Mar 2018: President Chump?Posted: 2018-04-02
March took ages. Heck, there was even a blue moon. So much seemed to go wrong I am probably going to miss stuff out.
Obviously Trump started a trade war. I’m not sure the exact impact on the markets but I think this marked a clear Sell signal for S&P500. I often think of HSBC as a proxy for global (esp. Asian) trade, and its stock tells the story as well as any. March wasn’t particularly notable except that the miserable Q1 trend continued, with hardly any respite.
Next, and closer to home, Aviva kicked off some unwelcome news by announcing they were going to redeem their irredeemable shares. Or something similar. I own a bunch of similar holdings (notably NWBD and LLPC, after a helpful tip by Monevator back in 2010). Anything which looked like a blue chip pref share with any sort of ‘irredeemable’ tag got clobbered, not entirely surprisingly. I did a handy table mid month showing the extent of the damage inflicted, at peak. At one point I was down almost 1% of my total portfolio thanks to this mess. Talk about unexpected correlations.
Fortunately, by month end Aviva had relented and these holdings had mostly regained their poise. I think hindsight will show that we were lucky it was Aviva which played with redeemable fire here – Aviva has a strong ethical position and was successfully shouted down by small shareholders. Had RBS/Lloyds/Santander had a crack I am not sure we’d have been so lucky. And now it will be harder for anybody else do have a go in the future.
While we are talking about unforced errors, for some reason the global media decided March was the time to take down Facebook 50m pegs or two. Having read Dominic Cumming’s riveting BrexitRef blog post, I somehow felt that this news horse had bolted about 18 months ago, but I must have missed something. In any case Facebook’s market cap shed about $40bn, which is a lot of unicorns.
Much of the wider tech sector caught a cold at points too – for instance, Alphabet/GOOG has dropped below $1000 for the first time in a while. Monevator’s last Weekend Reading illustrated it well:
I think somewhere in the heat and light of March, US interest rates went up again. I haven’t really followed it. I do know that my margin loan with Interactive Brokers now costs, in USD, double what it costs in GBP.
And just as we thought the month was over, Trump started laying into Amazon with both barrels. Using some fairly dozy arguments about the USPS. Presumably now that even Trump can’t brag about the stock market any more, he has to scrape an even less fact-based barrel. I must admit to feeling conflicted on the Amazon front, not least because it has inadvertently become a big holding for me, but it certainly makes good entertainment (and that is only partially a pun). Look at the ballistic trajectory AMZN has followed this year – and note how it is still considerably up on its position on 1 January.
What this ended up looking like was a very poor month for US/Oz equities. Both dollars fell at the same time as their equity markets, so for us sterling investors this was very red ink indeed. Back home, FTSE felt worse than the percentages suggest, as FTSE-100 started nudging 7000 again. But at least we can rely on bonds…. which had a pretty solid +0.8% (ish) month everywhere.
Of course when key markets are dropping almost 4%, the leveraged investor braces with horror. As things turned out, it could have been worse. Thanks to bonds’ positive performance, the markets’ weighted average constant-currency performance was down ‘only’ 2.5%. My invested portfolio fell, after adjusting for withdrawals, rather more than that – it dropped by around 4% on the month. In the scheme of things I’m not too grumpy about this. It may mean there are buying opportunities in the new ISA season coming up in a week or so.
We’re a quarter of the way through the year. How am I doing against my three portfolio objectives?
As it happened March saw some developments ‘off balance sheet’ that will affect my portfolio in a couple of important ways. Apparently I can expect a windfall or two later this year. I plan to invest most of the money in my tracked portfolio. I may write a blog about this once I get it as the psychology of windfalls and how to deploy one-off, unanticipated funds is quite different to the normal dynamics of Save vs Spend and compound interest.
In any case, ahead of any windfalls appearing, my progress against my goals isn’t looking too rosy:
- Reduce taxes & expenses. I am aiming for my blended investment tax rate to drop below 29%. I have made small progress in the right direction in Q1, with a net increase in my PSC’s assets and also in Mrs FvL’s SIPP. I’m about to top up the marital ISAs by £40k, by transferring funds from higher tax pots into the ISAs – this will help considerably. But the real question will be whether to deploy any of my upcoming windfalls into tax-efficient structures. I haven’t decided my tactics here yet.
- Maintain my (slowly de-leveraging) allocation. I have been a naughty boy in Q1; after taking £200k+ out of the portfolio to lend some money, by enlarging my margin loan, my allocation tracking is setting off all sorts of alarms. In general terms I am feeling pretty comfortable; with luck I will get my lent funds back, with interest, and markets will be 10% lower than when I started, so the loans will have outperformed their liquid equity counterparts by about 20%. But in the meantime my dashboard is making a lot of noise and I am largely ignoring it. I have moved the obvious bits of my USD margin loan into GBP, which saves me around £1400 per £100k of move, but the underlying impact on my portfolio is, ahem, pretty marginal.
- Learn something new, that I can put into practice in my investing. Not very much to report here, sadly. I’m learning a fair bit in the day job, but that isn’t much use to my out-of-hours investing activities. I have also hit some roadbumps with an angel investment that is teaching me lessons, but not ones I can easily blog about. I’m not giving up on this goal yet but don’t have much to report yet.
So, that rounds up a lot of heat and light by normal standards.
One last thing, for UK readers…..
If you haven’t made as much use as you can of your ISA allowance, don’t forget – you’ve got about two days left, and the allowance is a ‘use it or lose it’ allowance. There is really no catch – as you can always pull the money back out again if you need it – but the potential upside could be worth, literally, millions.
(Updated 3 April to add Monevator’s graph)