- Monevator - http://monevator.com -

The Slow and Steady passive portfolio update: Q3 2017

September was a bit rocky for the Slow & Steady portfolio. All told we nosed up by another 1% over the quarter.

Looking into our different asset allocations, our temperamental friend, Emerging Markets, shed over 3% in September but put on more than 4% overall since our last report [1]. Meanwhile our two gilt funds continue to slide in the face of rising interest rates and UK economic uncertainty.

It’s all just the usual bump and grind as our advancing index harvesting machine reaps the growth of global capitalism. Here’s the latest portfolio crop in spreadsheet form:

Slow & Steady portfolio tracker, Q3 2017 [2]

The Slow and Steady portfolio is Monevator’s model passive investing [3] portfolio. It was set up at the start of 2011 with £3,000 and an extra £900 is invested every quarter into a diversified set of index funds, heavily tilted towards equities. You can read the origin story [4] and catch up on all the previous passive portfolio posts here [5].

Don’t look now

The recent performance of Emerging Markets tells us a lot about how het up we should get when a volatile asset class takes a dive.

The following graph shows the performance of our iShares Emerging Markets index tracker over the past month according to data site Trustnet. It doesn’t look or feel great:

Emerging Markets dipped in the last month [6]It’s hard not to feel pain when staring at a sharp downhill tumble. But if we zoom out over three months, the situation is reversed. Emerging Markets are still comfortably up:

Emerging Markets are comfortably up over 3 months [7]Although the chart doesn’t show it, Emerging Markets were the best performing asset class in our portfolio during this period. But was the recent dip the beginning of a terrible fall? The garden was looking a lot rosier in late August.

A year gives us a much better perspective:

Emerging markets have been stellar over a year [8]That September slip is nothing we haven’t seen before. There was even nastier spill last November. Over the course of the year Emerging Markets are up by 15% – only bettered among our holdings by our Global Small Cap fund.

Now let’s zoom out again:

Emerging Markets look better still over 5 years [9]This five-year view reminds us how wild a ride Emerging Markets can be. They rose 45% in the last half-decade but went precisely nowhere for nearly four years. You can see how a previous peak in April 2015 was wiped out in the blink of 12 months. Compared to that, the last month is nought but a wee dip.

Personally, my brain cannot help but read triumph in those upward slopes and feel the queasy in every dip. But those are temporary concerns. In stark contrast to the advice of the mindfulness brigade, investing is not about living in the now.

The graph is a good analogy for how we’ll feel in the future. The longer your perspective, the less important those daily, monthly and even yearly results will look and feel. A couple of decades of growth should smooth away their impact, leaving them as barely traceable outlines of a distant event whose significance is confined to the past.

New transactions

Every quarter we tip another £900 into the market mixer. Our cash is divided between our seven funds according to our asset allocation.

We use Larry Swedroe’s 5/25 rule [10] to trigger rebalancing moves, but all’s quiet this quarter. So we’re just topping up with new money as follows:

UK equity

Vanguard FTSE UK All-Share Index Trust – OCF [11] 0.08%

Fund identifier: GB00B3X7QG63

New purchase: £54

Buy 0.278 units @ £194.27

Target allocation: 6%

Developed world ex-UK equities

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

Fund identifier: GB00B59G4Q73

New purchase: £342

Buy 1.088 units @ £314.30

Target allocation: 38%

Global small cap equities

Vanguard Global Small-Cap Index Fund – OCF 0.38%

Fund identifier: IE00B3X1NT05

New purchase: £63

Buy 0.233 units @ £270.11

Target allocation: 7%

Emerging market equities

iShares Emerging Markets Equity Index Fund D – OCF 0.25%

Fund identifier: GB00B84DY642

New purchase: £90

Buy 58.747 units @ £1.53

Target allocation: 10%

Global property

iShares Global Property Securities Equity Index Fund D – OCF 0.21%

Fund identifier: GB00B5BFJG71

New purchase: £63

Buy 32.847 units @ £1.92

Target allocation: 7%

UK gilts

Vanguard UK Government Bond Index – OCF 0.15%

Fund identifier: IE00B1S75374

New purchase: £234

Buy 1.468 units @ £159.38

Target allocation: 26%

UK index-linked gilts

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

Fund identifier: GB00B45Q9038

New purchase: £54

Buy 0.296 units @ £182.34

Target allocation: 6%

New investment = £900

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 [12] for other good platform options. Look at flat fee brokers if your ISA portfolio is worth substantially more than £25,000.

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 [13].

Take it steady,
The Accumulator