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Model Portfolio: 1 December 2010

Pullback in financials impacts mark-to-market valution of portfolio.....................

    

The month of December has seen a fairly sharp pull-back for the bond markets. 10yr gilts are off about four points but the real pain has been felt in the financial sector and spreads here have pushed out. "True" corporates - retailers, metal bashers etc have been somewhat more resilient.

The chart shows the iShares GB Corporate Bond which has a suprisingly heavy weighting in financials. The ETF is roughly 9 points (7%) down from its peak, and that is a pretty big move in what is a traditionally low-volatility asset class. Indeed, the instrument has given back nearly all the yearís gains.

As might be expected, the model portfolio has taken a knock on a mark-to market basis. The tail end of last month saw the bottom line at £120,455. This month sees us down to £118,761. To compare the start of the year saw the portfolio (which is measured on a total return basis) at £108,440.

We have made a few minor changes to the portfolio over the month of November:

  • A switch from the Barclays Index Linked issue into the RBS equivalent due to the higher "floor" coupon (3.9%) on the latter 
  • A £4,000 top-up our holding in The Goldman Sachs 5.5% 2021 bond

So, on balance, not a great month for the model portfolio, however, sell-offs in the market should be viewed as opportunities for long-term investors. We have some cash, and also the potential to liquidate some of our shorter, low-yield holdings. This will give us a chance to extent out into some of the higher yielding assets out there. For instance the Lloyds 6.5% 2040 is yielding 7% in the current market, and thatís a good yield for a senior bond. Some of the depressed prefs also look tempting, although our plan to buy the new Ecclesiactical (see bond of the week) somewhat fills our allocation for this asset class.    

December should see us with wood to chop.

 

Date of Purchase

Issue

Nominal

Purchase Price

Current Price

Value  

Accrued

30 Jan 2007

Kingfisher 5.625% 15 Dec 2014

10,000

  95.24

 107

10,700

 548

7 Mar 2007

Segro 5.5% 20 June 2018

5,000

  97.35

 102

 5,100

 127

9 Jan 2008

Marks & Spencer 5.625% March 2014

10,000

  95.82

 106

 10,600

 396

10th April 2008

Bradford and Bingley 11.625 PIBS

10,000

 112.00

 35

 3,500

 /

20 Aug 2008

Next 5.25% Sept 2013

5,000

 86.5

 105

 5,250

 48

16 Aug 2009 RBS "Royal Bond 5.3% 2015 100  £100

 103.6

 10,360  /
04 Feb 2010 GKN 6.75% 2019 10,000  97.56  103  10,300  71
06 May 2010 Goldman Sachs 5.5% Oct 2021 6,000  87.5  92  5,520  49
20 May 2010 Nat West 9% prefs (undated) 5,000  1.03  100  5,000  /
21 June 2010 Lloyds 5.375 Sept 2015 10,000 100.9  102.5  10,250  133
28 July 2010 RBS Royal Bond  5.1% 2020 5,000  96.03  96.1  4,805  215
16 Aug 2010 Enterprise Inns 6.5% Dec 2018 6,000  83.5  86  5,160  0
16 Sept 2010 Lloyds 6.5% Sept 2040 5,000  98.41  95  4,750  71
20 Sept 2010 Yorkshire Building Society 13.5% 2025 CoCo 5,000  116  113  5,650  122
04 Nov 2010 RBS Inflation-Linked (3.9% min) 2022  5,000  100  98.5  4,925  /
19 Nov 2010 Goldman Sachs 5.5% 2021 4,000 92.366  92  3,680  33

 

Category Sum            Notes
Securities

£105,550

Valuation of current holdings
Accrued

£1,813

Interest accrual on above 
Cash

£11,398

Including interest & coupons received. 
     
Total

£118,761