Snagga - 2020 LTBH portfolio review

[snagga]

Background

I started investing in the mid-90s and have been accumulating since then with a low-cost LTBH focus. From around 2000 I started investing in indiviudal UK shares with a HYPish/value style - although criteria have grown more relaxed over time - and later in the noughties started using trackers and ETFs, primarily to get more exposure to overseas markets. As ETFs have become cheaper and investing directly in overseas shares has become easier, these two streams have crossed geographies. New cash is invested once a month. I record all transactions in a 2003 version of Microsoft Money. I decided to do separate unitisation calcs - on an accumulation basis - from 31/12/18 to overcome limitations in how MS Money works.

Overall performance



Performance for 2020 was a pretty poor -4.0%. This roughly breaks down between a return on shares (including investment trusts) of approx -11% and a return on ETFs of approx +9%, in the currencies of quotation (plus a FX translation loss of about 1%). This reflects the big differences between UK and global equity market performances during 2020, with the shares still being predominantly UK and the ETFs still predominantly non-UK.

Dividend income has been savaged. Total dividend income for 2020 was down 38% compared to 2019 - or from 3.8% of the portfolio value at 31/12/19 (excluding an accumulating ETF) to 2.3%. About 0.2 ppts of the decline is due to a non-recurring special dividend from Signature Aviation received in 2019 that was effectively a return of capital.


Portfolio composition



The individual shares that had the biggest impacts on performance aren't all listed out above - because they are generally losses on stocks whose values were clobbered, in most cases by Covid. The top ten were:


Buys

I kept contributing from wages through the year and it is obviously much nicer to buy low rather than buy high. However, for me personally, Covid meant less net earnings to invest and less time to spend deciding what to invest them in (obviously these are trivial non-problems compared to what many others have suffered) - while making those decisions at an individual stock level seemed more complex and risky.

The bigggest spend was a new position in Edinburgh Investment Trust (cost 1.4% of opening portfolio value) accumulated from April onwards. I am happy to buy ITs if the enhanced yield that is effectively earned on a widened discount starts to pretty much eliminate or exceed the effect of management expenses and this represented easy diversified exposure to bombed out UK stocks.

I also topped up UK equity ETFs (0.7%) and foreign equity ETFs (0.6%) - both avoiding much thinking.

Other share purchases included Kraft Heinz (0.4%), Ibstock (0.3%), Llloyds Banking Group (0.2%) (these three all pre-Covid), 3M (a new position - 0.3%), Land Securities (0.3%), Exelon Corp (a new position - 0.3%) and various other UK (1.3%) and other US (0.7%). Following the PRIIPs regulations coming into force and blocking new investment into US-domiciled ETFs, I have been trying to increase directly-owned US holdings rather than buying US-equity ETFs so as to avoid the irrecoverable 15% withholding tax hit on dividends that lies under the hood of non-US-domiciled US-equity ETFs.

Sells

Nothing significant - just some minor tax loss harvesting.

[Dod101]

As far as Edinburgh IT is concerned, you were buying about the same time as I was selling. We were obviously looking at it through different ends of the telescope. I had held it for upwards of 20 years but its performance has never been brilliant bar the odd year or two. I just get fed up of it and being UK focussed it was duplicating a number of shares I held. However the new managers seem to have made some changes and you never know; it may now come good.

Can I ask if you have a theme/requirement from your general portfolio? Or are you just seeking a decent overall return? It is actually to me quite refreshing to see a lot of individual shares that I do not know much about. Thanks for posting.

Dod

[snagga]

Can I ask if you have a theme/requirement from your general portfolio? Or are you just seeking a decent overall return? It is actually to me quite refreshing to see a lot of individual shares that I do not know much about.

My thinking has evolved over time but generally there is still a bias towards value / income.

I don't think I am smart enough to trounce the data-saturated professional-dominated market and even if I were I don't put enough time into the matter. Also I need a buffer to correct blind spots and biases in individual stock selection. So I want to have around 50% in trackers or similar collective vehicles.

Because my approach is no/minimal tinker LTBH, I am really only making decisions about purchases each month. I am not spending time making calls about whether/when to sell. This also means that the individual shares in the portfolio often have different characteristics from what was bought or is currently being bought (eg. the Ball Corporation shares were consideration recieved on its takoever of Rexam) and the number of holdings tends to increase over time to something like a closet tracker.

When I started buying individual shares it was just UK stocks and I was looking for low PE combined with high yield - ranking based on those criteria - and/or distressed value situations. I soon realised that achieving diversification and setting concentration limits were important. For the last few years, I moved to a threshold of earnings yield > 7% (except for REITs) and dividend yield >3% with a bit more feel /judgement involved in stock selection. I hope there is some small "edge" in making those types of purchases - if not, at least it is more interesting and a bit cheaper than just buying global ETFs.

I have relaxed the dividend criterion a bit for overseas markets and (in the UK environment) to allow for the disturbance of Covid. Also, I don't need to stretch for yield any more as I should have adequate dividend income in total and more of the portfolio income has become subject to UK income tax. For the US, I have been experimenting buying on a randomised basis - subject to avoiding FAMANG and the apparently ludicrously over-valued - rather than just buying HYPish shares in order to replicate something like an even-weight tracker (I wouldn't recommend this to others). This drove the Exelon purchase plus smaller purchases of Broadcom and Corning.