My invested portfolio posted returns of 3.3% in March. What’s not to like?
What happened in March?
- The Brexit debate rumbled on, with opinion polls still suggesting a very narrow majority to remain in but the pound remaining under pressure.
- Donald Trump looked increasingly likely to clinch the Republican nomination, and be beaten in November by the less popular Clinton.
- After a Tata Steel announcement it looks likely the UK will end volume steel manufacturing with the loss of 4000-40000 jobs.
- The UK chancellor announced he’d use the backs of the disabled to help balance the budget. Then his mind was changed by, among other things, a cabinet member’s resignation. He also reduced capital gains tax, extended entrepreneurs’ relief and invented Lifetime ISAs.
- The UK current account (the amount of money coming in/out of the country per day) reached its highest deficit ever – ie more foreign money is entering the country than ever. Apparently this is a bad thing.
What this meant was that the pound continued to be weak, albeit more against the euro than the us dollar. Equities rose quite strongly in March: UK equities rose about 2%, with US equities up over 5%. And bonds rose too – UK ones by 3%. In that environment it’s hard to lose money.
In fact the markets I’m trying to track, with the leverage I’m aiming for, rose by 4.6% – almost half as much again as my net portfolio delivered. So I lagged my own index significantly.
In that context, 3% in a month isn’t so impressive. What happened to cause me to lag my index?
The simplest answer is that my portfolio isn’t yet allocated fully in line with my target allocation; this tracking error has left me underexposed to (strongly performing) UK bonds, overexposed to (relatively underperforming) UK equities.
In addition, currency movements have played a part. The Euro rose by over 2% in March, and the US Dollar fell by about the same. So the US equity gain of almost 6% looks more like a 4% gain when you measure it in pounds.
Having updated my target allocation significantly in January, I intend to complete my initial rebalance later this month. Unfortunately this will probably see me buying bonds after some strong gains. I’ll be looking for dips to make these moves.
FIRE v London 