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Model Portfolio: 28 January 2011

Model portfolio treads water. Senior bank bonds remain under pressure............

    

The first valuation of 2011 see a small increase in the bottom line for the Fixed Income Investor model portfolio. This can largely be put down to the usual positive effect of coupons, accrued interest etc rather than any overall capital gains.

Some holding have performed well, but our positions in senior bank debt are feeling the heat. Investors are continuing to shun this asset class and prices are falling accordingly. Of course, as prices fall, so value increases and the 6-7% YTMs now offered for senior bank debt are arguably good long-term value. Short term price action is another matter. I would be tempted to buy more bank debt, but we are now overweight the sector - indeed, I will look to lighten up into a bounce.

My cash position is low, making it tricky to buy any new issues or other opportunistic trades. However, the portfolio has some over-par positions in the 2-3 year maturity band (M&S and Next), and a profit can be taken here if needs be.   

Given the current concerns on inflation, I have moved around 12% of the portfolio into index-linked assets. Inflation is picking up so that should have worked. However, the RBS index-linked issue is failing to perform and this is disappointing - index linked gilts of the same maturity are roughly flat over the period. It would seem that the RBS bond is drifting on the back of the general negative sentiment towards senior bank debt.

Pibs, prefs etc are performing well. This asset class often shows a positive correlation with the equity market and a general shift towards a risk-positive approach is helping their cause.

 

Date of Purchase

Issue

Nominal

Purchase Price

Current Price

Value  

Accrued

7 Mar 2007

Segro 5.5% 20 June 2018

5,000

  97.35

 98.9

 4,900

 171

9 Jan 2008

Marks & Spencer 5.625% March 2014

10,000

  95.82

 105

 10,500

 485

10 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

 5,262

 89

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

 100.6

 10,090  /
/04 Feb 2010 GKN 6.75% 2019 10,000  97.56  101.5  10,400  176
06 May/19 Nov 2010 Goldman Sachs 5.5% Oct 2021 10,000  87.9  88.5  8,900  170
20 May 2010 Nat West 9% prefs (undated) 5,000  1.03  102  5,100  /
21 June 2010 Lloyds 5.375 Sept 2015 10,000  100.9  101.5  9,100  219
28 July 2010 RBS Royal Bond  5.1% 2020 5,000  96.03  92.8  4,620  0
16 Aug 2010 Enterprise Inns 6.5% Dec 2018 6,000  83.5  86.5  5,280  62
16 Sept/01 Dec 2010 Lloyds 6.5% Sept 2040 10,000  96.35  90  9,100  245
20 Sept 2010 Yorkshire Building Society 13.5% 2025 CoCo 5,000  116  115  5,750  /
04 Nov 2010 RBS Inflation-Linked (3.9% min) 2022  5,000  100  97.4  4,650  /
12 Dec 2010 Ecclesiastical 8.625% prefs 5,000 102 107  5,500  /
04 Jan 2011 National Grid 2.983% 2018 7,000  144.71  144  10,080  26

 

Category Sum            Notes
Securities

113,832

Valuation of current holdings
Accrued

1,643

Interest accrual on above 
Cash

2,702

Including interest & coupons received. 
     
Total

118,177