The newspaper reported that “the UK’s FTSE 100 index fell 168 points to 6,483, a 2.5% drop – the biggest one-day fall in percentage terms since the end of October.” (Guardian 26.02.21). Checking my source on the FTSE All Share Total Return index, my chosen benchmark, that had gone down -2.28% on the day. For the month of February, however, it was up by +1.99%, and it was up by +1.16% for the opening two months of the year. As I write on Monday 1 March the FTSE 100 has recovered more than half of Friday’s losses.
My investment return for the first two months of the year was a fall of -0.46%. My individual holdings recording share price movements ranging from a loss of -7.27% to a gain of +5.02% with an unweighted average result of a loss of -1.01%.
Capital
This capital graph shows the portfolio value at each month end since 31 December 2013, taking an index value of 100.00 as the starting point. This capital measure on the graph is now at 125.87. At the end of February 2021, the capital value of my investment portfolio is down by -0.92% since its’ peak of 127.04 at the end of the 2020 year. Investment returns were a loss of -0.46%, and draw down expenditure deducted -0.46% for the two months.
Income
I have tracked the annual level of my dividends received since 31 December 2013 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 reach a new peak of 6.60% at 28 February 2021. This slightly exceeds the previous peak in July 2020. The portfolio income has now recovered from the dividend cut last August by a property REIT that I still hold.
After two months of the year portfolio income has increased by +2.03%. The income measure on the graph rose to 6.60%. That is a 96.12% rise since draw down started on 31 December 2013. The increase was the combined result from the automatic re-investment of dividend income in more shares, from dividend increases announced, but mostly from a portfolio change. I halved my position in that property REIT and bought a new position in another property REIT that has a higher dividend yield. This may amount to reaching for yield but it also diversifies my property risk between two different Real Estate Investment Trust’s. Each holding is now less than 3.5% of my portfolio. It has taken nearly six months for my disappointment at the dividend cut to lead to a partial sale. That was my opening move for this year.
Portfolio
The table below shows the composition of my portfolio at the end of the month. This has been analysed by sector, that is by geography for equities, or by type for non-equities.
| Yield % | Capital % | Income % | |
|---|---|---|---|
| UK | 4.61 | 39.94 | 35.08 |
| Asia Pacific | 5.01 | 24.75 | 23.64 |
| Global | 4.61 | 18.81 | 16.54 |
| Bonds | 8.73 | 7.69 | 12.80 |
| Property | 9.08 | 6.86 | 11.87 |
| Cash | 0.17 | 1.95 | 0.06 |
| 5.24 | 100.00 | 100.00 |
I have also analysed based on the income and growth characteristics of each holding. I have classed my holdings as high income (dividend yields greater than 6%), as income (yields between 4% and 6%), as growth and income (yields between 3% and 4%), and as growth (yielding less than 3%). As mentioned in my last post I aim in the future to gradually reduce my investment in high income holdings and increase my investment in growth holdings.
| Yield % | Capital % | Income % | |
|---|---|---|---|
| High Income | 7.53 | 35.30 | 50.68 |
| Income | 4.80 | 31.68 | 28.97 |
| Income & Growth | 3.91 | 23.26 | 17.35 |
| Growth | 1.98 | 7.81 | 2.94 |
| Cash | 0.17 | 1.95 | 0.06 |
| 5.24 | 100.00 | 100.00 |
Cash
My annual draw down spending is now around 3.41% of my portfolio value, based on the last two years spending and the opening and closing values for that period. My cash holdings are sufficient to cover about seven 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 few months in order to cover spending. I may sell something this month before the end of the tax year. I will be interested in any budget moves by the Chancellor to increase Capital Gains Tax rates. I may sell in order to pay only the current 10% tax rate on my gains rather than any higher rates that may be introduced. Investment sales in late March from my dealing account can fund future spending but can also fund an investment in my ISA for the next tax year commencing on 6 April.
Expenditure
Draw down expenditure was only 53.1% of my portfolio income for the last twelve months. This compares to draw down spending being 80.42% of my portfolio income in the previous twelve months. Portfolio income has risen by 25.15% whilst expenditure has fallen by 16.26%. This is quite a significant turnaround. The fall in spending looks likely to be mostly a result of lockdown restrictions curbing some opportunities to spend. The increase in income is likely to be a combination of inheriting extra capital, and the growing snowball effect of dividend reinvestment and dividend increases. I think there are also some short-term timing benefits from portfolio changes and from the REIT dividend that was later cut. Certainly, my current calculation of portfolio income is less than was received in that last twelve months.
Conclusion
From this point my next move should be to use any further increase in portfolio income as an opportunity to switch out of some of the higher income holdings and into some new growth holdings.