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The Slow and Steady passive portfolio update: Q1 2011

It’s time for the first trading update of the official Monevator, passive, model portfolio: The Slow and Steady portfolio.

We're up! Just.

The portfolio invests purely in index funds. The first purchases were made on December 31, 2010, with an initial lump sum of £3,000.

Another £750 of regular contributions are drip-fed in every quarter, and the latest purchases were made on April 1. An auspicious day if ever there was one.

In its first three months of life, the portfolio has inched up 0.59%, which amounts to a cash gain of £17.84. Who ever said passive investing isn’t a shortcut to fabulous wealth?

Actually, this move to profit is quite a turnaround, because I took a sneaky peek at the portfolio a few weeks ago, and it was haemorrhaging like an undercover cop in a Tarantino movie.

Events, dear boy, events

The markets were on something of a tear at year-end when we fed our initial lump sum into the financial wood-chipper. Since then we’ve been battered by bad news:

  • UK economic contraction in the final quarter of 2010.
  • Fears of overheating emerging markets.
  • Devastating floods in Australia.
  • Triple catastrophe in Japan – quake, tsunami, nuclear crisis.
  • Middle East uprising – the wisdom of the crowds writ large, but bad for short-term economic stability.

The upshot is that the Japanese fund has been hammered, the emerging markets have dipped too and the Australian-dominated Pacific fund has been dragged down in their wake.

The countervailing bright spot is the European fund, perhaps benefitting from belief in Franco-German determination to defend the Euro.

Scores on the doors

Here’s how the individual funds have fared over the last three months:

The Slow & Steady portfolio on April 1

What does all this tell us? Absolutely nothing of significance.

It’s fun to think about the trends and events that may have buffeted our funds over the last three months, but over a 20-year time horizon we’re relying on diversification, low cost funds and the efficiency of the markets to ensure we come out ahead. There’s nothing for it but to stick to the plan.

New purchases

Our quarterly £750 injection buys:

UK equity

HSBC FTSE All Share Index – TER 0.27%
Fund identifier: GB0000438233

New purchase: £146.47
Buy 41.812 units @ 350.3p

Target allocation: 20%

Developed World ex UK equities

Split between four funds covering North America, Europe, the developed Pacific and Japan.

Target allocation (across the following four funds): 50%

North American equities

HSBC American Index – TER 0.28%
Fund identifier: GB0000470418

New purchase: £191.81
Buy 99.899 units @ 192p

Target allocation: 27.5%

European equities excluding UK

HSBC European Index – TER 0.37%
Fund identifier: GB0000469071

New purchase: £77.79
Buy 15.316 units @ 507.9p

Target allocation: 12.5%

Japanese equities

HSBC Japan Index – TER 0.28%
Fund identifier: GB0000150374

New purchase: £52.04
Buy 85.008 units @ 61.22p

Target allocation: 5%

Pacific equities excluding Japan

HSBC Pacific Index – TER 0.37%
Fund identifier: GB0000150713

New purchase: £38.84
Buy 15.813 units @ 245.6p

Target allocation: 5%

Emerging market equities

Legal & General Global Emerging Markets Index Fund – TER 0.99%
Fund identifier: GB00B4MBFN60

New purchase: £82.25
Buy 155.746 units @ 52.81p

Target allocation: 10%

UK Gilts

L&G All Stocks Gilt Index Trust: TER 0.25%
Fund identifier: GB0002051406

New purchase: £160.77
Buy 102.793 units @ 156.4p

Target allocation: 20%

Total cost = £749.97

Cash = 3p (Woot!)

Trading cost = £0

Remember the portfolio is rebalanced to its target allocations with the new money: a relatively straightforward task at this early stage. There are also no trading costs to worry about with the index funds used.

Take it steady,

The Accumulator

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{ 16 comments… add one }
  • 1 Philippe G April 5, 2011, 5:31 pm

    Great post!
    A practical question: how did you manage to make the initial purchase of these funds at levels that seem to be below the minimum initial investments (eg. H & L specify minimum investments of £1000 for all these funds)?

  • 2 Moneyman April 5, 2011, 7:06 pm

    Mmm. You’ve probably covered this before, but index funds always seem to me to be a bit too passive – it’s just following the crowd.

    My own preference is for assets that produce income – which means I’m still going forward if the market dips (if you know what I mean). My own portfolio went up 11% in CY2010.

    Still – who knows over the long run?

  • 3 Michael April 5, 2011, 7:14 pm

    @Philippe, iii allow you to purchase these finds for as little as £20 using their portfolio builder.

    I’m glad this is being updated – I read the first installment with great interest as it mirrors a portion of my passive investing strategy.

    It sounds terrible, but the triple disaster in Japan was a buy for me and I got in when the index was down by 9% – it’s risen now, but time will tell if it was a bad idea. (Or I just flat out get what’s coming to me for being such a cold-hearted b******d!).

    Which is a roundabout way of saying that I was a bit more active in my passive portfolio than I should have been, but it heavily mitigated the flatline that is present in the Accumulator’s example portfolio.

  • 4 ermine April 5, 2011, 8:33 pm

    do you count dividend income towards your portfolio value?

  • 5 PUJ April 5, 2011, 9:14 pm

    @ermine

    They are all accumulation funds and so do not yield a dividend.

  • 6 Mr Passive April 5, 2011, 9:26 pm

    You seem to be overweighting UK – 20% of your portfolio, while the UK makes up perhaps 10% or less of the global economy. Is there a particular reason for this?

  • 7 The Accumulator April 5, 2011, 9:44 pm

    @ Michael – It’s an interesting point but I don’t believe there’s a moral case to answer with your purchase of Japanese shares. It’s not like anyone selling up is thinking I can’t abandon these companies at the very moment the country is beset by disaster.

    My slouch potato outlook prevented me from joining in. Same with the BP bargain hunting.

    @ Mr Passive – I’m a UK-based investor so I tilt towards the UK to reduce my exposure to currency risk. I based the 20% loosely on Tim Hale’s Home Bias portfolios (his book – Smarter Investing – is a great read for any UK passive investor).

  • 8 Michael April 5, 2011, 11:21 pm

    @Mr Passive, the FTSE 100 draws something like 70% of its earnings from overseas – read it on FT lex column just other day, I’ll post link if I can find it.

  • 9 Alex April 6, 2011, 6:55 pm

    1. Hi TA, thanks for the update.

    2. Oh, have you and everyone else seen the amazing new TER on the HSBC S&P 500 ETF? TER was a market-leading 0.15% at launch in May last year. It has now been reduced – to 0.09%.

    3. I don’t know why HSBC aren’t shouting about this – not least because at 0.15% it was still the lowest-TER S&P 500 ETF for us UK individual investors (to my knowledge).

    4. As I haven’t seen anything written about the reduction anywhere, I thought it’d be useful to mention it here.

    5. At 0.09%, this TER is at a similar level to the lowest available for S&P 500 ETFs in the US.

    6. In the US, Vanguard, as you know, doesn’t only offer low-cost, index-tracker funds. It also sells low-cost ETFs on indices. However, here in the UK, Vanguard does not currently have any ETFs – although it has publically committed to launching such during 2011.

    7. HSBC’s reduction in TER for its S&P 500 ETF therefore is perhaps a pre-emptive measure against Vanguard in the UK, and its much heralded 2011 launch of ETFs.

  • 10 The Accumulator April 7, 2011, 9:57 pm

    @ Michael – I wonder what the equivalents are for large caps in all the other major markets? Bear in mind the portfolio is in the All-Share so about 80% FTSE 100 and the rest in FTSE 250 and Small Cap.

    @ Alex – haven’t heard from you for a while! Thanks for the HSBC info. Vanguard were originally rumbling about launching the ETFs in 2o1o, so fingers-crossed that it happens in 2o11.

  • 11 Kobus April 8, 2011, 11:59 am

    Hi there

    Do you have any suggestions where to park a lot of cash in a Sipp that yield an attractive return but can be sold quickly if you find bargains? Money market funds, High yield bonds?

    TIA

  • 12 Paul April 11, 2011, 5:41 pm

    @ Mr Passive. Michael’s point is well made. A FTSE Allshare tracker that I just checked has 40% of the holding in its top ten shares. These are all serious international companies that derive most of their profits from outside the UK. They are: HSBC; Vodophone; BP; Royal Dutch Shell A; GlaxoSmithKline; Rio Tinto; Royal Dutch Shell B; BHP Billiton; British Am Tabacco; and AstraZeneca.
    An diverse investment in the LSE is little influenced by the UK economy….it really is an investment in the global economy.

  • 13 Peter April 12, 2011, 12:15 am

    Could you remind us of the benefits of having gilts in the portfolio as opposed to a (separate) cash savings account? Is is because you are building a 20 year portfolio and don’t want the hassle of moving cash to chase the best intest rates?

  • 14 The Investor April 12, 2011, 9:01 am

    @Peter — I agree cash is a very attractive asset for private portfolios, given how we can chase rates unavailable to institutions. But as you know they’re not quite the same:

    http://monevator.com/2009/06/08/cash-bonds-different/

  • 15 The Investor April 12, 2011, 9:02 am

    (I mean not the same asset as bonds)

  • 16 emanon January 11, 2014, 1:51 pm

    hello TA

    Happy New Year

    i was hoping you could validate my sanity by ruling out my stupidity. My portfolio has been up and running for about 3 months now. I have drip fed it around £5.5k. I know it’s still early but i get concerned when i read articles of the FTSE All-Share rising by double-digit figures in 2013 and the like, yet when i look at my portfolio of index trackers i don’t see those same figures i read of! I understand that my portfolio is still in its infancy but as a amateur investor i want to rule out any errors before panicking and having a knee jerk reaction. For example my

    Vanguard FTSE U.K. Equity Index Acc is is up 2.38%
    Vanguard Developed World Ex UK is up 2.43%

    BlackRock Emerging Markets Equity Tracker D Acc is down -2.73%
    BlackRock Gold & General D Acc is down 6.87% *eek

    I assume this is all normal for a starting portfolio and that i’m possibly looking at it 9 months too early but for the sake of sanity i had to take a sneak peak and validate what i was reading with what i had invested in.

    As a side note, i have a strong allocation to precious metals (20%) which i will reduce when the next ISA allowance comes into effect in April but re-balancing which at first seems like simple maths seems to be far more complex, especially when making big changes. Topping up a funds that is under its allocation seems simple enough, you just make up the difference. But for funds that need reducing because of overperformance it doesn’t seem as straightforward. It seems that you have to sell the overperformers to prop up the under performers (i’ve haven’t had experience in selling yet funds yet), i assume this incurs substantial fees over the years. Is there a way of rebalancing without selling off the overperformers?

    It might be very very simple, it probably is, i simply cannot see how it’s done without selling something off. Rebalancing seems like a very careful art that takes time and mistakes to master, and a pretty tight spreadsheet to help along the way. If anyone has a excel template for this sort of thing….

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