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Model Portfolio: 4 March 2008

We take a profit on our Experian holding. Wide spreads continue to keep valuations depressed in financials and retailers..............

Over the course of February we have taken two actions. Firstly, we have taken a small profit in our 10,000 holding in Experian Group 6.375% July 2009 bonds. This decision was based on the fact that the bond has only one year and five months to run, and had rallied to trade over par. Had we retained the bond to maturity, we would have faced an inevitable loss of just over half a percent, thus we decided to book a small profit and maintain our capital.

The second action has been to add another 5,000 position in the Natiowide 6.25% PIBS. When we bought the first position in this instrument back in August 2007, we highlighted the fact that PIBS were more volatile than regular bonds, and thus bought only a half-sized position with a view to averaging into further price weakness. This has come to pass, and we picked up another 5,000 nominal at 85p in the pound last month, achieving a running yield of 7.35% (6.25% x100/85).

Overall, our strategy remains unchanged; we run the portfolio for income and the reinvestment thereof. Trading and/or capital gains are not our primary objectives. To date, we have been buying into a falling market in corporate and non-gilt bonds. As we acquire the bonds within our portfolio, they produce income for us, but so far the average price trend has been downwards. This, however, is offset against the income flowing back in (coupons paid and income acrued). Overall, the portfolio remains profitable and exhibits low volatility, beating the equity markets on two counts in the current environment!  

Looking forward, we are gradually investing our remaining cash, re-investing the dividend flow as it rolls back into the portfolio. This allows us to average into market troughs and peaks. Also, our "ladder" structure of short, medium and long dated maturities keeps the liquidity moving back in. Given that the trend of corporate bond yields appears to be still upwards, this will enable us to acquire higher yielding assets over the course of time. The portfolio has around 15% cash at present, so we will look for new investments over the coming weeks.

Model Portfolio

Date of Purchase

Issue

Nominal

Purchase Price

Current Price

Value  

P&L           

Accrued

16 Jan 2007

Vodafone 6.25% 10 July 2008

10,000

 100.42

 100.1

 10,010

 -32

 411

30 Jan 2007

Kingfisher 5.625% 15 Dec 2014

10,000

  95.24

 82.7

 8,270

 -1,254

 127

15 Feb 2007

Alliance & Leicester 4.25% December 2008

10,000

  97.46

 97.5

 9,750

 +4

 78

7 Mar 2007

Segro 5.5% 20 June 2018

10,000

  97.35

 86.5

 8,650

 -1,085

 392

28 Mar 2007

EIB 4.75% 06 June 2012

10,000

  96.82

 100.4

 10,040

 +358

 356

18 April 2007

Merrill Lynch 5.125% 24 Sept 2010

10,000

  97.66

  97.0

 9,700

 -66

 231

18 July 2007

Treasury (Gilt) 4.25% 7 March 2011

10,000

  95.20

  100.4

 10,040

 +520

 200

19 Aug 2007

Portman (Nationwide) 6.25% PIBS

 5,000

  97.50

   87

 4,350

 -525

 116
9th Jan 2008 Marks & Spencer 5.625% March 2014  10,000   95.82  94.60  9,460  -122  536
4th Feb Portman (Nationwide) 6.25% PIBS 5,000   85.00    87  4,350  +100  116
Bond sub total            

 

 

 

Category Sum            Notes
Securities

84,620

Valuation of current holdings
Accrued

2,563

Interest accrual on above 
Cash

15,926

Including interest & coupons received. 
     
Total

103,109

 

Mark Glowrey

Notes: Dealing costs are 15 per trade, and this is factored into the total valuation of the portfolio. There is no stamp duty payable on bonds, although this may be applied to preference shares and other classes of security. Valuations are based on bid-side levels.