Analysis & Comment:
Previous 'Model Portfolio'
Model Portfolio : 29 February 2012
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:
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.
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.