Analysis & Comment > Model Portfolio
Back to 2011
Model Portfolio: 21 September 2011
Model Portfolio : 21 September 2011
Its not been a great month for corporate bonds. Flight-to-quality money has headed to gilts. The less blue-blooded credits, notably financials and sub-investment grade, have been hit. As a result, the Model Portfolio (MP) is down a couple of percent since the last valuation in July.
Luckily, the MP is sitting on a fair bit of cash at the moment. We had lightened up over the summer in areas where we were overweight certain credits - notably Lloyds TSB. Market timing is, of course, a tricky subject and many fund managers avoid it all together. The problem is; to make money on market-timed investment moves, you have to get both the exit and the entry point right. Calling the top is not enough. Thatís tricky, which is why many portfolios focus more on relative value.
Given the sharp pullbacks in bank debt and non-IG debt over the summer, our move looks to have been reasonably well timed, but I have not yet pulled the trigger on the re-entry. Thus, the portfolio has around £30,000 cash; more than I have had for some time. This will need to be put to work if we are not to miss out on the all-important compounding.
The first £10,000 will be used to apply for the new National Grid issue, launching later this month. Readers will note that we have taken a profit in the previous holding of the Nat Grid 2.983% 2018 bond. That will leave £20,000 spare. What to buy? Bank debt is the cheapest, but we already have a fair weighting here, so I am understandably cautious from an asset allocation point of view.
The other point to consider is the spread of credits/quality. In truth, the best performance over the past few months has been in gilts and liquid AAA-rated bonds (for instance the EIB 5.375% 2021 issue). Whilst such instruments may yield very little (perhaps 1 to 3.5% YTM), the total returns have been strong. This is a good illustration of the maxim that the cheapest bond is not necessarily the best bond. I will consider buying gilts or some EIB to leaven the load.
Date of Purchase Issue Nominal Purchase Price Current Price Value Accrued 7 Mar 2007 Segro 5.5% 20 June 2018 5,000 97.35 104.5 83.5
Date of Purchase
7 Mar 2007
Segro 5.5% 20 June 2018
* The RB53 trades "dirty" and is now ex-coupon.