Analysis & Comment > Model Portfolio
Back to 2009
Model Portfolio: 1 April 2009
Model Portfolio : 31 March 2009
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.