Merger with Individual Shares Portfolio
In April, following the sale of Unilever, my individual shares reduced to just 8 holdings. In the past week, I decided to dispose of Sky following an assessment of prospects after the full year results were announced. With the number now standing at 7 shares, I have therefore amalgamated the two portfolios.
The starting capital for the shares portfolio was £36,000 and the starting capital for this portfolio was £28,000 - a combined total therefore of £64,000.
A couple of the Vanguard funds were held in both portfolios and the units for each have therefore been combined -
Vanguard LifeStrategy 124.46 (shares portfolio) + 43.60 = 168.06
Vanguard UK Equity Income 50.0 (shares portfolio) + 14.70 = 64.70
I last updated on my collectives portfolio at the end 2015.
Although this is demonstration income portfolio, it largely mirrors my own holdings..
The dividends for 2015 of £1,280 were used to top up my holding in the Vanguard UK Equity Income fund adding a further 8.1 units.
There is no doubt the start of the year has been very volatile, not to mention the past few weeks post Brexit! The dramatic fall in the value of the pound gave a boost to my global equity ETFs and as I need to rebalance my personal portfolio following the redemption of my Coventry PIBS, I have decided to sell my 2 Vanguard ETFs as I had not been overly impressed with performance. Over the 3 years to June, VHYL had returned 4% p.a compared to 8.6% from my Vanguard LS fund. In the past month post Brexit, it has received a boost from the fall in sterling.
These transactions will therefore be reflected in the demonstration portfolio :
63 shares in VHYL @ £36 less sale costs gives £2,258 and,
270 shares in VAPX @ £15.50 gives £4,175 after sale costs
The proceeds together with the sale proceeds from Sky are currently in cash and to be reinvested at some point.
So, how have the various investments fared over the past few months and are my investment trusts adding additional value compared against my Vanguard trackers? In June I compared performance of a basket of 12 investment trusts -v- index funds over the past 5 years and which showed the trusts had the edge.
With the Vanguard High Yield disposal, my benchmark against which I will measure performance will be the two remaining Vanguard trackers -
1. UK Equity Income fund, and
2. LifeStrategy 60 (acc) index fund.
Total returns including income over the past 7 months are 1. 5.8% and 2. 12.8%. Therefore, taking an average, the benchmark figure against which to assess the portfolio is 9.3%
The managed trusts have provided mixed returns. Leading the gainers unsurprisingly are Blackrock Commodities Income +32% closely followed by Murray International +31% and which is showing signs of recovery after a couple of poor years, however these trusts form only a small percentage of the portfolio and so will have less impact on total returns. My largest holding, Edinburgh has been fairly flat year to date however there have been solid contributions from Finsbury Growth and Murray Income both +10%. The only trust in the red for the year to-date is Aberforth Smaller -14%.
|MYI -v- FTSE A/S Index Year to Date|
(click to enlarge)
The portfolio has therefore made a little progress since 1st January. The value of the collectives portfolio at the start of 2016 was £35,129 and the shares portfolio was £40,425 - combined therefore = £75,554 compared to the combined current value of £80,837 - a rise of £5,283 and total return of 7.0%. The slight drag on performance has been the remaining individual shares which are collectively showing a negative total return of -3.5% (laggards include Next -25%, L&G -15% and Berkeley -18%).
The total return for the FTSE All Share index year to date is 8.45%.
As I continue to depend on the returns from my investments to pay the bills and put food on the table - at least for the next 2 years when the state pension will kick in, the objective of the portfolio is to produce a dependable income. Of course, I hope the portfolio will continue to generate good returns for many more years but after 2018 I will not be dependent upon it to cover essential expenditure!
As a large proportion, ~1/3rd of my portfolio comprises Vanguard LS60 (acc), the aim is a positive total return rather than focusing on just the natural income. This will be the first full year that I have the option of selling units from my Vanguard LifeStrategy index fund.
In July following the fall in sterling and the corresponding boost to the VLS fund price, I took the opportunity to sell 13.46 units @ £155.32 to give £2,078 after sale costs and representing 8% of my total holding. This will provide my 4% income requirement for this year and the additional 4% has been added to my 10% cash buffer.
Capital appreciation is always welcome but will largely follow the ups and downs of the general stock market. I have therefore put in place a cash buffer equivalent to 10% of the value of my VLS fund to cover bear market periods when returns are flat or negative. The cash is held in my Coventry BS accounts which has interest of 1.5% so my buffer has now increased to 14.15%.
Here is the combined portfolio
|(click to enlarge)|
In my younger days, I was foolish enough to believe I could beat the market. In more recent times, I am slowly learning to be comfortable with ‘good enough’. A strategy where 'average' is better than average! I’m now more globally diversified - not perfect but for now, good enough. I am edging slowly away from the rollercoaster of individual shares and entering the relative calm waters of the 60/40 Lifestrategy option. Over the coming decade, I am thinking of a steady 5% or 6% return on average (after inflation) - that will do for me.
The average annualised return after 3.7 years is ~7.1% - so far, so good.