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The Slow and Steady passive portfolio update: Q1 2016

The portfolio is up 4.46% year to date.

January and February were a bit rough, eh? If you made the mistake of checking your portfolio during those dark days, you might well have seen its value plummet since last May.

The FTSE All-Share was down more than 15% since then, for example.

On the other hand, if you spent winter in financial hibernation and you’re only just waking up, then all is probably coming up daffodils – and the Slow & Steady portfolio too is within a few quid of making up all its lost ground.

The Slow & Steady portfolio is Monevator’s model passive investing portfolio. It was set up at the start of 2011 with £3,000 and an extra £880 is invested every quarter into a diversified set of index funds, heavily tilted towards equities. You can read the origin story and catch up on all the previous passive portfolio posts here.

Six months ago most of our asset classes were flashing red, with just our UK government bonds acting as our main shock absorbers.

Now though only emerging markets remain negative, and barely so.

Indeed emerging markets were the strongest performer of the last quarter – putting on an 8.8% growth spurt.

That’s delivered a nice bonus for the portfolio. We rebalanced into emerging markets last time around, with 45% of our quarterly contribution going into our worst performing asset class, funded by a sale of UK equities. And that then turned out to be the only fund that backslid over the last three months!

This isn’t us trying to be dice-rolling active investors and it’s not witchcraft. Nor is it sheer luck. It’s simply the kind of boost you can expect from following common sense rules without trying to be too clever.

It’s also interesting to note that our slug of global property has streaked ahead of our other equity holdings over the last year, demonstrating the wisdom of diversification.

Over the past year, our equity classes have performed as follows on a time-weighted basis:

  • Emerging markets -11.00%
  • Global property 2.87%
  • Developed world ex-UK 1.22%
  • UK All-share -4.91%
  • Global small cap -1.13%

Hardly a year to remember but ample evidence of divergence.

Here’s the portfolio latest in ultra-def spreadsheet-o-vision:

The portfolio is up 25% since purchase.

The portfolio hit the comeback trail in mid Feb to end the quarter 4.45% up.

That leaves us £4,879 to the good and growing at 7.71% on an annualised basis – or more like 5% when you knock off a bit for inflation. Very respectable.

Notice the strong role conventional UK government bonds continue to play in our portfolio. Their annualised return of 6.41% is superior to the 5.80% we’ve earned on UK equities so far.

It’s continuing testament to the first rule of asset allocation: the most important decision you make is your split between equities and bonds.

New transactions

Every quarter we dropkick another £880 between the market’s goalposts. Our cash is divided between our seven funds according to our asset allocation.

We use Larry Swedroe’s 5/25 rule to trigger rebalancing moves, but all’s quiet this quarter. We’re just topping up with new money as follows:

UK equity

Vanguard FTSE UK All-Share Index Trust – OCF 0.08%
Fund identifier: GB00B3X7QG63

New purchase: £70.40
Buy 0.459 units @ £153.35

Target allocation: 8%

Developed world ex-UK equities

Vanguard FTSE Developed World ex-UK Equity Index Fund – OCF 0.15%
Fund identifier: GB00B59G4Q73

New purchase: £334.40
Buy 1.431 units @ £233.61

Target allocation: 38%

Global small cap equities

Vanguard Global Small-Cap Index Fund – OCF 0.38%
Fund identifier: IE00B3X1NT05

New purchase: £61.60
Buy 0.318 units @ £193.81

Target allocation: 7%

Emerging market equities

BlackRock Emerging Markets Equity Tracker Fund D – OCF 0.25%
Fund identifier: GB00B84DY642

New purchase: £88
Buy 81.784 units @ £1.08

Target allocation: 10%

Global property

BlackRock Global Property Securities Equity Tracker Fund D – OCF 0.23%
Fund identifier: GB00B5BFJG71

New purchase: £61.60
Buy 36.558 units @ £1.69

Target allocation: 7%

UK gilts

Vanguard UK Government Bond Index – OCF 0.15%
Fund identifier: IE00B1S75374

New purchase: £132
Buy 0.869 units @ £151.87

Target allocation: 15%

UK index-linked gilts

Vanguard UK Inflation-Linked Gilt Index Fund – OCF 0.15%
Fund identifier: GB00B45Q9038

New purchase: £132
Buy 0.847 units @ £155.82

Target allocation: 15%

New investment = £880

Trading cost = £0

Platform fee = 0.25% per annum.

The portfolio is notionally held with Charles Stanley Direct. You can use that company’s monthly investment option to invest from £50 per fund. Just cancel the option after you’ve traded if you don’t want to make the same investment next month.

Take a look at our online broker table for other good platform options. Look at flat fee brokers if your portfolio is worth substantially more than £20,000.

Average portfolio OCF = 0.17%

If all this seems too much like hard work then you can buy a diversified portfolio using an all-in-one fund such as Vanguard’s LifeStrategy series.

Take it steady,
The Accumulator

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{ 17 comments… add one }
  • 1 Planting Acorns April 5, 2016, 10:31 am

    Just think…if this was a LISA fund, and you were able to up quarterly contributions a slip, this time next year you’d be getting your 1k free bonus to play with ;0)

  • 2 Planting Acorns April 5, 2016, 10:48 am

    Ahhh sorry! This time in 2018* you’d be receiving the bonus ;0)

  • 3 William III April 5, 2016, 12:51 pm

    ‘Well done’ on EM. I placed an EM order on 13 March, but due to my platform taking nearly a week to complete the transaction, I missed out on the jump that week (3.2%).

    Off topic question in case anyone has looked into it: If I sacrifice salary for pension contributions so that my taxable salary falls below the 40% tax threshold, do I get a basic (£1000) or higher rate (£500) personal allowance for interest income?

  • 4 Mike April 5, 2016, 4:17 pm

    Hi William III, you would qualify for the £1,000 personal savings allowance as your “adjusted net income” (see https://www.gov.uk/guidance/adjusted-net-income) is within the basic rate tax band.

  • 5 The Rhino April 5, 2016, 4:30 pm

    @WIII – I would think that you would receive the £1000 allowance if you salary sacrifice yourself down below the HRT threshold. That said I have been unable to find confirmation on the HMRC site so not certain.

    But I know people salary sacrifice to below £50k to get their CHB back – and this scenario sounds like a very similar thing to me..

  • 6 Theo April 5, 2016, 6:55 pm

    What is the logic of the property equities tracker in the portfolio?

    My understanding is that the index funds in the portfolio would already have a share of property equities. Why the need for the extra property tilt?

  • 7 William III April 6, 2016, 8:32 am

    Thanks all. I haven’t been able to find confirmation yet but it seems indeed similar to the child care vouchers case.

  • 8 The Rhino April 6, 2016, 11:37 am

    another day, another set off ISA allowances

    who’s doing what?

    I was thinking maybe fill one ISA now and another after brexit just to hedge the bets?

  • 9 Mike April 6, 2016, 1:08 pm

    William III – here is the confirmation https://www.gov.uk/government/publications/personal-savings-allowance-factsheet/personal-savings-allowance

    Combine point 4 on that page with the definition of adjusted net income which I linked to previously and it is clear that you would get the £1000 allowance.

    I should add for disclosure that I am a tax adviser by trade 😉

  • 10 Planting Acorns April 6, 2016, 2:09 pm

    @The Rhino… I’ve pulled back a bit and am regularly investing (monthly) a smaller sum (to coincide with LISA limit from next year) and switched what I was paying into repaying my mortgage…

    … ‘They’ do say that if investing a large sum it’s beneficial to drip feed it over two or four transactions…

    …but as for Brexit… I’ve no clue and no opinion, like I say I invest monthly

  • 11 SemiPassive April 6, 2016, 6:40 pm

    Also interested in the rationale for including a property fund as I’m toying with adding both property and gold to my asset allocation.
    Is there a forecast yield for the property fund so you can compare with the yield on equity income funds or bond funds?
    Thinking it could play a useful role in an income drawdown portfolio if its 4% or higher.

  • 12 William III April 8, 2016, 11:27 am

    @Mike – that’s incredibly helpful, thank you. Now I only need to convince my completely overstretched small company administrator to arrange salary sacrifice!

  • 13 Jaygti April 8, 2016, 12:00 pm

    @william lll – I also work for a small company (5 employees) and have just set a salary sacrifice scheme up.

    Basically I’ve taken a £3.00 ph pay cut , which will be saved up and payed as a bonus every three months. This will be payed directly into my HL sipp by cheque.
    It requires about 5mins form filling Each time.
    I could be done monthly by direct debit for a set amount, but as I work irregular hours (between 39-60hrs) it allows some flexibility .
    Unfortunately my boss is a bit tight and hasn’t given me any of the NI that he’s saving.
    Hope this helps.

  • 14 The Accumulator April 8, 2016, 12:36 pm

    The tilt to commercial property is to ensure greater diversification through an asset class that’s delivered long-term returns and is not perfectly correlated with equities or UK government bonds.

    Note, that our property index fund invests in the shares of property companies as opposed to directly owning an interest in commercial property. That makes it more correlated to the stock market but also more liquid than investing in commercial property direct. It’s our only index fund choice but that’s also probably the right balance for passive investors.

  • 15 Pete April 13, 2016, 1:52 pm

    I started investing in the Vanguard lifestrategy funds in January – my first investments outside of trying to pay my mortgage off.

    Am I effectively following the same strategy as this portfolio without any input from me?

  • 16 The Accumulator April 14, 2016, 8:52 am

    Hi Pete – in the sense that you are following a passive investment strategy that diversifies across broad asset classes through index funds which Vanguard automatically rebalance for you, then yes. Details differ of course.

  • 17 Haleshine April 14, 2016, 11:59 pm

    A quick question The Accumulator. Is the spreadsheet updated to include the new investment of £880? I am trying to start my portfolio spreadsheet and am trying to model it after your spreadsheet. I am trying to figure out how it works for the quarterly gain column and Fund gain/loss column, does it include the regular investment injection? Doesn’t it then confound the data then as you are adding on to the investment?

    Many thanks for helping out with my dilemma!

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