Analysis & Comment > Model Portfolio
Back to 2008
Model Portfolio: 8 August 2008
Model Portfolio : 8 August 2008
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%.
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.