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Model Portfolio: 1 April 2009

We add a new position, and take a profit in an old friend.................

        

Valuations to the end of March see a a couple of positions adjusted in our model portfolio. This year we have been making some structural adjustments to our model portfolio, attempting to reduce the risk profile by reducing positions in subordinated debt and some of the more distressed credits such as Segro. We have also increased our level of diversification, preferring to purchase £5,000 positions where possible rather than our usual £10,000 lots.

March saw us take a profit in our £10,000 holding in the AAA-rated EIB 5.5% 2011 bond. This bond was one of the model portfolio's earliest purchases, back in March 2007, and has proved to be an excellent performer (see chart, right). Indeed, had we stuck to bonds of this quality, rather than fishing the more murky depths of corporate and bank bonds, we would have seen a distinct improvement in performance!

However, all good things come to an end. The EIB bond only has 32 months to run, and we will inevitably see an erosion of the current premium as the bond rolls down towards redemption at par. Accordingly, we decide to book our profit. All in all, itís been great investment, paying us 5.5% per annum and providing an 8.9% capital gain over the period.

We make a partial reinvestment in the John Lewis 6.375% 2012 bond, paying a price of 101.76% in the market. This is a slightly unusual purchase for us, given that this mutually-owned company has no credit rating. However, we decide to take our own view on the credit risk, noting the groupís steady sales and still-comfortable profitability (you can read more about JLís last results here). £5,000 nominal of the bond enters our portfolio at a yield of 5.7%.

Note: we are becoming rather overweight in the retail sector. These positions have performed favourably for us, but from a structural point of view we may take the opportunity to lighten up into further gains.

Finally, we are left rather long of cash (circa 20%) and will look for additional positions over the next few weeks.   

    

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

 177

7 Mar 2007

Segro 5.5% 20 June 2018

5,000

  97.35

65

3,250

 220

18 April 2007

Merrill Lynch 5.125% 24 Sept 2010

10,000

  97.66

93

 9,300

 276

19 Aug 2007

Portman (Nationwide) 6.25% PIBS

 5,000

  97.50

80

 4,000

 145
9th Jan 2008 Marks & Spencer 5.625% March 2014 10,000   95.82

96

 9,600  24
10th April 2008 Bradford and Bingley 11.625 PIBS 10,000  112.00

20

 2,000  253
23 July 2008 Experian (GUS) 6.375% July 2009 5,000  98.95

98

 4,900  232
20 Aug 2008 Next 5.25% Sept 2013 5,000  86.5

 88 

 4,400  137
20 Oct 2008 GE Capital 4.75% 15 Jun 2011 5,000  88.46

 94

 4,700  193
27 Nov 2008 British Telecom 8% 2016 5,000  97.5

 105

 5,250  134
18 Feb 2009 Tesco 5.5% Dec 2019 5,000  103.64        105  5,250  88
26 Feb 2009 Roche 5.5% March 2015 10,000  99.37

  104

 10,400  54
26 March 2009 John Lewis 6.375 Jan 2012 5,000  101.76        102  5,100  61

 

   
Bond sub total

 

Category Sum            Notes
Securities

£76,350

Valuation of current holdings
Accrued

£1,994

Interest accrual on above 
Cash

£19,145

Including interest & coupons received. 
     
Total

£97,489