My March 2016 returns

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.

2016 03 returns by asset class

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.



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