Updating my target allocation

The key to my investment philosophy is having a target asset allocation.  Ideally, this allocation hardly changes – perhaps a slight shift towards bonds and away from equities every year as the Grim Reaper approaches, but aside from that nothing significant. In practice, it’s time for a quick update to the allocation.

The main trigger for my allocation update, to coin Harold Wilson’s phrase, is: events, dear boy, events.  The portfolio I let a private bank manage for me was restructured last year, and left me with significantly more US exposure and less UK exposure than before.  And almost every asset class gained a lot last year, measured in pounds, so being levered proved to be a significant boon.  While I could rebalance, I want to consider whether my target allocation is still right.

My old allocation had UK equities and US equities equally weighted.  This left, when you factored in my bonds allocation, the UK at a target weight of 35%, and the US only slightly higher at 40%.  And my old allocation had bonds:equity  at 29%:71% – an equity-friendly mix, to be sure, but with a very significant minority of bonds.

Looking at my old allocation from current perspectives, I want to make some changes.

Continue reading “Updating my target allocation”

My HYP’s miserable performance

For the last few years I have been running a small High Yield Portfolio (HYP) as an experiment.  The performance of this portfolio has been underwhelming, to say the least.  I’ve taken some time recently to dig into the performance in more detail to examine why the performance is so lacklustre.

The theory: take steady income, and gear up

The thinking behind my HYP was clear:

  1. Set up a HYP in a US dollar account. Let’s call it $100k to keep numbers simple.
  2. Gear the portfolio up.  With USD interest rates at <2%, I was targeting a general level of gearing of about 2:1. I.e. I’d have about $200k of assets, and $100k of loan costing me around $2k per year.
  3. Pick securities, of any type, which had the following characteristics:
    • Yield of above 4%.  I have averaged yields of around 6%.  This amounts to $12k of income (6% of $200k).
    • A historically steady share price. Or, if I have to, a slowly rising price – e.g. AT&T.
    • No  obvious warning signs of impending doom.
  4. Reinvest income. I don’t have any particular science to this – sometimes I buy on dips, sometimes I add a new holding.
  5. Pay a modest amount for ‘volatility insurance’.  My way of doing this was to hold a short position on the SPY tracker, amounting to about $20k.   This reduces my loan by $20k but costs me about 2% too so it doesn’t really change my $2k per year total cost.  My average in-price for that short position is 131, which tells you how old this portfolio is (hint: SPY is now at about 224!).
  6. In theory this would lead to a portfolio with $100k net asset value, average income of about $10k (i.e. 10%), and a manageable level of volatility. I think I might also expect some drop in capital value, if I’ve bought assets whose yield is because they are effectively selling off assets.
  7. This portfolio would not be tax-efficient because the gross income of $12k would all be taxable (and investment interest isn’t deductible in the UK) but even net of tax the level of return would be about 6%.  This isn’t stellar but if it was reliable year after year I would be quite pleased with it.  Ideally it would also deliver a modest level of capital gain too.

The practice: average returns of half my expectation

Continue reading “My HYP’s miserable performance”

My investment tracking spreadsheet

I’ve been tracking my portfolio rigorously for over four years now.  One thing I’ve been asked for quite a few times is a copy of the spreadsheet I use to monitor it.  So here goes.

I face three key challenges in tracking my portfolio’s returns:

  1. Unitising the portfolio.  This means correcting for ins/outs – withdrawals or deposits. Just because a £1m portfolio gained £100k doesn’t mean it’s delivered a return of 10%; if £30k of that gain was fresh contributions, for instance.
  2. Evaluating the portfolio’s exposure.  By exposure I mean allocation by geography and allocation by asset type (equities, bonds, etc).  Some platforms let you ‘X-ray’ your holdings but each has a proprietary way of doing it, and many platforms don’t offer any such feature.
  3. Integrating my holdings across multiple accounts.  I have accounts with several brokerages and platforms.  Each has a different way of doing it.  They don’t even use the same tickers for the same underlying assets.  I want a way of pooling all the portfolios into one consistent spreadsheet.

My template spreadsheet is available as a Google Sheet here.  It’s read only, but you can make a copy (either download a copy in Excel, or make a copy in Google Sheets) to edit yourself.  All appropriate disclaimers apply – use at your own risk.

This template spreadsheet includes example tabs for about half a dozen UK brokers, including Selftrade, TD Direct, Fidelity, Interactive Investor, Cofunds and Hargreaves Lansdowne.  Adding a tab for a broker not already covered is not a difficult process.

Continue reading “My investment tracking spreadsheet”