Last quarter I had the unfortunate duty of reporting the Slow and Steady portfolio’s first plunge into the red.
We were down 9.32%, as the sovereign debt crisis waded into our holdings like Godzilla chewing up Tokyo.
Since then I’ve filled an entire notepad with the near endless dirge of economic misery reported by the media:
- The Bank of England announced QE2.
- Global growth forecasts have been cut.
- Many analysts think we’re already in recession.
- The break up of the Eurozone is widely predicted.
- The ECB is providing €500bn in life support to the European banks that no-one else will lend to.
And where does all this doom and gloom leave our passive portfolio? Down 1.70% on the year, but up 6.83% on last quarter.
Significantly, our benchmark – the FTSE All-Share index – is down 5.51% on the year, so we’ve at least beaten that, thanks to our diversification into gilts [1].
[2]
Reminder: 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. An extra £750 is invested every quarter into a diversified set of index funds, heavily tilted towards equities.
You can read the original story [4] and catch up on all the previous passive portfolio posts here [5].
What 2011 has done to our portfolio
- The US fund is the single equity bright spot over the year, gaining 3.11% as US economic indicators continue to defy the general expectation that we’re all going to hell in a shopping trolley. Happily, at 27.5% the portfolio allocates more to the US than any other fund.
- Of course, Europe has been a basket case and we’ve lost 12.47% on that fund over the year. And it doesn’t look like things are going to improve any time soon.
- Plainly the UK is in pretty poor shape too and our FTSE All-Share fund has lost 3.17% in 2011. The All-Share is dominated by multi-nationals, however, and their ability to scour the globe for opportunities has mitigated the impact of bad news on the home front.
- Japan is still struggling to come to terms with the aftermath of the tsunami, not to mention the strong yen, so unsurprisingly we’re down 10.39% there.
- Similarly the Pacific ex Japan fund has lost 10.36% as their major trading partners struggle in the economic headwinds.
- The portfolio’s biggest percentage loss was the 14.64% vaporised from the Emerging Markets fund. Chinese equities fell as the government tightened lending while India’s markets and currency also plunged.
- Our main bulwark against the negativity has been the UK gilt fund. It’s continued to appreciate throughout the year, gaining 14.65%. The movement of our gilt fund against the grain of our equity holdings has been a textbook illustration of the value of non-correlated assets. And a textbook dumbfounding of the forecasts that the only way for bonds was down.
So despite the abrupt end of the bull market and a year where I continually expected to find the Four Horsemen of the Apocalypse drinking in my local, we’ve ended up £89.65 down on our 2011 contribution of £5,250.
I think I can handle that, but if you can’t then increase the percentage allocated [6] to bonds in your portfolio.
New purchases
Every quarter we add another £750 to the portfolio.
This time we’re also going to up our bond allocation by 2% to 22%, as we’re a year older.
The portfolio initially had a 20-year time horizon (now 19) and the slow shift from volatile to non-volatile assets acknowledges the fact that we’ve got less time to bounce back from major stock market declines as we edge towards retirement.
To keep things simple we’ll just knock 1% off each of our two biggest holdings: UK equity and US equity.
UK equity
HSBC FTSE All Share Index – TER [7] 0.27%
Fund identifier: GB0000438233
New purchase: £77.50
Buy 23.5279 units @ 329.4p
Target allocation: 19%
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): 49%
North American equities
HSBC American Index – TER 0.28%
Fund identifier: GB0000470418
New purchase: £80.96
Buy 42.1253 units @ 192.2p
Target allocation: 26.5%
(Note: TER up from 0.25% to 0.28%)
European equities excluding UK
HSBC European Index – TER 0.31%
Fund identifier: GB0000469071
New purchase: £116.19
Buy 28.4989 units @ 407.7
Target allocation: 12.5%
Japanese equities
HSBC Japan Index – TER 0.29%
Fund identifier: GB0000150374
New purchase: £63.36
Buy 109.178 units @ 58.03p
Target allocation: 5%
Pacific equities excluding Japan
HSBC Pacific Index – TER 0.37%
Fund identifier: GB0000150713
New purchase: £40.44
Buy 19.182 units @ 210.8p
Target allocation: 5%
Emerging market equities
Legal & General Global Emerging Markets Index Fund – TER 0.99%
Fund identifier: GB00B4MBFN60
New purchase: £88.38
Buy 206.3554 units @ 42.83p
Target allocation: 10%
(Note: TER up from 0.98% to 0.99%).
UK Gilts
L&G All Stocks Gilt Index Trust: TER 0.25%
Fund identifier: GB0002051406
New purchase: £283.17
Buy 156.0167 units @ 181.5p
Target allocation: 22%
Total cost = £750
Total cash = 5p
Trading cost = £0
A reminder on rebalancing: This portfolio is rebalanced [8] to target allocations every quarter, mostly using new contributions. It’s no problem to do as our vanilla index funds don’t incur trading costs.
Take it steady,
The Accumulator