Investment Review - December 2019

Welcome to this end of 2019 round-up of the investment portfolio.   I seem to be making a habit of reporting these quarterly reviews whilst on holiday - this year, we decided to take the first of our longer winter breaks around a week earlier than usual, so we're celebrating the New Year in the warmth and sunshine.

Anyway, here's the latest spreadsheet based on data from the early market closing time on 31 December 2019 :-

click on the table for a larger image ...

Share / Fund Purchases in the Period

As I'd intimated in the last quarterly review, I bought more NRR.L shares to add to those I already held in the High Yield Group within the SIPP, to bring it up to a 'full-size' holding.  Consequently, it was moved into the summary spreadsheet as an individual line item. 

My intention had been to first sell the remaining individual shares within the HYP to fund the purchase of NRR.L, but there was a buying opportunity during the sharp markets fall at the beginning of October, so I just used some of the available cash in the account because the same slump also reduced the selling prices of these other shares, and I wanted to hold onto them in the hope of a better price in the future.

And just before Christmas, I doubled my existing holding in HFEL.L with new shares bought at a price of 362p gross.   This IT was trading just below its NAV, and historically it trades at par or a small premium.   The yield at the time of purchase was 6.1%.

On the same day, I also opened a new small position in ADIG.L (Aberdeen Diversified Income & Growth) at a gross price of 112.0p.  This is a £360m IT with a dividend yield of 4.8%, and was trading at a 6% discount to NAV.  This trust is basically a fund-of-funds encompassing a wide range of asset types and geographies.  

After my recent review of smaller portfolio positions, I've decided that relatively small holdings don't present any problems at all, and I may even build up more of them going forward - if nothing else, they can help spread manager-risk around several different fund providers.

Share / Fund Sales in the Period
Within two weeks of making NRR.L a full-size holding, I'd sold out completely during market optimism surrounding a Brexit withdrawal agreement (!), at which time I received a profit which exceeded more than one full year's worth of expected dividends.  The shares fell back almost immediately and, despite another more recent rally, it's still trading below my selling price.  There've also been rumours lately of a potential dividend cut, so I may have made a timely exit - if the cut happens then I'll only consider getting back in if it slumps again to well below my original purchase price.

On the same day in October, I sold out of IUKD.L at a neutral position.  I'd held this for 18 months but, despite receiving a large sum in dividends during the holding period, the total return was only +0.1%.

In late November, after a trading update resulting in a price rise, I sold out of CNA.L from the High Yield Group in the SIPP at a price of 82.1p net (compared to the purchase price of 121p in January of this year).  Although I'd received 9.9p per share in dividends, this was still a significant overall loss.  

And in late December, I sold the remaining two holdings in the High Yield Group within the SIPP, i.e. RDSB.L (exited at a neutral position) & STOB.L (at a 30% loss).


Premium Bonds
It's been a relatively good year for returns from my Premium Bonds holding, which I last reported on in this post at the end of 2016.  Since that time, I've managed the following returns in each of the last three calendar years :-

• 2017, +1.26%

• 2018, +1.21%

• 2019, +1.66%

So this year, I've been luckier than usual - no large 'prizes' but a steady stream of £25s with a few £50s thrown into the mix too.


Passive Income Index
The index finished the year at 523.7, up from 342.1 at the end of last year, resulting in 2019's income stream exceeding that of 2018 by 10.3%.   

However, I can see from the spreadsheets that almost 22% of this year's income actually came from assets which I've since sold and the proceeds are no longer generating any income at all, so I'll need to use some of the available cash to buy more dividend-yielding funds if I'm to equal or surpass 2019's figure again in 2020.  As described above, I've already started this process.


Commentary
After offloading NRR.L and IUKD.L in October, cash became king again and sat at the top of the portfolio weightings for a couple of months.   

Rather than effectively betting on the outcome of the UK election in December, one way or another, I thought I'd wait until after the result was declared and for the fall-out to settle a little, before committing to further purchases of investment funds.  I thought it could have been another hung parliament, not the huge Conservative majority it turned out to be, although the post-result rally for GBP certainly didn't last very long !

After my top-up of HFEL.L and taking the new position in ADIG.L in late December, and despite the recent sales of CNA.L, RDSB.L and STOB.L, the cash position has fallen back into second place again.

Also earmarked for potential top-ups are BNKR.L and MYI.L, but I'm holding off for now because they're both priced very near to their 52-week highs and the latter is also currently trading at a 5.5% premium to NAV, which is more than a year's worth of dividends. 

The proximity to 52-week highs is not just confined to those two funds.  It's been an exceptionally good year for equities - almost all markets have done well - and many fund prices look toppy to me.   I've highlighted a few more potential new ITs within my 'watch list', which I'll buy into if the prices are right - as an unashamed market timer, it seems likely that there'll be a more favourable entry point sometime in the first half of 2020 - but then again, who knows ...

With the demise of the High Yield Group, the only individual share remaining in the portfolio is DKL.L.  The reason I haven't sold this is because it's basically worth nothing, and so there's no further downside in continuing to hold and a very slim chance of an upside.


And the Woodford Patient Capital Trust (WPCT.L) was transferred to new management in mid-December, and renamed the Schroder UK Public Private Trust (SUPP.L).   It's been on a long slide, but has perked up a little in value since the start of December and I'm still hanging on in there ...

Good & Bad Portfolio Decisions over the year ...

( with the benefit of hindsight, of course ! )

Good

- buying VHYL.L in January

- selling most of a large holding in CNA.L in January

- keeping the faith with most holdings despite a relatively poor return in 2018

Bad

- selling all of a large holding in TSCO.L a year ago

- selling all of a large holding in STAN.L a year ago
- selling all of a large holding in IUKD.L in October

- selling most of a large holding in GSK.L in January, and the rest in July

- starting a High Yield Group within the SIPP

- not selling 100% of my holding in SUPP.L (WPCT.L) during July

Monthly & Annually Portfolio Returns
This is the summary comparison data extracted from the free Bogleheads spreadsheet I discovered earlier in the year, and which I now update at the end of each month.

Also derived from the same spreadsheet, here's a heat-map of monthly returns from the combined portfolio over the past six full years.   

Looking at this table in more detail, there's some interesting (and probably meaningless !) data on when the best and worst returns have occurred during the year.  Over the past six years, on average February has been the best month for returns, and August the worst.

And the first six-month period of each year has consistently produced a positive H1 return, while over the six years the H2 return sums to zero - in years where the overall return was negative it was always due to underperformance during H2.

Also, here's another table with 2019 monthly returns benchmarked against the FTSE100 index, although it should be noted that my portfolio return includes all income received, i.e. it's a total return, but the FTSE100 column is not so another 4.5% or so should be added to its bottom line.

The main take from this table is that my portfolio has returned significantly less than the index (when FTSE dividends are included), but also with much less volatility.   In months where the FTSE100 rose, I didn't achieve anywhere near the full gain, but then I didn't suffer the same losses during months when the index fell.

And finally, to close this post, here's the portfolio growth chart from March 2013 to the end of the current period :- 

The portfolio total reached another all-time high in December, and has just tickled the 200% line on the graph, i.e. in cash terms its value has trebled since March 2013.  It took 41 months to double in value from the baseline, and a further 40 months to achieve the treble.  Of course, much of the growth has come from regularly adding fresh funds, particularly in the early years, but in 2019 these cash additions were dwarfed by the portfolio returns.

In summary, it's been very good progress overall in 2019, but let's just hope it doesn't all go tits-up in 2020.   So it's still steady-as-she-goes, as we venture warily into the next decade.

A very happy new year to all ...