June 2019/Q2 review

We live in extraordinary markets. Time for a quarterly look back at my portfolio.

What’s been going on?

In the last three months:

• Theresa May has finally thrown in the towel. Her replacement, either BoJo or Mr Hunt the Culture Minister, will take over on 22 July, barring upset. This follows a European parliamentary election, in which nothing very surprising occurred.
• Huawei has been in the news a lot. As has Mr Trump.
• The conservatives won an Australian election, against the odds.
• Neil Woodford, a person in the UK, suffered a run from depositors.

The markets

June saw some of the most benign market movements I can remember. I don’t have a clear sense of why. Here’s the outcome for the month:

Taking a slightly longer view than one month, one of the most notable features of Q2 was the fall in the pound from $1.31 to $1.26, on the back of UK political nonsense. Equities rose in April, fell in May, and more than recovered in June; FTSE moved in Q2 from about 7279 to 7426, and S&P 500 from about 2830 to about 2930. Bonds rose much more smoothly, up over 2%.

My portfolio

The June market movement, weighted for my target allocation, was up 4.0% (with FX pretty much flat). My portfolio rose by almost exactly this.

What’s extraordinary about this year so far is that markets, as a whole (as weighted by my allocation), have risen over 15%. In six months. These returns are pretty extraordinary. But you wouldn’t catch it in the mainstream media, what with the Woodford/etc woes to read about instead.

Q2 saw me both recover my investment portfolio to roughly the level I started at before blowing a large chunk of it on my Dream Home, and also finally officially Double my portfolio (ignoring additions/withdrawals) since the start of my monthly tracking on 1 Jan 2013. Happy days.

My posture

I finished Q1 hoarding cash, waiting for the new tax year. I was underweight equities, most notably the USA.

In Q2 I deployed most of my hoarded cash. Nonetheless, I have found myself, for most of Q2, slightly underweight the USA. I have been slowly deploying dividends/excess cash into the US markets but haven’t managed to close this gap.

Other key metrics

As to expenses, and taxes….

At some point in Q2 I updated my expenses calculations from scratch. I can’t remember what difference this made, but it suggests my overall expenses are now only 43bps (versus 55bps reported in Q1). I don’t think this drop is completely accurate; I think my Q1 figure was overstated, but some of this drop is real – based on exiting some expensive holdings and deploying incremental funds into low cost places. Whatever the actual number, as before, my expenses are significantly inflated by my stubborn loyalty to a private bank.

My effective tax rate has dropped very slightly to 29.1% (from 29.2%). Though, at the start of Q2, I moved £40k into my and Mrs FvL’s tax-free ISAs, this hasn’t made much difference to the blended total.

I am hearing numerous rumours that the Labour party is planning a one-off, short-sharp-shock wealth tax if it gets to power – along the lines of 15%-20% of wealth above a (not yet determined) wealth threshold, overnight. While I would find such a policy pretty shocking, it would, if only applied to my liquid portfolio, wind my personal clock back by less than 12 months. Food for thought.