Unlike last year this Blog is not too painful to write as I have had a pretty decent year and made a fair bit of dosh through all my constant and excessive hard work (ha ha Wheelie, you were down the PUB for most of 2017). As usual I will follow a similar format to the SOD Blogs of previous years (it is hard to believe this is already the 4th one I have written) and hopefully it should all be clear and make some sort of sense.
As per the usual tradition with my SOD Blogs, I will set the scene with a Table of the Major Indexes and how they fared in 2016. This is the absolute level of the Indexes and does not include Dividends which would come on top - so all in all a flippin’ good year for the Markets (as per usual, if you click on the picture it should grow so that you can actually see it):
So these are really strong numbers. For the FTSE100, the Total Return including Dividends around 4% would be 12% for the Year - that is a fair bit higher than the usual Yearly Average which I would guess is around 7%.
For the FTSE250 you can probably add on around 2% for the Dividends - that gives 17% which is another big Return. If we move to the US, then Total Returns around 28% for the Dow Jones Industrials Index and 21% for the S&P500 are very strong.
So all in all, it was clearly a year when the fabled ‘Monkey with a Pin’ did very well - so as much as I want to pat myself on the back for a good year, the simple fact is that the Markets were making the job pretty easy.
Trading ISA Portfolio
The biggest chunk of my Wealth sits in this Account and I am very happy to report that this year it gained 19.5% which is a very strong result. My Target for each year is 10% CAGR (Compound Annual Growth Rate) and clearly I have managed to do much better than this - a big relief after my struggles of 2016 which you can read about in the ‘Scores on the Doors’ Blog for that year (look under the ‘Category’ ‘Scores on the Doors’).
I have a very diverse Portfolio with probably about 45 or so Holdings in this ISA and it crosses all Market Cap sizes from AIM at the bottom to FTSE100 Megacaps as the biggest. If you look at the Index Returns for 2017 then I am probably in line with a hybrid Index made up from the various UK Indexes - or perhaps I am slightly ahead but of course the Dividends are important to include in the Index Returns.
My Return Numbers are obviously after all Costs and with Dividends re-invested etc. I simply compare the Valuation on 31st December against the Valuation from 1st January and work out the Percentage change.
To me 20% Return is the ‘Magic Number’ if you look at the relevant Table in my ‘Power of Compounding’ Blog (there is a link at the bottom of this Blog), then you can see that if 20% can be achieved consistently over the years then your Money multiplies in a beautiful way - the most successful Investors are achieving these sort of Gains and higher - but they are rare beasts.
Overseas Unit Trusts
I originally Invested in a bunch of Unit Trusts in my early Days of messing about with the Markets and put much of my Money in at the Top of the Dotcom Boom (now that is excellent timing for you - not), but in recent Years I have been steadily selling out of them with a view to perhaps moving to using Investment Trusts for such exposure or just not using Collective Investment Vehicles to get my exposure. As a result, I now only hold a bit of the AXA Framlington Health Fund and a bit of the Henderson Global Technology Fund - but I am seriously thinking about selling all or part of these soon because I want to increase my overall Cash Holding and I am concerned that a recovering Pound will hurt my returns on these because they are mostly based in the US.
These Unit Trusts returned 21% for me over 2017 which is not bad at all especially when you consider that the Pound regained well over 10% against the Dollar. Much of this will have come from the Technology Fund with the Nasdaq Composite having returned 28% and if anything I suspect that Health lagged a bit in general.
It is possible that I will sell both my Tech and Health Funds and then buy something similar again in my Trading ISA if and when I get some free Cash in there to make it worthwhile. However, it could be argued that Technology in the US is a bit overvalued now as a Sector although I suspect it could keep going up anyway - it clearly has momentum. I have a lot of Technology related and Internet and ‘New Media’ Stocks anyway so there is duplication here really that I don’t think I need. If I feel a need for more Technology Funds exposure, I can always buy something like Polar Capital Technology Investment Trust PCT or Herald Investment Trust HRI in my Trading ISA anyway.
I have a fair bit of Health exposure via stuff like GlaxoSmithKline GSK, AstraZeneca AZN, Clinigen CLIN and Tristel TSTL so I don’t feel a great concern about lacking exposure to an important steady Growth Sector if I was to sell my Framlington Health Fund - however, if I want more exposure I could buy a Health Investment Trust like WorldWide Healthcare Trust WWH.
On the flipside, this Portfolio adds to my overall Diversification (a rare ‘Free Lunch’ that should be taken advantage of and all Investors can do this easily) and this makes me keen to keep it going but I just feel a need to amend it a bit. It also adds some ‘Manager Diversification’ - this is the concept that if I screw up as the Fund Manager of my own Share Dealing Accounts, I have other Managers who might do better than I did.
After undertaking quite a major ‘Project’ of Blog writing recently to produce what I see as a Definitive Guide to how I go about running my Income Portfolio (there is a link at the bottom of this Blog so you can read this), I have been particularly fixated on how my Income Portfolio has been performing for 2017. This is unusual because my normal ‘modus operandi’ is to just completely ignore the thing and it is so bad I seem to regularly get locked out of my iWeb Account because I forget the Login details !!
My Target for this Portfolio is to achieve 7% a Year CAGR - and at the same time it is intended to be Low Risk (a Cash alternative to some extent because Bank Savings Rates are such a pee take), Low Effort and also to throw off Cash because I see a distant future where I might use much of the Cash thrown off for my Living Expenses, rather than having to sell Stocks sometimes to get Cash so I can eat and drink Beer.
So for 2017 my Income Portfolio returned 5.6% which although below my Target, in the context of Cash paying next to nothing and the fact that Big Megacap Divvy Stocks did poorly over the Year and also that Empiric Student Property ESP (thankfully a small Position) had some ‘issues’, it is not a bad result. Sadly in the last 3 years I have been building up the Income Portfolio and adding Cash in dribs and drabs, as a result the Numbers are not really meaningful but in 2017 I actually added no new Cash so it is a ‘clean’ result. I doubt I will be adding much Cash in 2018 but we shall see how it goes.
I will try to put any new Money in at the start of a new year in future so that the Performance of the Portfolio can be sensibly monitored - it is important to do this and I know you can use the ‘XIRR’ function in Excel to create an Annualised Percentage Return but I can’t be doing with the faffing about !!
The Dividends generated by the Portfolio amounted to 6.2% on the Starting Value on January 1st 2017 - note this is above the Total Return figure of 5.6% so in fact the Capital Value of the Portfolio actually fell but the Dividends received clearly did their job and more than made up for this decline. Against the Cash I originally put into the Portfolio over the last 3 years, the Dividend Yield was 7.5% - this shows both how the Dividends can grow over time and also how those Dividends that are re-invested have a very positive impact on the Portfolio. As things stand, the Dividends Received during 2017 represent 5.9% Yield on the Closing Value of the Portfolio at 31st December 2017.
It should be obvious to anyone just how important this drip, drip, drip of Dividends is to the Overall Performance of my Income Portfolio and I must say this is turning out to be an interesting experiment.
Over the 3 and a bit Years I have been running my Income Portfolio, it is up 27% which seems quite decent - although remember that new fresh Cash has been put in at various different times. I have no doubt that the Dividend Payments have had a bit impact on this result.
I now have 2 special treats for Readers - here are some lovely pictures for you !!
First off here is an actual ScreenShot of the Positions in my iWeb Income Portfolio ISA - hopefully you can just about make it out and if you click on it then it should grow bigger.
The next picture is from the ‘Dividends’ List in iWeb which shows all the Dividends that have flowed into my Account over the year. The thing I want to stress here is how the Dividends just drop in at a constant flow over the year - this is ideal for People who use such Dividend Payments for their Living Expenses - as I may do in the future at some point. Many of the Payments seem small and inconsequential but it is amazing how they all add up. You can’t tell from the Picture above but I have just over £2500 as Cash in this Account now which has grown up from the flood of Dividends - I anticipate Re-investing this soon and will probably buy some Vodafone VOD with it. I tend to let the Dividends build up and then buy more of something I already have or perhaps I will buy a new Stock - if you read my Income Portfolio Blogs then the reasoning behind all this should become clear.
I currently have 12 Holdings but am probably going to let this edge up to 15 as a maximum. I fancy some Primary Health Properties PHP as well but can’t afford them yet !! (I only tend to ‘Reinvest’ once my Cash gets up to around £2500 which is Cost-efficient I think - better than lots of silly little buys, which just make my Broker very happy but don‘t help me much.)
Doing the Numbers on this Account is always slightly more complicated although I will try and keep things simple. The complexity arises from the use of Leverage which a Spreadbet Account enables (a Contract for Difference CFD Account can also give Leverage) and means that there is a ‘Return on Exposure’ Number but also a ‘Return on Capital’ Number and it is the latter which I think is more relevant (don’t get me wrong though, understanding your Exposure is probably the most important aspect of Risk Management when using Leveraged Products.)
Against the Starting Capital in my Spreadbetting Account on 1st January 2017, I achieved a Return of 21%, which is sort of OK but I am not overly happy about it. I deliberately said ‘Starting Capital’ because over the Year I took a fair bit of Cash out of the Account which is one of the big beauties of a Spreadbet Account in that when it goes your way, it is pretty easy and straightforward to take money out. However, over time you need to watch how your Long Exposure grows as it is something that can get out of hand quite quickly and leave you having a lot more commitment to the Markets than you thought you had.
I am of the view that my Spreadbet Portfolio should be delivering around 50% Return on Starting Capital each year if I was to do things properly and to effectively ‘mirror’ the Positions in my normal Trading ISA. However, in practice I tend to do several Long Trades on Stocks that I hold in my Income Portfolio and this year that has not worked well with Stocks like NG. and SBRY going against me at the moment - however, as I have mentioned elsewhere, I think these Big MegaCap Divvy Stocks will recover in 2018 and I am happy to keep my Long Exposure as it is. The underperformance of these Big Stocks has hit my Spreadbet Account Returns I think.
I screwed up during the Year with a Long Trade on the DAX which I didn’t manage very well - if you look on my ‘Trades’ page you should be able to find the gory details. I think that cost me about 4% or so on my Return on Exposure in my Spreadbet Account and this amounts to probably about 11% against the Starting Capital - so this balls up had a large negative impact on my Returns and I must not repeat such a mistake again. The essence is to have very well timed Entries and tight Stoplosses - I intend to finally get around to producing a Blog on my current thinking about Stoplosses in coming weeks.
In addition to this, I had several attempts at Shorting the S&P500 in order to ‘Hedge’ my Long Portfolio of Stocks and Spreadbets and none of these worked out well - this probably cost me another 5% or so on my Starting Capital.
My Total Long Exposure is perhaps a little on the high side at the moment but it is not something I am overly concerned about - I intend in coming Weeks to monitor my individual Positions closely and to reduce in a few instances perhaps. However, I would like more exposure to Housebuilders as we go into Q1 which historically tends to mean their Share Prices rise and it makes sense to try to exploit this trend. If I cannot get my Exposure down, then perhaps I could limit my additional Exposure on any Long Housebuilder Trades by using a Stoploss (note, on Individual Shares in my Spreadbet Portfolio I don’t tend to use Stoplosses - I treat them as I would if they were ‘normal’ Shares in my ISA Portfolio).
There are many ‘hidden’ Costs which drag on a Spreadbet Account which is used in the manner in which I use it (i.e. to ‘mirror’ my Trading ISA in the main) - see the ‘Related Blogs’ section at the end for a link to a Blog I wrote about this earlier in 2017.
In addition, if you want to know more about how I go about using my Spreadbet Account then click on the Blog ‘Category’ ‘Spreadbetting’ and you should find bucket loads on the subject.
My Mate’s Unit Trust Portfolio
If you go to the ‘Funds’ Page of my Website, you will see an Example Portfolio there which I run with a mate. This year that Portfolio was up 9.4% which is ok but of course nothing special. With Markets around the World so buoyant, I am a bit disappointed by this although it is not far off our Target Annual Return of 10%. There is quite an emphasis in our selection of Unit Trusts towards Equity Income Funds and these will obviously hold many of the Big Mega-Cap Dividend Stocks which have really suffered this year as I mentioned earlier in my Income Portfolio section. I think this has probably hit performance and it is quite likely that they will recover during 2018 and help towards a better Return next year.
From memory there were no changes to the Portfolio during 2017 (or 2016 for that matter !!) but I do feel there is some rebalancing needed now - in particular some of the US focused Funds will have done well and I think it is wise to trim these positions - this is in part because I think the Pound will continue to recover against the Dollar and this will hit US Holdings. I need my friend to calculate the current Percentage splits across her Holdings and we can then work out how to rebalance back towards the ‘Model’ Weightings that we started off with (and with some tweaks no doubt, like increasing the Cash proportion - this gives ‘Safety’ as opposed to Bonds which are pretty sub-optimal at offsetting falls in Stocks).
It never ceases to amaze me just how well this Portfolio performs - for people who want Low Risk, Low Effort, Long Term exposure to the Stockmarket, then going down the Funds route makes a lot of sense - although I would stress the need for Diversification and also it is best to use Investment Trusts rather than Unit Trusts - see my ‘Funds’ page for more on this.
Another Mate’s SIPP Portfolio
I have another friend who copies my Trades in her SIPP (obviously no Readers should copy my Trades - please see the Disclaimer on the Homepage) and this year it is up 12%. It is interesting that this has performed quite a long way behind my own Trading ISA (this was up 19.5%) - I haven’t spent time analysing the situation, but my hunch is that my friend holds some of the Big Mega-Cap Stocks I have in my Income Portfolio within her SIPP and this has perhaps dragged on the Overall Return. I have some Stocks in my Trading ISA which I also have in my Income Portfolio but I think it is only igIndex IGG, Telecom Plus TEP, BAE Systems BA. and a small bit of KCOM, and they are all relatively small Weightings compared to other holdings in that Portfolio which are more around the WD40 (please see my ‘Portfolios‘ page).
It is worth noting how 2 people can have similar Stocks but different Results. There are obviously timing issues as well and small differences in Prices of Buy and Sell Trades along with small differences in Weightings can add up to a few % difference on the Portfolio over a Year, but of course the mismatch has been considerably more profound this year. Thankfully she still loves me despite how her Portfolio has lagged !! (I know this because she baked me a cake - yum !!)
Prudential With Profits Bond
And now we get to the Unsung Hero of my Overall Portfolio (OK, I do ’Sing’ about this one quite a bit and certainly this year it has had me in full Voice with a very strong Return) - this is up 7% on the Year which is really top notch especially when you consider the lack of effort (I do nothing to it all year - just pick up an Envelope off my Doormat around April and rip it open to see how it has done over the Year before) and with a very low Risk level it is pretty impressive.
I have about 15% of all my Wealth in it and it really is a ‘Core Holding’. Please note I get my Statement in April so there is a timing mismatch with when I do the Numbers for the rest of my Portfolios. I am sure if I contacted Prudential they would give me the current figure (in fact with the Envelope this year there is a Flyer in there about setting up a way of checking the Valuation online - I really can’t be too fussed about it). I always record it this way every year, so it is consistent and understates the true Value now. Ah, good old Conservative Accounting…….
It’s a funny old beast. These are the things that get linked to ‘Endowment Policies’ and they therefore have a bad name. However, mine is a standalone thing that I have had for about 18 years and it is pretty steady and solid. It came under some slight pressure during the Credit Crunch but it was nothing compared to what other Asset Classes suffered. I have been very pleased with this and it has some Tax Advantages. It is a ‘buy and Forget’ type of investment and I recommend it to anyone. I used to have one with Liverpool & Victoria (now LV= or some dopey name) but that one was rubbish - the Pru one is defo the best. When I started Investing seriously in 1999 or so, this was probably my only good decision !! (and that was a lucky accident because my Parents used to invest in it…..)
After my 8th year of Retirement and Freedom (try it, it‘s marvellous) my Overall Wealth increased nicely so I am very pleased as my Pot is now quite a bit bigger than it was at the start of 2017 - obviously this is a really handy thing because the bigger the Pot becomes, the less Return I need every year to eat etc.
Across all my Stockmarket Activities, I was up 15% on the Year - this is on the Capital used (not the Exposure which is of course a factor of Spreadbet Leverage) and is across my Trading ISA, my Spreadbetting Account, my Overseas Unit Trusts and my Income Portfolio, but this does not include my Prudential With-Profits Bond which I think has a partial exposure to Stocks but due to the way they assign a smoothed ‘Bonus‘ Payment each year, it does not really behave like a Stockmarket Investment.
After a quite strange year in 2016 when I seemed to spend very little at £14,731, over 2017 I spent the sum total of £16,724 on ‘Living Expenses’ which was an increase of 14%. Spending so little in 2016 always struck me as a bit strange and the reasons for it being so low are a bit of a mystery to me. The really odd bit is how over 8 Years of ‘Retirement’ my spending has reduced every Year until the Low Point in 2016 and now it is back up again - to be honest I think 2016 was an Outlier and the Spending over 2017 is much more representative of what I tend to spend.
Due to the Government pretending to care about how Costs are hitting Low Earners etc., my Rent (I live in a Housing Association Bungalow which was adapted for my use after I had a Motorcycle Accident in 1998 which resulted in me being a Wheelchair User - note my Rent also includes all Repairs and stuff for the House) supposedly reduced for 2017 and came to the princely sum of £6511 (although I note this is the same as last Year so perhaps it was more of a ‘Freeze’ than a reduction). If you strip this out for Reader Comparison purposes, my Living Expenses excluding Rent were £10,213. I run 2 Cars although I don’t drive either of them all that much (I probably do about 4000 Miles a Year across the pair of them) and I could easily save money by getting rid of one of these, although I don’t think they really cost all that much in Servicing, Insurance and Tax etc. (note on my Seat Leon I don’t pay any Car Tax because it is registered as a ‘Disabled Vehicle’ - with 200 BHP !!)
Note also that my Subscriptions to Investors Chronicle and ShareScope/SharePad come out of this ‘Spending’ figure - and these probably amount to £450-£500 ish, but I see these as essential Living Expenses !!
I don’t have expensive Holidays (this is really down to the physical limitations of being Paraplegic - in all honesty going away just means hassle and health problems for me) and I don’t smoke or anything like that but I suspect if I really tried I could get my Living Expenses down to around £8000 or a bit less (plus Rent on top obviously). Fortunately I don’t need to obsess about getting my Expenses down but of course there is no point in wasting Money and what I don’t spend can be Invested which just makes my Life easier in the future. I keep thinking I spend far too much on Sky TV and BT Broadband etc. - this is an area where I do need to focus my attention.
It is of course worth bearing in mind ‘The Power of Compounding’ and my Blog of this title is included in the ‘Related Blogs’ section at the end of this Blog - the point being that a Pound saved today is equivalent to perhaps £5 in the future when it has been Compounded.
So there it all is in its glorious beauty. Overall a good year although it is tinged with the disappointment that I had achieved pretty much the same as this by the end of May and the last 7 Months of 2016 were rather frustrating at times with my Portfolio nearly breaking out to new All Time Highs but never quite making it - hopefully early in 2017 I will see this achieved. In addition, the Markets overall were very buoyant and as I mentioned earlier, before I get all excited and congratulating myself it needs to be probably acknowledged that this was probably an ‘easy’ year if any such thing really exists.
Apart from doing something with my Unit Trusts I don’t plan to do a great deal at the moment - I am pretty much happy with the Stocks I hold and I have learnt through bitter experience that it rarely helps to tinker too much and I am not someone who likes to create ‘work’ for the sake of it. I will of course be alert for any Pullbacks in the Markets and ready to Hedge a bit if need be, but that’s about it.
My focus really needs to go on my Spreadbetting as this is clearly where I am really underperforming what I think I should be able to achieve. This disappointing and probably avoidable weak result has potentially cost me many Thousands of Quids which I should have captured - obviously this is a situation that cannot continue.
Anyway, I hope you found this Blog informative and helpful and here’s wishing all WD Readers a superbly lucrative 2018. I gotta rush off now cos there is the new Series of ‘Wheeler Dealers’ with the ‘new’ Ed China on Discovery at 9pm - and obviously that is essential viewing for me !! (the clues in the name……)
Happy New Year,
I am throwing the ‘Parameters and Rules Template’ one in here because it is that time of year when we need to be setting our Rules for 2018:
And of course the ‘Power of Compounding’ blog is always relevant here (check out the 20% ‘Magic Number‘ table):
As I mentioned in the ‘Spreadbet Account’ Section above, here is the Blog I wrote back in May 2017 about how Costs can eat away at Returns in a Spreadbet Account:
Here is the Final Part of the Blog Series I wrote recently on Income Portfolios - which I reckon is pretty comprehensive and tells all about how I set mine up etc. There are Links at the start to the earlier bits of the Series:
Welcome to my Educational Blog Page - I have another 'Stocks & Markets' Blog Page which you can access via a Button on the top of the Homepage.
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