Investment returns – Page 39

March ’17/Q1 progress: HMS Brexit launched

2017-04-032017-04-03 FIRE v London1 Comment

It’s the end of the month and the end of the quarter. This is a combination post with my usual monthly portfolio performance along with a quarterly review of how I’m progressing on my goals for 2017.

What happened in March? The UK saw its first terrorist outrage for years, with the disgusting car/knife attack at the Palace of Westminster. While five people died (about the same as an average day of car fatalities, in fact), over 70 people were injured – which is thousands of people in families/friends affected. It reminded me of the January Melbourne attack, in which a malcontent killed five people and injured 30 in a drug-fuelled car-only attack on the busiest street in the city centre.

Why in London there were twice as many people injured (or half as many people were killed, relative to total casualties), as in Melbourne I have no idea but would be interested if anybody has any insights.

What I can say is that I think London’s authorities/emergency services did an amazing job, with the criminal apprehended (erm, shot fatally) 80 seconds after the attack started, no collateral damage and lots of heart-warming stories of common sense, thinking under fire, charitable support and so on.

The other thought that will have occurred to lots of us is how thankful we Brits should be for our (almost) gun-free culture. Extremists in the US do a lot more damage far more easily.

From an investment / UK markets perspective the big event was probably the UK government formally triggering Brexit via Article 50. This event was so well choreographed that it had a negligible impact on the markets. While I am no defender of the current UK government, in fairness to them they ended up implementing a Brexit process that they had laid out around six months ago, with zero amendments. They do deserve some credit for remaining in control and being true to their word.

By contrast, March also saw the UK’s first budget under the new(ish) regime. This led to a farcical U-turn around National Insurance (the UK’s social charge, a.k.a. a tax on work). Unlike the Brexit saga this showed our senior leaders at their anti-leadership worst, in a petty dispute which did nobody any credit. But nothing in the budget made any impact on markets /etc either.

Overseas, the main news in the markets was the defeat of Trump’s repeal of the Obamacare bill. This wasn’t what pharma investors wanted. But the wider impact is to call into question the Republican regime’s credibility, which in turn suggests they may not achieve the market-friendly changes to taxes and regulations that many hope for.

So in this environment, how did markets fare and how my portfolio perform?

Continue reading “March ’17/Q1 progress: HMS Brexit launched” →

My performance in Jan ’17 – Trumping begins

2017-02-04 FIRE v London1 Comment

What a month. First of all we get Theresa May’s Brexit 12 point plan, a.k.a. rebranding Great Britain as Global Britain (despite its lack of resonance with voters). Next we get the Trump inauguration. Then we get Trump’s hyperactive first two weeks. Never mind the hackneyed First 100 days of a new POTUS – Trump has done more damage to the USA’s overseas reputation less than 14 days into the job than Bush / Obama / etc managed in their first year.

Amidst all this the equity and bond markets have struggled to form a view. USA equities are up a bit, UK bonds are down a bit, not much else to report. Phew.

The USD has fallen a bit, thanks to concerted talking down by Trump and his putative administration. They are accusing China of being a currency manipulator (which appears to be broadly true, albeit in the opposite direction to their claims), Germany of being an EU hegemon and currency abuser (for which there are quite good arguments, so I watch this meme with interest) and Mexico of, well, I’m not even going to go there.

For some reason the AUD has risen against the pound. I’m not sure why. Combined with the USD fall this is quite a big shift in the terms of trade between Australia and the USA.

Continue reading “My performance in Jan ’17 – Trumping begins” →

My HYP’s miserable performance

2017-01-232017-02-04 FIRE v London17 Comments

For the last few years I have been running a small High Yield Portfolio (HYP) as an experiment. The performance of this portfolio has been underwhelming, to say the least. I’ve taken some time recently to dig into the performance in more detail to examine why the performance is so lacklustre.

The theory: take steady income, and gear up

The thinking behind my HYP was clear:

Set up a HYP in a US dollar account. Let’s call it $100k to keep numbers simple.
Gear the portfolio up. With USD interest rates at <2%, I was targeting a general level of gearing of about 2:1. I.e. I’d have about $200k of assets, and $100k of loan costing me around $2k per year.
Pick securities, of any type, which had the following characteristics:
- Yield of above 4%. I have averaged yields of around 6%. This amounts to $12k of income (6% of $200k).
- A historically steady share price. Or, if I have to, a slowly rising price – e.g. AT&T.
- No obvious warning signs of impending doom.
Reinvest income. I don’t have any particular science to this – sometimes I buy on dips, sometimes I add a new holding.
Pay a modest amount for ‘volatility insurance’. My way of doing this was to hold a short position on the SPY tracker, amounting to about $20k. This reduces my loan by $20k but costs me about 2% too so it doesn’t really change my $2k per year total cost. My average in-price for that short position is 131, which tells you how old this portfolio is (hint: SPY is now at about 224!).
In theory this would lead to a portfolio with $100k net asset value, average income of about $10k (i.e. 10%), and a manageable level of volatility. I think I might also expect some drop in capital value, if I’ve bought assets whose yield is because they are effectively selling off assets.
This portfolio would not be tax-efficient because the gross income of $12k would all be taxable (and investment interest isn’t deductible in the UK) but even net of tax the level of return would be about 6%. This isn’t stellar but if it was reliable year after year I would be quite pleased with it. Ideally it would also deliver a modest level of capital gain too.