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Model Portfolio: 28 January 2009
Model portfolio starts into the new year with 20% cash. Corporate bonds show improvement.........    
        

  

The bond market has been a busy place over the last month or so. Short dated bonds have remained in demand, bolstered by low interest rates whilst the longer-dated end of the curve has sold off, triggered by investor fears of long-term inflation and supply. Against this "macro" background, spreads on corporate bonds have generally narrowed, although some individual names continue to deteriorate. 
 
Our last portfolio review, published before Christmas, saw a bottom line figure of £94,306. This month’s figure shows a respectable improvement with a gain to £96,477, reflecting the general rally in corporate bonds from the October 2008 lows.
 
Recent changes include a decision to reduce our holding in the Segro 5.5% June 2018 (see chart, right). This bond has noticeably failed to join in the recovery seen in other credits and with the equity breaking to new lows below the £2 mark , we decide to moderate our exposure as a precautionary measure. We reduce our position to 5,000 nominal.
 
We are also concerned by our position in the subordinated (Upper Tier II) Citigroup  bonds. The price of these has broken to new lows, and with 10,000 nominal in our portfolio, we will be monitoring the situation carefully.
 
Cash levels have increased in the portfolio, a consequence of the partial liquidation shown above and the maturity of the Alliance and Leicester 4.25% Dec 2008 bond. We now have over £20,000 to put to work and will look to roll this into the market over the next few weeks, perhaps taking advantage off the sell-off in the long-dated end of the curve to lock in some decent yields.  

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

73

 7,300

 75

7 Mar 2007

Segro 5.5% 20 June 2018

5,000

  97.35

62

 3,100

 171

28 Mar 2007

EIB 4.75% 06 June 2012

10,000

  96.82

106.2

 10,620

 313

18 April 2007

Merrill Lynch 5.125% 24 Sept 2010

10,000

  97.66

96.5

 9,650

 183

19 Aug 2007

Portman (Nationwide) 6.25% PIBS

 5,000

  97.50

85

 4,250

 88
9th Jan 2008 Marks & Spencer 5.625% March 2014 10,000   95.82

90.6

 9,060  485
10th April 2008 Bradford and Bingley 11.625 PIBS 10,000  112.00

25

 2,500  41
1st May 2008 Citigroup 5.125% Dec 2018 10,000  85.30

67

 6,700  73
23 July 2008 Experian (GUS) 6.375% July 2009 5,000  98.95

97.1

 4,850  173
20 Aug 2008 Next 5.25% Sept 2013 5,000  86.5

  86.9  

 4,300  89
20 Oct 2008 GE Capital 4.75% 15 Jun 2011 5,000  88.46

  102.4

 5,120  421
27 Nov 2008 British Telecom 8% 2016 5,000  97.5

 104.3

 5,215  62
Bond sub total

             

Category Sum            Notes
Securities

£72,665

Valuation of current holdings
Accrued

£2,174

Interest accrual on above 
Cash

£21,638

Including interest & coupons received. 
     
Total

£96,477