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Analysis & Comment:  

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Having missed the January valuation, itís about time I caught up with the portfolio. I have to say, missing a monthly valuation is not good practice. Portfolios are like gardens; they need to be watched, weeded and watered. If you are not keeping an eye on the book, you will not know where you are going wrong (or indeed, right).  Thatís just one of the reason why monthly valuations are important. Other reasons include:

  • Reconciliation - check your holdings and cash. Has anything wandered out of the garden?
  • Coupons - have they been paid (and has any spurious taxes been levied!)
  • Re-investment - an important spin-off of the above
  • Performance measurement - are you winning, or losing? Knowing this will give you the chance to adjust strategy
  • Commissions & charges - always good to keep an eye on these
  • Staying with the garden metaphor: does anything need pruning or planting?

So better late than never, this is where we are. The first thing to note is that the two months have seen considerable improvement in the values of most of the bonds. This is not down to movement in the underlying gilt market, but to improvement in the sentiment towards corporate bonds, a factor that broadly correlates to the equity market.  

Date of Purchase

Issue

Life (yrs) 

Nominal

Purchase Price

Current Price

Value  

Accrued

16 Aug 2009 RBS "Royal Bond 5.3% 2015 3 100  £100  103  10,300  /
24 March 2011 Provident Financial 7.5% 2016 4 6,000  100.15  105  6,300  201
21 June 2011 Places For People 5% 2016  4 10,000  100  105 10,500  103

7 Mar 2007

Segro 5.5% 20 June 2018

6

5,000

  97.35

 106  5,300  239
20 Dec 2011 Int Capital Group 7% Dec 2018 6 6,000  100  100.5  6,030  94
16 Aug 2010 Enterprise Inns 6.5% Dec 2018 6 6,000

  83.5

 83  4,980  103
04 Feb 2010 GKN 6.75% 2019 7 10,000  97.56  111  11,100  251
28 July 2010 RBS Royal Bond  5.1% 2020 8 5,000  96.03  95  4,750  27

13 Oct 2011

National Grid PLC 1.25 2021 9 10,000  100  101.6  10,160  55
06 May/19 Nov 2010 Goldman Sachs 5.5% Oct 2021 9 10,000  87.9   92  9,200  228
31 Jan 2010 Places for People 1% RPI 2022 10 6,000  100  100.35  6,021  6
20 Sept 2010 Yorkshire Building Society 13.5% 2025 CoCo 13 5,000  116  113         5,650  300
08 Mar 2011 Italy 6% 2028 16 5,000  100.44  85  4,250  174
27 Sept 2011 British Telecom 5.75% July 2028 16 10,000 103.5  111  11,100  151
16 Sept/01 Dec 2010 Lloyds 6.5% Sept 2040 28 10,000  96.35  98  9,800  314
08 March Nationwide 6.875% U/D 5,000    88  90  4,500  58
12 Dec 2010 Ecclesiastical 8.625% prefs U/D 5,000   1.02  110  5,500  /

 

Category Sum            Notes
Securities

£125,441

Valuation of current holdings
Accrued

£ 2,304

Interest accrual on above 
Cash

£6,128

Inc. interest & coupons received. 
     
Total

£133,873

 

And what next? I have been slightly concerned by the level of over-optimism in the financial markets displayed over the January-Feb period. Of course, bond investors consider virtually any opinion over-optimistic. We are Cassandra to the equity marketís Pollyanna, a situation that is unlikely to ever change.

On that note, Iíd like to free up a bit of cash, and perhaps take profit in some of the "higher beta" positions. The problem is, the subordinated and high-yield holdings, which might be expected to show the greatest volatility, have relatively poor liquidity and wide bid-offer spreads. Thus, they are not really instruments to hop in and out of. Any volatility will have to be weathered.

I have made a relatively small move, deciding to sell the Intermediate Capital Group 7% 2018, a financial name that could be impacted by a turndown in sentiment.

Another potential candidate for reduction is my index-linked holdings (National Grid and Places for People). Itís good to have some IL in the portfolio but my current £16,000 may be a tad too much.  I sold the RBS index linked bond in January, which reduced my exposure to this sector. Given that inflation is now turning down (for the moment!), and that the rate of acrual is low for such assets, I may reduce my IL holdings further.

With regard to new holdings, the ISA season is coming up, and I will be interested to see what new issues arrive over the next couple of months. A new deal for Provident Financial is already in the offing.   

Mark Glowrey