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The Slow and Steady passive portfolio update: Q3 2019

The portfolio is up 16.25% year to date.

The quarterly numbers for this update of our model passive portfolio are skewed because I’m reporting a week later than normal. Still, the portfolio has jumped another couple of grand and not because of the usual suspects.

UK conventional bonds and global property have each put on 8% since the last Slow & Steady post. Their ascent amply made up for the downward lurch of volatile emerging markets and those pesky UK equities that gyrate every time Boris Johnson waggles an eyebrow.

Here’s the latest portfolio numbers in GlobalSlowdown-o-Vision:

We're up 3.86% since the last report.

The Slow and Steady portfolio is Monevator’s model passive investing portfolio. It was set up at the start of 2011 with £3,000. An extra £955 is invested every quarter into a diversified set of index funds, tilted towards equities. You can read the origin story and catch up on all the previous passive portfolio posts.

Global Property is an instructive case study in how hard it can be to tap into certain asset classes purely with index trackers. The property asset class is meant to enjoy low-ish correlations with equities and bonds – with expected long-term returns falling somewhere between the two.

But the available tracker products invest in the equities of Real Estate Investment Trusts (REITs).

REITs do enable us little guys with our limited investment funds to gain exposure to commercial property in a more practical way than trying to negotiate a broom cupboard lease in a Manhattan skyscraper or owning a smoke alarm in a Dubai shopping mall.

The issue though is that while the share prices of REITs are affected by the underlying property market, they’re also highly correlated to equities.

This multi-asset presentation from Vanguard indicates that REITs only partially map onto the flavour of property prices we’re most familiar with:

US REIT correlation with house pricesAnd this Trustnet Chart shows the photo-finish in 10-year returns between iShares Developed Market Property ETF (invests in developed world REIT equities) and iShares MSCI World ETF (invests in developed world equities with just a percent or two in REITs):

Over 10 years and even five, there’s little between developed world REITs and developed world equities.

Equities outperform REITs handsomely over three years but REITs rule over the last 12-months: 23.9% to 7.3%.

The chart tells us that equities and REITs were highly correlated these last 10 years. The World equities purple line is like the ghost car in a video game for the Dev Markets Property ETF on the red line – only the REIT was the one more likely to make you sick.

Passive investing maven Larry Swedroe wrote an interesting piece on the volatility of REITs and whether they really offer any diversification bonus at all. Swedroe’s conclusion – like my personal experience – is that REITs are an edge case:

…REITs are an equity security with only marginal diversification benefits.

More worryingly, the studies that Swedroe analyzes cast doubt on the likelihood of REITs protecting you in a crisis:

[…] equity returns are significantly more connected to the returns of securitized real estate when both markets are crashing compared to when they are booming.

[…] the timing of extreme market movements between REITs and stock indexes is almost perfectly in sync.

Taken together, the results in this and previous studies do not dispute the long-run benefits of REITs, but they do raise questions about the role of REITs in a mixed-asset portfolio in times of financial crisis.

I’ve been wondering whether REITs are worth their place for a while. Their occasional turn against the run of play – as per last quarter – has stayed my hand. But the mounting evidence is making me question the 10% allocation to property that’s common in the lazy portfolios.

I could easily live without the complexity of a dedicated REIT tracker and take whatever exposure I get to commercial property via global stock markets.

As ever, I’m in no rush. Next quarter the portfolio gets rebalanced with an extra 2% of the allocation tipped towards bonds. That’s likely to be the start of this model portfolio’s move out of REITs.

New transactions

Every quarter we sprinkle £955 into the financial flower beds and hope to come up smelling of roses. Our new cash seedlings are split between our seven funds according to our predetermined asset allocation.

We rebalance using Larry Swedroe’s 5/25 rule but that hasn’t been activated this quarter. Therefore our trades play out like this:

UK equity

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

Fund identifier: GB00B3X7QG63

New purchase: £47.75

Buy 0.233 units @ £205.08

Target allocation: 5%

Developed world ex-UK equities

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

Fund identifier: GB00B59G4Q73

New purchase: £353.35

Buy 0.916 units @ £385.64

Target allocation: 37%

Global small cap equities

Vanguard Global Small-Cap Index Fund – OCF 0.38%

Fund identifier: IE00B3X1NT05

New purchase: £57.30

Buy 0.19 units @ £302.41

Target allocation: 6%

Emerging market equities

iShares Emerging Markets Equity Index Fund D – OCF 0.17%

Fund identifier: GB00B84DY642

New purchase: £95.50

Buy 58.09 units @ £1.64

Target allocation: 10%

Global property

iShares Global Property Securities Equity Index Fund D – OCF 0.18%

Fund identifier: GB00B5BFJG71

New purchase: £57.30

Buy 23.416 units @ £2.45

Target allocation: 6%

UK gilts

Vanguard UK Government Bond Index – OCF 0.15%

Fund identifier: IE00B1S75374

New purchase: £296.05

Buy 1.597 units @ £185.34

Target allocation: 31%

Global index-linked bonds

Royal London Short Duration Global Index-Linked Fund – OCF 0.36%

Fund identifier: GB00BD050F05

New purchase: £47.75

Buy 44.543 units @ £1.07

Target allocation: 5%

New investment = £955

Trading cost = £0

Platform fee = 0.25% per annum.

This model portfolio is notionally held with Cavendish Online. Take a look at our online broker table 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.

Take it steady,

The Accumulator

{ 23 comments… add one }
  • 1 J.D. October 8, 2019, 2:28 pm

    I think your posting is showing the effects of tinkering.
    REITs were popular and now they aren’t and you are looking at getting rid of them.
    Are you aware of the small caps issue?
    siamond from bogleheads had a great article but I can’t find it right now. The below link explains pretty much the same thing though.
    So I’m wondering if you will end up getting rid of that also.
    Obviously you will never get rid of something while it is out performing which leaves you with a problem.

    I’m not saying REITs or small caps are good or bad, but I suspect that tinkering is a problem.

  • 2 tom_grlla October 8, 2019, 4:16 pm

    I don’t think it’s tinkering – it’s just that if you learn something new, then it’s reasonable to incorporate it into your thinking.

    I’ve been sceptical about property as a non-correlated asset class for a while, but I’m grateful for this additional evidence.

    At the risk of being heretical, perhaps a portfolio doesn’t have to be 100% passive, and certain asset classes ARE more suited to active management? One can mix-and-match a portfolio.

    I’ve been thinking about this more broadly with Brexit etc. and how everybody tends to either believe all the arguments in one camp or the other, and never the twain shall meet. It may make things simpler. But isn’t life more nuanced than just binary.

    As an active investor, if forced to, I’d probably go with the Secure Income REIT which is much more defensive than most property, with the style of properties it owns making it more like a long-duration index linked bond. I also like that the management own a hefty chunk of shares. And the TR Property investment trust has an impressive manager and a diverse European portfolio.

  • 3 The Investor October 8, 2019, 4:29 pm

    I don’t think it’s tinkering – it’s just that if you learn something new, then it’s reasonable to incorporate it into your thinking.

    So said every active investor who ever made a change to their portfolio… 😉

    I can see both points of view here.

  • 4 The Investor October 8, 2019, 4:35 pm

    Sorry, pressed reply too soon!

    I was also going to add that I agree with your comments about active/passive mixes for some investors for some asset classes. If you want exposure directly to property there are several large investment trusts that directly own buildings, where you’re one step closer to owning the underlying asset yourself IMHO.

    On the other hand you introduce discount risk (the shares trading for less than the underlying assets) so from the point of view of equity market correlation being undesirable you probably haven’t got very far! Haven’t crunched the numbers though.

    Finally, at the risk of sounding like a Zero Hedge groupie or similar, we have essentially been in one ‘regime’ for the past ten years — cheap money and global growth — where it might be reasonable to think many assets would move in a similar direction more than normal? 🙂

    Lots to chew over here.

  • 5 Jon October 8, 2019, 5:15 pm

    I agree with your thoughts on Secure Income REIT. I have held shares in it for about 18 months and keep topping up. Now its the single biggest holding in my SIPP but can’t bring myself to sell any!

  • 6 Adrian October 8, 2019, 8:05 pm

    I have to say I was disappointed when UK linkers were sold in favour of the Royal London fund. Smacked to me of market-timing and bowing down to the prevailant sentiment on DIY investor boards – that longer dated bonds are about to be crushed by rising inflation and interest rates. We’ve been waiting a few years now for this to happen. This seemed to me a betrayal of the philosophy that I thought underpinned this portfolio and it’s approach. Also worth noting is how well UK linkers have done since then 🙂

  • 7 dani October 8, 2019, 9:50 pm

    Thank you for creating this great blog. I’m trying to use a similar tracker with my portfolio but can’t figure how to calculate the annualised returns… Would you mind sharing how to come up with this 🙂

  • 8 The Accumulator October 8, 2019, 10:27 pm

    @ JD – World REITs have outperformed World equities as you can see in the chart. Performance and popularity are highly correlated so clearly my thoughts are not motivated by performance. I was more than happy to shift out of a long duration linker fund when it was doing really well because it didn’t fit the strategic objectives of the portfolio.

    Here’s are the main points I think about when constructing a portfolio:

    1. Is there a good case for including the asset class?
    2. Do the available investment vehicles adequately capture the benefit of that asset class?
    3. Are the characteristics of the asset class right for my investment objectives / risk profile?

    I’ve kept up to date on the arguments for and against small caps over the years and have written about the issues on Monevator.

    If compelling evidence was presented against small caps then why would you keep them? As it is, there’s good evidence that the small cap premium has declined since discovery but not disappeared. Even if you’re willing to take a punt on the small cap premium, you can’t rely on it delivering over your investing lifetime. The available vehicles could certainly be better too – namely they’d tilt towards the smaller and more value-orientated domains of the investment pool.

    If anyone feels that means small caps aren’t worth the bother then I’d certainly respect their reasons. As it is, I think some exposure is worthwhile but I’m not holding my breath.

    Property as an asset class – I think the case for inclusion as a diversifier is strong. REITs as an investment vehicle – the case is much shakier when you dig into it. Especially if what you want is diversification when equities are down. And who doesn’t want that?

    The point I wanted to make is that evidence suggests REITs are far from essential and to direct people who are interested to the reasons why. I can see in my final sentence I’ve made it look like I’m about to ditch REITS but that’s not my intention. What I am likely to do is let them take the brunt of the 2% switch to bonds this year. I won’t get rid of them entirely because this portfolio is about seeing how asset classes interact. And who knows, REIT correlations could uncouple from equities over the next decade – that’d be interesting to see.

    @ Adrian – I haven’t read any sentiment about linkers on DIY investor boards so it’d be hard for me to bow down to it. I wrote a long post on the potential dangers of long bond linker funds a while ago so you can see my main sources there: https://monevator.com/why-uk-inflation-linked-funds-may-not-protect-you-against-inflation/

    Market timing wasn’t a factor. I don’t know how to market time. What was a factor was that a shorter duration linker fund hoved into view: https://monevator.com/the-slow-and-steady-passive-portfolio-update-q1-2019/

    The excellent performance of long-term linkers before and since doesn’t interest me. The question here is: does the asset class serve my investment objectives?

    As I wrote last week, you couldn’t have done much better over the last 10 years than stick everything in an S&P 500 tracker. You’d be laughing now, but you’d have fluked it.

    I guess it’s simplest to write it all off as tinkering, market timing, pressure from some mysterious forum mafia or what have you? I’m more interested in continuing to learn. If that means altering the approach every so often then so be it. Passive investing doesn’t mean being afraid to change.

  • 9 The Accumulator October 8, 2019, 10:34 pm
  • 10 J.D. October 9, 2019, 1:53 am


    Are you sure you are not trying to confirm your own bias rather than trying to find whether it is a bias or not?

    I see this argument of changing as you learn new information as a way for US investors to convince themselves to remove their non-US portion of their portfolio which let’s face it, is based on recent out performance of the US market over non-US. This is clearly recency bias and confirmation bias at play.

    You may not be the same as them, but your reason is word for word the same, which gives me pause when I read your comment.

    Now you are supporting active management as though they can somehow predict the future result that Brexit will have on the markets..? I’ll just bow out here.

  • 11 J.D. October 9, 2019, 1:57 am

    The Accumulator

    Yes I hear your reasons and they make sense to me.
    It’s also why I have no included REIT’s (my investment history is shorter than yours and the masses who encouraged REITs before have disappeared).

    On the other hand, you mention that it does not help when equities are down – but in major bear markets, all types of equities go down – UK, ex-UK, EM, SC, REITs, etc.
    For this, you only can diversify out of equities.
    This doesn’t mean the diversification within equities is not useful. Even though they all go down together, over longer periods, they do still diverge.
    Take a look at images 3 and 4 in this article to see the different equity asset class performance between the first and second decades.


    There are still arguments for REITs which fall in line with those same above graphs (despite not having REIT’s shown in the particular graphs).

    Even the Larry Swedroe article finds that REIT performance can be explained by risks (size, value), and duration risk (long term bonds). So for someone who does not have access to small cap value and long term bonds (I’m outside US and UK and don’t have access to these), is there not a case for including REIT’s to get those premiums? His case was to just use the factors themselves (SCV, LTT) as this offers the risk factors without the idiosyncratic sector risk of the listed real estate sector.

    It’s not an easy decision, and I remain unconvinced whether to include or exclude them (and similarly for small caps). My concern is how much our thoughts are shaped by following the crowd because absolutely you included it initially because the crowd followed it – as you pointed out every passive portfolio included it – and I’m quite sure your reason for change is based on the many articles in the same way.

    Your reasons and those of the many articles might be legitimate. Or they might not. I’m not smart enough to know. But I do know is that the best way to sabotage yourself is to change direction.

    If it were me and I already had REIT’s, I think I would prefer to just leave it, I don’t see it being harmful in any way, but of course it’s easy for me to sit here without REITs and imagine that I would not consider removing them, especially as the sentiment that they are not useful has become wide spread.

    In case it wasn’t clear, I’m not trying to convince you to keep them. I’m simply pointing out that that the decision is very unclear and it is often difficult-to-impossible to determine if our actions are based on evidence, group-think. or biases.

    One thing is fur sure – these all-in-one funds like lifestrategy have value in that you put it in and leave it alone.

  • 12 Kindke October 9, 2019, 8:06 am

    I wanted to invest in the global property ishares tracker but when I looked the buy and sell price of the fund has a 5% spread meaning you pay 5% to get in

    Doesn’t this defeat the point of low fee trackers ?

  • 13 Mr Optimistic October 9, 2019, 2:36 pm

    @TA, well I knew what you meant! Was one reason for overweighting property a wish for a slice of ‘alternatives’? I read somewhere that there is a difference between property companies, and funds which hold property directly. Probably got this a bit muddled but if you have a view I would be glad to hear it.
    Read ( somewhere, probably here), that long dated IL bonds are risky to a counter intuitive degree. So if bonds are meant to be the low risk slice, seems reasonable not to hold them.
    I hold TRY which seems ok.

  • 14 The Accumulator October 9, 2019, 10:31 pm

    @ Kindke

    I checked the price for IWDP on the LSE and the spread was 0.09%




  • 15 The Accumulator October 9, 2019, 11:06 pm

    @ JD – thanks for engaging. Now we’re talking! I agree the way forward is never clear. I expect my thinking to be influenced by all kinds of biases but I try to mitigate that with as much evidence as I possible.

    I disagree that the best way to sabotage yourself is to change direction.

    I think the best way to sabotage yourself is to do or do not (I seem to be channelling Yoda there) for the wrong reasons.

    For example:
    Chasing performance is a poor reason to change.
    Ignoring mounting evidence that challenges your earlier beliefs is a poor reason not to change.

    The reason I included REITS in the first place was because the weight of expert opinion in favour of them as a diversifier was near unanimous. The evidence is mixed now and that’s causing me to reconsider the size of my allocation.

    You mention a crowd. I’m not sure what you have in mind. If you mean a crowd of experts who cite the evidence then I’m happy to follow them. Otherwise not so much.
    I’ve just had a bad decade with my tilt to value but I still think that the arguments in favour of value hold, so I’m happy to stick with it.

    The studies cited by Swedroe amount to a decent summary of why you might want to keep REITs but also give plenty of reason to think that you’re loading up on risk. Lowering exposure to that risk especially the threat of interest rate risk is a legitimate move.
    For similar reasons I’ve stayed away from long bonds since interest rates collapsed. Long bonds have beaten intermediates in the meantime but they’re still a risk don’t want to take.
    You have to know what risks you’re taking and whether you’re prepared to accept them. If REITs are liable to perform worse in a crash than other equities then is that a risk you’re prepared to bear? What if you’re nearing retirement? What if your risk tolerance is quite low? Or you already have a portfolio of other risky and diverse equities like emerging markets and risk factors?

    We can’t free ourselves from bias and we can’t predict the future but we can develop a good process that helps us judge the wisdom of action in an uncertain world.

  • 16 Ben October 11, 2019, 4:26 pm

    There’s no reason that the snapshot of your opinion the day you started this is sacred. Your tinkering seems fine to me. To prove whether REITs diversification is worth the vol you could always do a portfolio construction. That aughta silence your accusers.

    I like to select my REITs for their low correlations, low vol, and income orientation. 50% of iShares UK property is in 5 mega REITs with huge London concentration and correlations to the FTSE. I have enough london property exposure so on that basis I’m out. Also remember that rental income from REITs is taxed as income not divi so shield up people.

  • 17 tom_grlla October 15, 2019, 2:43 pm

    Thanks all for the constructive replies – it’s refreshing to have conversations where people can disagree with each other, but make it an opportunity to learn new things, rather than wage war to prove that ‘I’m right and you’re wrong’.

    JD – there is much I know I’m unaware of, but I am aware that I will succumb to biases for the whole of my life, and just do my best to minimise them!

    While I don’t agree with everything Keynesian, it is his line, ‘when the facts change, I change my mind, what do you do, sir?’ (off top of my head, apols if misquoted) that seems to me a pretty no-bullshit, common-sense way to act.

    I support a tiny proportion of active managers – those who feel like they have ‘second-level thinking’ that Howard Marks mentions. They tend to be much more bottom up than top down, and are likely to freely admit that they can’t predict Brexit, and are not bothered about it. They tend to be much more focused on outstanding companies

    I think that the market’s very efficient most of the time, but I believe that these ‘superinvestors’ exist (very, very rarely, granted).

    To clarify, that doesn’t mean I think those superinvestors will always do well – I expect them to have a ‘style’ and that style won’t always be in favour.

    So I look to build a basket of the most talented managers, with high integrity (e.g. reasonable fees) and alignment, with different styles, so that hopefully there is always someone pulling the weight.

    So in a sense I consider myself relatively agnostic for an Active person. I also try to be fairly agnostic about Geography, with a fairly equal allocation to major regions, believing that there are outstanding companies everywhere, and not knowing which one will do well each year.

    I tilt in some directions – I see the appeal of classic value investing (ignoring its current unfashionability) but it seems hard work to have to keep finding new cigar butts. It seems much easier to have bought some ’82 claret en primeur and laid it down for the long-term. I find simpler strategies more appealing.

    I’m certainly not saying this is the right way to invest, but it works for me, and I do a ton of research on funds, to the point I know the portfolio inside out.

    Incidentally JD, your discussion of how to allocate reminded me that often Passive investing seems to still involve quite a lot of Active decisions!

    To return to Property – I don’t actually invest in it, as I did come to the conclusion a few years ago that it appeared to be too correlated to equities. But my other key problem was realising just how much leverage is involved in property, meaning that the performance figures suddenly seem much less impressive.

  • 18 tom_grlla October 15, 2019, 2:45 pm

    p.s. What I’d give for an edit function on the comments – I dashed that off rather so apologies for the length and composition.

  • 19 Anthony November 5, 2019, 6:34 pm

    Just under 10% annualised return, not a bad result for quite a low risk set of holdings.

  • 20 Trevor Shand November 8, 2019, 10:37 am

    Am I reading this right. slow and steady has gained 59% since 2011 but iShares MSCI World UCITS ETF seems to have gained 150%?

  • 21 Two Shillings and Sixpence November 19, 2019, 6:13 am

    Will you consider adding a global bond index fund as you get closer to retirement and the % in bonds increases.

  • 22 LS January 4, 2020, 8:58 am

    Hello !
    Thanks for the interesting reading, as always. Would it be possible for you to make a post explaining how you set up your excel spreadsheet (And what information to put where!) or perhaps put up a template ? I am a newbie investor and keen to track my portfolio on excel but not sure how !

  • 23 The Accumulator January 4, 2020, 2:10 pm

    Hi LS, that post is on the list. In the meantime:

    This excellent article helped me build the spreadsheet:


    These are helpful too:



    Or, there are some links to ready-built portfolio tracking software and spreadsheets in the portfolio tracking section of this piece: http://monevator.com/financial-calculators-and-tools/

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