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Model Portfolio: 8 August 2008

Bonds prices generally firmer on softer outlook for interest rates, but mark-to-market losses on PIBS holdings impact overall valuation.................

    

This month’s valuation sees an uplift for the majority of holdings in the portfolio’s valuation. This is largely due to bond prices being buoyed by a softer outlook for UK interest rates. The high quality Gilt and EIB issues, in particular, have shown the best performance over the month. We will continue to monitor these positions with a view to taking a profit into further price gains (and perhaps re-investing in higher yielding corporates).

In this environment, corporate and other bonds are more affected by credit considerations than the outlook for rates, and here we have not seen a major improvement as yet, although the absence of new lows in this sector suggests that a stabilisation process is underway.

However, the PIBS sector remains highly volatile. The drawdown from the two positions we hold here (Nationwide Building Society and Bradford & Bingley) has negatively impacted the overall valuation of our portfolio. The running yield on these instruments remains attractive and we are prepared to put up with this "noise" in return for the coupons. Given the current low prices, we would be tempted to add to our holding in the sector, but with around 13% of our funds already committed, this would not be prudent portfolio management.

We have around £9,000 of cash in the portfolio, this being the proceeds of coupons paid and last month’s redemption of our Vodafone holding. We will be looking add two more positions over the summer, targeting corporate issues yielding 7 to 9%. 

Model Portfolio

Date of Purchase

Issue

Nominal

Purchase Price

Current Price

Value  

Accrued

30 Jan 2007

Kingfisher 5.625% 15 Dec 2014

10,000

  95.24

82

 8,200

 373

15 Feb 2007

Alliance & Leicester 4.25% December 2008

10,000

  97.46

99.25

 9,925

 264

7 Mar 2007

Segro 5.5% 20 June 2018

10,000

  97.35

82.50

 8,250

 82

28 Mar 2007

EIB 4.75% 06 June 2012

10,000

  96.82

98.25

 9,825

 89

18 April 2007

Merrill Lynch 5.125% 24 Sept 2010

10,000

  97.66

93.25

 9,325

 455

18 July 2007

Treasury (Gilt) 4.25% 7 March 2011

10,000

  95.20

99.00

 9,900

 182

19 Aug 2007

Portman (Nationwide) 6.25% PIBS

 5,000

  97.50

85

 4,250

 97
9th Jan 2008 Marks & Spencer 5.625% March 2014 10,000   95.82

89

 8,900  220
10th April 2008 Bradford and Bingley 11.625 PIBS 10,000  112.00

88

 8,800  78
1st May 2008 Citigroup 5.125% Dec 2018 10,000  85.30

84.25

 8,425  344
23 July 2008 Experian (GUS) 6.375% July 2009 5,000  98.95     98.10  4,905  24
Bond sub total              

 

Category Sum            Notes
Securities

90,705

Valuation of current holdings
Accrued

2,208

Interest accrual on above 
Cash

8,907

Including interest & coupons received. 
     
Total

£101,820

 

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.