March 2019/Q1 review

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.

The markets

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:

Market movements in March 2019, with weighted totals

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.

Global equities & global bonds, over last 12 months, in USD

My portfolio

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.

My posture

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.

Delta from target weighting, as at 31 March 2019

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.

2 thoughts on “March 2019/Q1 review”

  1. Hi, we connected on Reddit last year. I will be in London on May 19th for about a week. Would be great to meet up for coffee if you have time 🙂


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