Mid-Year Blues (Total Returns drop off)

[monabri]

The year started off well and my portfolio actually started to show some reasonable gains....and then.... The overall drop in total return since the peak is ~12.5%...maybe if I rephrase it as a drop of 4.5% from the start of the year it might sound better or rename the portfolio as "monabri's HYP * "?
It's a bit discouraging but the income is holding up (Direct Line Group excepted). I wonder if we are to see further drops until interest rates are under control?


(* not even close to a HYP, not even if I squint!).

[BullDog]

I see that some shares are challenging their covid pandemic lows. Can't help feeling things are going to get worse before they get better. Hopefully dividend stream will remain much more robust than share prices.

I can't help thinking that talk in some circles of a 7% UK base rate is getting out of hand and is unlikely to happen. I think we're already very close to the point where the treatment is in danger of killing the patient.

[Newroad]

Hi Monabri.

If you look at my pseudo-HYP here, you will see similar order of magnitude (under) performance.

https://www.lemonfool.co.uk/viewtopic.php?f=56&t=34988

A back of a postage stamp calculation says yours has dropped to around 79% of short term peak value (84.5/108). Similar calculation for mine gives around 86% (84.15/98.37). Note the dates are slightly different - mine will have dropped slightly more again mostly likely.

Regards, Newroad

[vand]

It's completely in line with the index; FTSE hit an all time high in early part of the year and has slid off 10% since. I don't think anyone here, HYPers or otherwise, has managed to buck the trend.

IMO the market is just doing what is required to properly price itself given the returns now available in fixed income.

It's easy to doubt your strategy during these times, especially when you see the recovery in the global markets largely driven by the US, and even then by just a small handful of stocks in the US.

[Gerry557]

I suspect my PF is following similar lines. First couple of months were ripping it up and now, despite reinvesting some dividends, the overall total is lower.

I will have to calculate the difference.

I do have a range of funds unchanged which might give me a better (worse) indication of real drop from year start.

Probably not great for some who are close to firing or retiring or just not buying more.

It's about balancing the buying at cheaper prices against keeping enough dry powder should the market get really silly. As sure as eggs are eggs, the SP will fall just after you buy.

At least you can get interest on your dry powder at the moment and it appears to be rising just a pity inflation is eating it away.

Sell in May worked this year.......... But I didn't do it.

[Newroad]

Hi Vand.

It depends on who or what you mean by otherwise. If you follow my link, the global 60/40'ish portfolio (64.87% equities at time of writing) is doing fine over the same period (though not as good as cash or short term bonds) at about 2% down.

However, my experiment is long term and at about 3% of my portfolio, is not that dangerous. I think it would need to be assessed over at least 5 years and more likely 10 to form a view. It is near the latter I have in mind, as it will then in part help form a view to my retirement finances strategy.

Regards, Newroad

[vand]

Hi Vand.

It depends on who or what you mean by otherwise. If you follow my link, the global 60/40'ish portfolio (64.87% equities at time of writing) is doing fine over the same period (though not as good as cash or short term bonds) at about 2% down.

However, my experiment is long term and at about 3% of my portfolio, is not that dangerous. I think it would need to be assessed over at least 5 years and more likely 10 to form a view. It is near the latter I have in mind, as it will then in part help form a view to my retirement finances strategy.

Regards, Newroad

Yes, a global 60/40 has held up much better this year, though last year you couldn't say the same. So it's swings and roundabouts - each strategy has its moment to shine and then something else works better. That's the way investing has always been.. if something worked all the time then there would be no reason to consider anything else. Overall though, I think a global 60/40 (or perhaps 70/30) is probably hard to beat for most people, especially if they are of a "set and forget" mindset (of course, most TLF'ers are not that way inclined).

[tjh290633]

The year started off well and my portfolio actually started to show some reasonable gains....and then.... The overall drop in total return since the peak is ~12.5%...maybe if I rephrase it as a drop of 4.5% from the start of the year it might sound better or rename the portfolio as "monabri's HYP * "?
It's a bit discouraging but the income is holding up (Direct Line Group excepted). I wonder if we are to see further drops until interest rates are under control?

This brings us back to the old maxim, never mind the price, concentrate on the income.

If you are an advocate of total return, a fall in the market will always upset you. Those who advocate life styling will not benefit from increases in income from the portion not invested in equities. On the other hand they will benefit if dividends fall to any extent, like in 2008-9.

Falling dividends usually lead to falling prices in any case. This is why investing in reliable dividend payers is a worthwhile tactic.

TJH

[simoan]

I find threads like this depressingly parochial. If you're under water this year it is because you are over-invested in the UK. To me that indicates poor capital allocation. It is so easy to invest at low cost in overseas markets these days that there's really no excuse. Just about every other global stock market is in positive territory, and some quite significantly so e.g. NIKKEI +24% YTD, DAX +12% YTD, CAC40 +10% YTD. It's not just the US that has been doing well.

[simoan]

If you are an advocate of total return, a fall in the market will always upset you. Those who advocate life styling will not benefit from increases in income from the portion not invested in equities. On the other hand they will benefit if dividends fall to any extent, like in 2008-9.

Falling dividends usually lead to falling prices in any case. This is why investing in reliable dividend payers is a worthwhile tactic.

TJH

I don't think you understand what Total Return investing means. Dividends are a key part of the total return approach.

[tjh290633]

If you are an advocate of total return, a fall in the market will always upset you. Those who advocate life styling will not benefit from increases in income from the portion not invested in equities. On the other hand they will benefit if dividends fall to any extent, like in 2008-9.

Falling dividends usually lead to falling prices in any case. This is why investing in reliable dividend payers is a worthwhile tactic.

TJH

I don't think you understand what Total Return investing means. Dividends are a key part of the total return approach.

On the contrary, I understand perfectly.

TJH

[simoan]

I don't think you understand what Total Return investing means. Dividends are a key part of the total return approach.

On the contrary, I understand perfectly.

TJH

I'll have to take you word for that, because your previous post indicated that was not the case.

[Steveam]

My portfolio is a mix of HYP ish (25%), ITs - F&C, CTY, AAIF, HFEL, MRCH (30%), and ETFs - SWDA, VWRL, VHYP (30%). (All numbers and lists a bit vague as I’m sat in a coffee shop and writing from memory).

I’m “down” 6% from the £ peak which was 16-02-2023.

I’m not sure whether FX has had a major impact or just a general downturn. It’s certainly not (yet) enough to get agitated about.

I’ve lived through some pretty awful stock market ups and downs. By far the worst for me have been the long, slow grinds downwards. I suspect we’re in for at least a couple of years of difficulty. Fortunately I’m not under any financial pressure so best to close eyes and wait it out.

Best wishes,

Steve

[Newroad]

Hi SteveAM.

For me, since I have started by pseudo-HYP, the

Global 60/40'ish portfolios are down just under 2%, and the
UK Pseudo-HYP is down just over 16%

You can see this visually on the post linked to earlier. I don't think these moves are mostly or wholly with FX moves - I judge Simoan was closer earlier.

The key point for me, though, is being intellectually honest - and to do my (pseudo-HYP) experiment with real money. If I don't, it's of little use to me as a potential strategy in retirement.

Regards, Newroad

[Steveam]

Hi SteveAM.

For me, since I have started by pseudo-HYP, the

Global 60/40'ish portfolios are down just under 2%, and the
UK Pseudo-HYP is down just over 16%

You can see this visually on the post linked to earlier. I don't think these moves are mostly or wholly with FX moves - I judge Simoan was closer earlier.

The key point for me, though, is being intellectually honest - and to do my (pseudo-HYP) experiment with real money. If I don't, it's of little use to me as a potential strategy in retirement.

Regards, Newroad

Thanks Newroad. I’m long past my best and keep the minimum in records and do the minimum of analysis (no need as income far exceeds outgoings or future demands) - I don’t break down my investment assets - I just treat them as a bit of a black box. Overall I’m down 6.1% in £ since 16-2-23. I’ve just had a quick look and £/$ seems to have gone from 1.20 to 1.28 so about 7%.

Best wishes,

Steve

[Newroad]

Hi SteveAM.

What's the transmission mechanism as you see it? Is the hypothesis that the UK equities in HYP's (or perhaps simply your own holdings) in general earn predominantly/near 100% in USD and that since the cable rate has risen 7%, one should expect capital values of the same UK equities to have reduced by a similar percentage due to being quoted in GBP?

If so, whilst I would expect some effect, I doubt it is that direct or that complete (especially once you get down into the FT250 from the FT100).

Further, if accurate, one would presumably be able to plot a similar correlation in the past in both directions. However, interested to hear any contrary views from you or others with rationale.

Regards, Newroad

[Steveam]

Although a bit rough and ready my holdings might be entirely VWRL (I have home biases and others so don’t come very near VWRL but let’s assume I do). The US market dominates … if, back In February, my portfolio was worth $1,000 then this was seen by me as being £833 (1.20) now we move forward to today … my portfolio is still worth $1,000 but is now seen by me as £781 (1.28) so a rough and ready 6% drop.

Nothing very complicated.

Best wishes,

Steve

[simoan]

Hi SteveAM.

What's the transmission mechanism as you see it? Is the hypothesis that the UK equities in HYP's (or perhaps simply your own holdings) in general earn predominantly/near 100% in USD and that since the cable rate has risen 7%, one should expect capital values of the same UK equities to have reduced by a similar percentage due to being quoted in GBP?

Regards, Newroad

I would say the "transmission mechanism" is two-fold. Firstly, most HYP candidates have dreadful balance sheets with excessive debt and enormous pensions to fund. Some of them have an entire business model which has to be funded by debt and equity issuance, and the former has got a whole lot more expensive as interest rates increase. Secondly, on a risk-adjusted basis, why would you want to hold an equity with a rubbish balance sheet, increased funding costs and poor growth prospects yielding 5-7% when you can get a 6% risk free one year return on cash? I have no idea.

[vand]

I find threads like this depressingly parochial. If you're under water this year it is because you are over-invested in the UK. To me that indicates poor capital allocation. It is so easy to invest at low cost in overseas markets these days that there's really no excuse. Just about every other global stock market is in positive territory, and some quite significantly so e.g. NIKKEI +24% YTD, DAX +12% YTD, CAC40 +10% YTD. It's not just the US that has been doing well.

Definitely some truth to that, and it's the reason why most "common sense" investing should start off at a globally diversified portfolio.

However, also worth bearing in mind that some of those figures are a bit inflated unless you are currency-hedged too. GBPJPY is up 15% YTD, as an example.

[simoan]

I find threads like this depressingly parochial. If you're under water this year it is because you are over-invested in the UK. To me that indicates poor capital allocation. It is so easy to invest at low cost in overseas markets these days that there's really no excuse. Just about every other global stock market is in positive territory, and some quite significantly so e.g. NIKKEI +24% YTD, DAX +12% YTD, CAC40 +10% YTD. It's not just the US that has been doing well.

Definitely some truth to that, and it's the reason why most "common sense" investing should start off at a globally diversified portfolio.

However, also worth bearing in mind that some of those figures are a bit inflated unless you are currency-hedged too. GBPJPY is up 15% YTD, as an example.

Yes, there's been no hiding place for a UK investor YTD, with the strong pound meaning most of the gains made overseas have been offset by currency movements. But still bad IMHO to be in the red YTD on a TR basis. I would be reviewing my portfolio and looking hard in the mirror. FWIW I include myself in that number even though I am up ~1% YTD (mainly thanks to a large holding in Fundsmith and US Large Cap tech). That's not good enough IMHO.