Investment Review - December 2020

Another year over, and here's the final quarterly investment review of 2020.   Let's start with the combined portfolio summary sheet, updated at the early market close on 31 December :-

Shares / Fund Purchases in the Period

In mid-October, during a market dip, I topped-up my holding in VUKE.L, Vanguard's FTSE100 tracker ETF.  The FTSE100 index had dipped below 5,800 again, so I decided to add to the holding I'd first bought in March this year. 

Also in October, I started a series of regular investments, with the intention of drip-feeding small amounts of cash into five ETFs at the end of each month.  This is funded from the cash balances in the individual accounts.  Four of these regular purchases are topping-up existing holdings, but one is new to me (VUSA.L).   The trading costs are either zero or very low, typically free trades or using broker credits that would otherwise expire and become worthless.

Shares / Fund Sales in the Period

In October, I sold all of my stake in BRWM.L for a total net return of +50.2%.   This investment trust appeared to be becoming overvalued again - when I used to regularly trade its underlying holdings, e.g. RIO.L, I would usually sell whenever the price of RIO.L reached over £40 per share, and it was over £45 at the time I sold out of BRWM.L.  However, this is an IT I will likely buy back into should it suffer another severe dip, although of course it's currently flying even higher after I sold out ...

And again in October, I sold around 45% of my holding in HFEL.L at a 1.8% loss.   I just felt I held too much of this particular IT - it was the largest fund holding in the portfolio at the end of the last quarter - so I decided to reduce my exposure and increase the cash reserves.

Passive Income

The Passive Income Index closed the year at 692.8, representing 98.5% of the income I received in 2019.  Close, but not quite there, although if I hadn't sold the large chunk of HFEL.L just before the ex-dividend date in October, then their final dividend payment of 2020 would have taken me just above last year's income value ...

Commentary

I have quite a strong home (UK) bias within the equity portfolios, particularly amongst my oldest holdings.  When I first started to trade regularly, I tended to stick with those companies with which I was familiar, and when I started to take investing more seriously then it was UK equity funds that I bought in my first ISA, and I still hold many of these today.

It's easy to forget now that 2019 was quite a decent year for UK-listed shares, with the FTSE100 index closing that year at 7,542, although that was still short of its all-time high of 7,877 (reached in May 2018).   

But the UK was one of the very worst performers during Q1 of 2020.  There was a partial recovery in Q2 but then it was down again in Q3.  The FTSE100 was still down more than 26% YTD as recently as the end of October.  

However, since positive news was released in November about Covid-19 vaccines, there seems to have been renewed market interest in UK-listed companies.  Indeed, November was a stellar month for the FTSE100, gaining 12.4% despite a 1.6% drop on the very last day.

The start of December saw further gains, and the Brexit deal announcement lifted UK-listed stocks even higher immediately after Christmas, although the Brexit bounce was very short-lived and the FTSE100 actually closed down for the last week of the year at 6,461 on 31 December 2020.  

So the FTSE100 index finished down year-on-year by 14.3% (excluding dividends)

Despite an earlier post this year where I said I wasn't going to add any more personal (i.e. non-pension) cash to the pot, I did make a contribution to the ISA in October.  This year, because of a lack of opportunities for travel and despite building a conservatory, our total spending has been low enough that the tax hit for extracting 'unnecessary' money from my company for personal investments was acceptably low.

Since my last review at the end of September, the combined portfolio valuation has reached new highs during each of the three months of this final period of the year; in October this was down to the new cash added, in November & December the market rally has carried the valuation further upwards.

Investment Returns

It has certainly turned out to be an up-and-down year, or should that be down-and-up ?  Things seem very different now from the lows of February and March, a period in which I was buying heavily into the falling markets.  I only persisted with my strategy for around eight weeks - the markets were accelerating upwards again by mid-April - but there's no doubt it has helped to raise the value of the portfolio during the subsequent recovery.  The combined value of all the fund purchases I made during that short period has since increased by >20%.     

But how did the entire combined portfolio perform over the full year ?  Here's a few extracts from my Bogleheads spreadsheet :-

Another way to view the investment performance is by looking at the 'unitised' value of the portfolio, which was re-based to a nominal £100 exactly two years ago :- 

 

So at least I managed a small positive return in 2020, which just a few weeks ago didn't seem very likely - I'd been in negative territory all throughout the year until December ...

Onwards into 2021 ...

'... let's just hope it doesn't all go tits-up in 2020 ...'  This was a closing remark from my last end-of-year review from December 2019.   

And who knows where we go from here - will the recovery continue ?  Surely the hospitality and travel industries must have a better year in 2021 as Covid-19 vaccines are rolled out around the world, but will it happen soon enough to prevent some big names from going under ? 

We can only try to keep the portfolio diversified and then watch as the future is played out ...

A happy new year to all.