Oct ’22: Hunt and Sunak take over

October has been one of those months where I wonder whether I should be doing weekly updates, not monthly ones.

But rather than subject you all to 20k words, I feel like it has been such a blur I can’t even do it justice. The end result is that we have a new PM (a billionaire mews dweller, no less – probably the only one in the country!), a new chancellor, and long term interest rates/etc are back where they were two months ago. Energy prices appear to be dropping, through no fault of our government. Short term rates are up – at the time of writing they have just jumped 0.75% to 3.0%.

The UK’s new prime minister, mewsing

The difference from two months ago is that our £40bn-£50bn fiscal hole now actually matters. That stray £10bn between £40bn and £50bn is caused because the government now accepts it needs to tighten policy, and thus reduce growth, which ups the deficit from £40bn to £50bn. But in the meantime energy prices have dropped enough that much of that £10bn is clawed back as a smaller subsidy under the Kwarteng Energy Price Guarantee.

I became disillusioned, last month, with index-linked gilts. This train of thought continued in October leading to me becoming quite enamoured of individual gilts. I have repurposed one of my subaccounts into a fixed-income-only account. And I have even been buying some government bonds – both in the UK and in the USA – reasoning that yields of 4%+ over 30 years don’t sound too bad, I don’t trust the ETF’s pseudo-index process to get me that yield, and IB gives me very good margin arrangements for these bond holdings (much better than the Lyxor fixed income ETFs, at any rate). The good news is that I am already 10% up on one of these investments; the bad news it that the holding in question is less than 0.1% of my portfolio, and yields are now about 3% which doesn’t feel like such a tasty proposition to continue topping up.

The pound recovered somewhat in October, after its mauling in September. Likewise UK bonds rose 4% too as the ‘moron premium’ faded, reducing yields / increasing bond values. Equities rose everywhere, particularly in the USA. The markets I’m exposed to rose 5.6% in October; currencies then pulled my non-UK values down 2.3%. Which left the markets up, in GBP, by 3.2%. (As a bit of small print – some of my monthly figures are rather approximate because the iShares website doesn’t seem to have updated since 20 October).

Market movements in October, in constant currencies

But my portfolio contained a whole range of dynamics. I have a variety of subaccounts / accounts with separate reporting and it was interesting to see the range of results.

  • My passive ETFs portfolio, a leveraged IB portfolio, rose 6% in USD. Very similar to the market benchmark cited above.
  • My (leveraged, ahem) Tech portfolio dropped 3%. Amazon’s share price dropped 10%, and my Shopify holding, though up 25%, is much smaller.
  • My Ltd company portfolio, another (very) leveraged IB portfolio but almost all active holdings, rose only 0.1%. My META/Facebook and ADS (Adidas) holdings took a beating, and I have Amazon in this portfolio too.
  • My blended Australian portfolio rose 4.7%. This was mostly driven by Xero.
  • My brand new fixed income portfolio was up a bit too – though this portfolio only came into existence mid month.
  • Most bizarrely, my hotchpotch active equities account rose 14% in GBP, admittedly benefiting from mild leverage. Berkshire Hathaway, Disney and Pepsi being up 10% and JP Morgan climbing 20% all proved very helpful – tho my trimming of my JPM position a couple of months ago does not look so smart now.

Separately, and due to a combination of reasons including taking a couple of profits, my margin loan reduced by five figure sum. This reduces my Loan to Value to 24.2% (from 24.9%). I remain significantly overleveraged but the loan is 10% smaller than it was at the start of the year. I remain comfortable it’s under control, even though the monthly interest expense is 50% higher than it was at the start of 2022.

12 thoughts on “Oct ’22: Hunt and Sunak take over”

  1. As commented on your September post, I’m in the process of loading up on individual govt bonds. I have about 15% of my net worth in long duration bonds, heading towards 20%. This spike in yields just seems like such a good opportunity to not take advantage of, and it works well for my current situation. My plan is to live off the 7.X% YTM income until 2050 when they mature, and that will leave my equity portfolio to compound in the interim. Assuming I pop my clogs around 100 (might be a stretch, but would rather be conservative than run out of cash!), that will give me 25ish years to live off the fixed income and rental income from properties, then for the last 35 I can work on blowing the equity pot and spending the bond capital / rental properties! If the equity portfolio is doing well in the interim might start withdrawing from that earlier to splurge on stupid things. The fixed income removes a lot of variables from the plan and makes me feel a lot more comfortable kicking back and putting my feet up. Overall the plan is very conservative, but a lot can change in 60 years, so I’m consciously being overly cautious!

    Liked by 1 person

  2. Are you comfortable with the amount of portfolio volatility you seem to be running? Your average monthly vol is around 5.5% this year (19% annualized) and has been around 4.5-5% for the last 3 years or so. This is from something closer to 2-2.5%/month (8% or so annualized) for the period 2013-18. Market volatility has risen substantially and it’s not clear it will fall back to the very suppressed levels of the last decade. Just seems an awful lot of risk to be taking. Is it necessary?

    Liked by 1 person

    1. Not sure exactly how to tackle this question.
      I think the volatility is a function of the (high) levels of leverage I am using. As I’ve detailed in a couple of posts I am broadly not thinking about the net portfolio returns, so much as just making sure the debt is under control and being reduced over time. The long side of things will look after itself – and is roughly speaking an 80:20 equities:fixed income exposure which of course will be relatively volatile.
      While mostly passive, my active stuff has quite a bit of Tech exposure. I know Tech quite well so feel I have at least a little bit of edge here (tho my returns probably suggest otherwise!). But it does come with volatility.
      One thing I have been a bit blindsided by is how poor bond returns have been – yes I knew they were likely to dip but I had a lot of INXG – UK inflation linked ETF – and seeing that halve YTD in September was NOT something I was expecting.
      Any simple, passive, low cost highly liquid solutions to my volatility that I am missing?


      1. I think you’ve forgotten what a passive portfolio is. The passive benchmark portfolio is the portfolio that meets you long-term objectives with the minimal probability of failure. An 80:20 portfolio of index trackers is not the passive portfolio unless it just happens that an 80:20 portfolio minimizes the risk of failure. Does it? Unless your objective is basically maximizing total return, then your portfolio is almost certainly sub-optimal. This is my issue with Monevator et al. I They corrupt the original idea of passive by equating index tracking to it. They just convince everyone to maxmize total returns, completely ignore future liabilities in the optimization (and thus SoR), and, thus, everyone taks too much risk.

        Where is your hedge in this portfolio for a inflationary bust? Or an extended higher vol environment. I don’t see one. It’s almost pure deflationary boom or deflationary purgatory. It’s very one dimensional.

        Liked by 1 person

      2. Belated response….
        I think my objective arguably is maximising total return (risk adjusted, to an extent).

        I think index tracking might not be perfect but it is a bit like democracy – it is the least bad option for most people.

        My hedge for inflationary bust / higher vol? *in this portfolio* – you are right I may not have one . But outside this portfolio, my employed income and my property assets provide me with quite a good hedge.


    2. Re ZXSpec

      For an average member of the UK public what should a passive portfolio look like?for someone not in your financial league, all I want is £50k increased by rpi until the day my partner and myself departs the scene.

      Liked by 1 person

      1. I think most people would side with monevator and not ZX48k – that a decent passive portfolio is a blend of index trackers, supplemented with a cash pot / emergency fund.

        I think property is a good way of linking to RPI but owning property is a faff. A reasonable compromise is owning a REIT. REITs need to distribute 95% of their income and some big ones (e.g. LAND, LSEC) are professionally managed. You get decent liquidity, ‘passive’/sleep at night status, and an RPI link long term.

        A divident growth portfolio is the other way of doing it – managed for dividends, not capital gain. There are some public biz that are reasonably strong inflation-protection too, I think – e.g. Tesco, Unilever/Nestle/similar.


  3. How did you manage to acquire Gilts in your IB account (you mention the favourable margin terms)? From what I could work out after several days of messages, IB technically offers Gilts but only through a third-party online trading platform which seems to never provide quotes (as no liquidity in the online platform vs traditional phone trading platforms).


    1. I looked them up in IB’s Market Screener! I am authorised to trade bonds – originally just in Asia, for some reason – but IB instantly approved me to do it in Europe and USA too.
      Then Market Screener lists bonds in a decent range of geographies. It helps to tick the tickbox to include bonds without quotes.


  4. I keep challenging people who say Sunak’s a billionaire to demonstrate it. Nobody has even got close.


  5. It seems to me as if you have or had a v high beta portfolio

    – you are invested in a number of stocks that are high beta relative to the market (e.g. tech)
    – you leveraged the portfolio
    – your bond duration was high through £ indexed link gilt funds (note presumably that’s a lesson learnt for a lot of people including financial advisers)

    As interest rates have moved against you all three of those components are working against your portfolio, either through, a higher discount rate impacting stock where the cashflows are a long time in coming, higher interest rates increasing cost of capital, bond falls.

    That’s more volatility compared to a 60:40 portfolio.

    Over the long term it should, deliver higher returns. note should and ‘long term’ is measured in decades with months just being statistical noise.

    Please note I am not giving any view as to whether or not that is a correct or sub-optimal portfolio for you, just making observations. Hope that makes some sense…..

    Liked by 1 person

    1. I agree. And to add to the three bullets you list, I would say my portfolio is a global one – with a 50% USA weighting. USA equities are down 23% year to date. Multiply that by leverage and I am going to have a bad year.


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