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Model Portfolio: 16 December 2008
Year end valutions for our model portfolio..............
    
    
This month’s report brings us to the last model portfolio valuation of the year, and presents an opportune time to review our strategy and performance to date.
 
We started into 2008 with a valuation of £103,495, up some 3.5% from our entry point of £100,000 a year earlier. In January 2008, the portfolio had 20% cash, and it was our plan to gradually invest this cash over the course of the year, hopefully picking up a few good bargains in the corporate and non-gilt sector.
 
However, the fall-out in corporate and non-gilt bonds proved worse than our expectations and we bought into the falling corporate bond market too quickly, leaving us with some mark-to-market losses on the book. Back-to-back with this was the extraordinary rally that was seen in government bonds and with the benefit of hindsight, our weighting in this high-quality sector of the market was far too low. 
 
The valuation leaves us with a figure of £94,306 for the year end; down, but not out. Moving forward into the next year, we are positioned for 2009 with a reasonable level of diversification and some good yields locked in.
 
Structurally, we remain happy with our portfolio, which has a good spread of maturities. This keeps the liquidity coming back in to the portfolio, both through coupons and upcoming maturities (the A&L 4.25% Dec 2008 matures at the end of this month). We note that we are overweight in retailers and financials, but this is perhaps a reflection of the UK economy. The portfolio has continued to invest its cash and income into the falling markets in corporates and we have added positions in BT and GE (see table below) over the last month or so, locking in some good yields.
 

Finally, the portfolio has also been hit hard by the fallout from the Bradford & Bingley nationalisation, leaving us with a nasty unrealised loss on the book. But, where there is life, there is hope. We note that the Bradford & Bingley PIBS,  unlike the equity, continues to trade. The price in the market is firmer this month, suggesting that speculators are picking up the security for recovery potential.  A recent statement from B&B to the Investors Chronicle indicated that the company expects to pay the next coupon, which will offer the portfolio (and possibly the valuation of the PIBS) some uplift. On this basis we add the accrued interest for this security back in to the portfolio . On this subject, we also note that Northern Rock subordinated coupons have, to date, been paid and the PIBS for this instrument are trading in the 70’s.

 

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

74.1

 7,410

 560

15 Feb 2007

Alliance & Leicester 4.25% December 2008

10,000

  97.46

100

 10,000

 415

7 Mar 2007

Segro 5.5% 20 June 2018

10,000

  97.35

65

  6,500

 278

28 Mar 2007

EIB 4.75% 06 June 2012

10,000

  96.82

104.75

 10,475

 258

18 April 2007

Merrill Lynch 5.125% 24 Sept 2010

10,000

  97.66

94.9

 9,490

 124

19 Aug 2007

Portman (Nationwide) 6.25% PIBS

 5,000

  97.50

84

 4,200

 52
9th Jan 2008 Marks & Spencer 5.625% March 2014 10,000   95.82

87.3

 8,730  420
10th April 2008 Bradford and Bingley 11.625 PIBS 10,000  112.00

20

 2,000  489
1st May 2008 Citigroup 5.125% Dec 2018 10,000  85.30

76

 7,600  14
23 July 2008 Experian (GUS) 6.375% July 2009 5,000  98.95

 97

 4,850  133
20 Aug 2008 Next 5.25% Sept 2013 5,000  86.5

    79.5

 3,975  59
20 Oct 2008 GE Capital 4.75% 15 Jun 2011 5,000  88.46

   98

 4,900  123
27 Nov 2008 British Telecom 8% 2016 5,000  97.5

    99

 4,950  16
Bond sub total

             

Category Sum            Notes
Securities

£85,080

Valuation of current holdings
Accrued

£2,941

Interest accrual on above 
Cash

£6,285

Including interest & coupons received. 
     
Total

£94,306

 

 Mark Glowrey