April 2016 Investment Review

We could have done nothing

The FTSE 100 stood at 6,833.46 points 12 months ago and closed on 6th April this year at only 6,091.23 points. Which is 10.86% down over 12 months. Generally all global markets followed suit, ending lower to some extent. Being an entirely passive investor would dictate we simply rebalanced between our existing funds and left as is. Keep to strategy. By taking the rough with the smooth we eventually achieve the same return as the market generally, which is enough to beat 97% of active fund managers over most 5 year periods. However we overlay our strategy with tactics. So how much have we lost this year?

Has 12 months brain power, crystal ball gazing, general worry and gnashing of teeth had any effect? Well obviously it did otherwise we wouldn’t be drawing your attention to it today!

The portfolio changes we made over the last 12 months

We lost no time making changes to our Cautious, Moderate & Aggressive portfolios when many of the markets of the world hit their highs around a year ago.

April 2015

First to go was our Chinese fund described here. Our Europe & our UK Dividend Shares fund followed soon after described here. The final sale was 25% of our Global Health & Pharmaceutical Fund. All done by the end of April. If only we had left the proceeds from these sales untouched for a little longer, then our position now would be somewhat better.

However with some of the proceeds we threw our investment net wider. The majority of our realised cash went towards a global technology fund and a UK small shares fund. Smaller amounts went into a Japanese fund, an Indian fund and a fund that held all UK shares, both large and small. My expectation was that of safety through wider diversification.

August 2015

Then when the markets hit rock bottom in August we reduced our commercial property holdings and sold all of our Gold fund described here. We felt it was time to load up with cheap shares. We bought a German tracker fund and a FTSE 250 fund.

January 2016

As soon as markets opened after the New Year, and fortunately just before the “worst start to the year for a century”, We dumped the fund that held all UK shares both large and small at a loss. Then the markets hit the deck. Described here.

March 2016

I did nothing until just recently when I sold our German fund after a short term gain of over 5% and since then the German markets are back down once again, which would have all but wiped out our little result.

Successes v Failures

As you would guess we didn’t get everything right. We should have hung on to our Gold longer, but getting rid of China, Europe, Large UK shares and reducing our Global Health & Pharmaceuticals all turned out to be very good decisions. We should have waited a while before we bought Japan and India. But buying a Technology fund was a good thing, as was buying and subsequently selling a German fund. Our small positions in Japan and India are forever, not just for Christmas.

Using our Moderate Portfolio as an example, all in all, counting both our successes and of course our failures, the beneficial decisions saved 4.3% across the portfolio whilst the loses caused by the detrimental decisions cost us only -1.0%. Therefore on balance the portfolio was to the better by 3.3% directly because of our management.

So where is the growth then?

Over the last tax year, here are the results. All our efforts simply reduced our losses.

Cautious Portfolios -1.04%
Moderate Portfolios -1.11%
Aggressive Portfolios -1.45%

As I mentioned earlier the FTSE ended the year -10.86% so our returns are certainly not the end of the world. A good rule of thumb is that investment markets make money 3 years out of every 4. If this becomes our one bad year in 4, we will consider ourselves lucky. The chart below shows the pattern of returns over the last 8 years.

Screen Shot 2016-04-08 at 13.36.15

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Phil Dustin
Phil Dustin

Hello That 8 year graph was interesting, with large swings, so I did the maths and with the large 42% growth year it gives a compounded growth of 8.5%, and with the 42% replaced with 25% it still gives a compound of 6.6% which is realy a very good solid return. This last year has been odd, with Bloomberg channel openly saying that they had no idea why the markets were dropping at the start of the year, Just seemed to be some major players giving out sell commands. With the reduced property holdings, what are you using as the… Read more »