises are quite recent. We have now had a bigger bill for energy for November usage that is payable in December. We pay for energy on a month-by-month based on our actual meter readings rather than on an annual average so our monthly costs will be higher through the winter months. The current year is still lower than last year because we were overcharged last year and were refunded this year. Following the budget, we expect council tax to rise by around 5% next April. Those are our top three essential spending items. More than half of our spending is on luxury or discretionary items which we can reduce if we need to.
Conclusion
This month of November saw the changing tides of the investment markets sweep away the bad month of September leaving UK markets broadly unchanged for the year. My portfolio, now with less in the UK, was not too far behind. Assuming that my portfolio does not suffer dividend cuts then the capital values look too low so I’m hopeful that they will rise in the not-too-distant future. This may occur if it looks like we will only have a shallow recession.