Analysis & Comment:
Previous 'Model Portfolio'
Model Portfolio : 3 March 2011
The portfolio is once again long cash, having taken some profits on the Next 5.25% 2013, liquidated our non-performing holding in the Bradford & Bingley PIBS and sold £10,000 Lloyds 5.375% 2015 in order to lighten up on financials. There are a many options for reinvestment, and another PIBs may be on the shopping list for March.
I have added a couple of positions in index-linked instruments, but these have been weak performers, the RBS inflation-linked 2022 particularly so. Whilst index-linked instruments are a useful hedge, I am not entirely unconvinced that a better solution is to buy higher-yielding bonds. Of course, this comes with credit risk attached, but the return here is more real and immediate.
A couple of readers have commented that the model portfolio is (a) overweight financials and (b) too trading-orientated. I think these are both fair points. The former is a tricky one - there are an awful lot of financials in the GBP bond market and with the restricted choice that is open to private investors, the portfolio has a tendency to slide in that direction. On the second point, I agree, the portfolio is slightly overtraded and this may well be a function "feeling the need to do something" - and keeping interesting copy on the website! I shall bear this advice in mind going forward.
Some readers would prefer a greater focus on income rather than the current "roll up" calculation. Again this is fair point although I have no plans to change the calculation basis at present. The addition of a "yield at purchase" column should help.
This month I have arranged the table in terms of maturity order (another reader suggestion). This gives a better overview of the structure of the portfolio. The same reader has suggested adding YTM at purchase and averages thereof. This is a good idea and Iíll drop it in next month ( Iíll have to do some digging in my records).
Overall performance (which is measured on a total return basis) is good. We have clawed back some of our losses on B&B, and financials have improved. The portfolio is up 3.9% from last month and if we could do that every month, that would be something.