Well well. It’s the 31st of March and we appear to still be in the EU. Much as I am delighted we haven’t left, this does leave some much-sought-after clarity postponed. More on this later.
The wider world
In ‘mover and shaker’ terms, what’s been going on?
- Mueller reported on Trump’s alleged collusion with Russia. Rather anticlimatically, from a London point of view.
- Trade-related noises continued to emanate from the White House. Without much clarity.
- Apple announced, erm, that it has spent $2bn on TV content. Yawn.
- And UK democracy wriggled and writhed around the incoherent fantasies of Brexit and politics combined.
From a markets point of view, this backdrop felt rather similar to January and February, and sure enough March markets felt fairly similar to January and February markets.
As a ‘no deal Brexit’ scenario looked more likely, the pound declined off recent highs. We are back to £1:$1.30. That was the major currency movement to note; in the meantime the Euro has been declining against other currencies and the AUD is bouncing around in its own electorally-driven world.
Bonds had a stronger month than normal. The logic here evades even an avid FT reader like me. I think what matters is well put by Monevator:
A quick way to be called a moron by people who know more than they understand over the past 5-10 years has been to suggest that bonds still have a place in most portfolios. A wealth-destroying crash was “obviously” imminent, you see.
But markets often move in the way that surprises commonplace assumptions, and that’s certainly been true of bonds.
Monevator’s Weekend reading: Oops, bonds did it again, 22 March 2019
This lot left March markets looking as follows:
Looking back 12 months, March saw equities return (admittedly briefly) to a positive return, leaving the Q4 20% correction very much behind us – though equities haven’t yet recovered to the heights of last summer. In the meantime bonds, which have been losing value through 2018, are now up about 5% from their Q4 nadir. A blend of both would, as so often, have stood an investor in reasonable stead.
The March market movement, weighted for my target allocation, was up 2.6% (0.75% from FX, the rest from the leveraged play on equity/fixed income). My portfolio lagged this slightly, rising ‘only’ 1.9%. But for the year to date, and indeed over 12 months, I’m up 9%. That’s despite the Q4 correction setting negative records.
Closer to home, I have been hoarding cash.
I always hoard cash at this time of year in certain accounts, readying for the start of the new tax year and thus new ISA season – when I move £40k into new ISAs for me and Mrs FvL.
But this year we have Brexit to worry about. I’ve handled this by suspending my normal dividend reinvestment, to build up a bit of dry powder. I think we are due for a sharp GBP/USD currency movement the moment the Brexit can stops being kicked down the road; which direction it moves will depend on the outcome. Until then I’m on the sidelines.
As well as my dividend cash pile, I’ve had a couple mini-windfalls in Q1. This has allowed me to temporarily reduce my leverage. As a consequence I am now ‘overweight cash’ by >4% of my investment portfolio. I am also materially underweight equities, which my lack of dividend reinvestment has prevented me correcting against.
Other key metrics
Long time readers will notice I haven’t declared any 2019 goals. The reason is that I haven’t felt this year has any particular goals, and my overall investment horizon is much longer than 12 months (touch wood). Nonetheless, I will continue to report regularly on key portfolio metrics, namely tracking vs my target weighting, leverage levels, and tax/expense rates.
The story on expense rates and taxes is mixed. With some liquidations of high fee assets, and rotation into low-fee arrangements, my total expenses have dropped by 1bp to 55bps. Fees as a percentage of investment income (‘pseudo taxes’) remain at 19%. But my weighted tax rate has risen slightly, from 28.8% to 29.2%; I will need to revisit this after my ISA topup.
And on that note, if you haven’t used as much of your 2018/19 ISA allowance as you can, pull your head out of the sand! This week is your last chance.