Page 40 - DIY Investor Magazine | Issue 34

Q2 2022:
THE BIG BAD BEAR
IT Investor shares his portfolio review for the first half of 2022
MY PERFORMANCE
As a buy-and-hold investor that’s tilted towards growth, quality, and small-caps, it’s been a tough six months as you might suspect. My portfolio is down about 17% while your bog- standard global index tracker has fallen around 11%.
‘WE ALWAYS HAVE TO DEAL WITH UNKNOWNS AND UNCERTAINTY WHEN INVESTING BUT RARELY TO THE EXTENT THAT WE ARE SEEING NOW’
The strength of the US dollar did cushion the blow which is
why UK-based global trackers have only lost around 11%. The
pound was $1.35 at the start of 2022 while it was $1.21 on
30 June so that’s quite a move. The pound has also slipped
against the Euro but not nearly so much.
The US 10-year bond yield rose from 1.5% at the start of the year to 3.0% on 30 June, although it reached 3.5% in mid- June. As a result, the 60/40 fund has fallen by roughly the same amount as the global tracker as rising interest rates have hurt bond prices.
It’s unusual to see both bond and equity markets hit at the same time but it was always a possibility given how low yields had fallen. Of course, the flip side of this is that the long-term case for the 60/40 portfolio is probably rather stronger now that yields are coming back to more sensible levels.
The UK’s bias towards energy stocks and other value companies has meant it’s held up pretty well although it’s still in negative territory while the investment trust index that I keep an eye on is down 19%. Although there has been a marked increase in alternative asset trusts in recent years, a lot of equity trusts still have a growth bias and that has dragged down the average return.
This index includes all the investment trusts in the FTSE All- Share, 192 at the last count, representing about 70% of the trust sector by market cap.
Where we go from here is the question that everyone’s asking but no one knows the answer to. We always have to deal with unknowns and uncertainty when investing but rarely to the extent that we are seeing now. What we can say is that profit multiples for US stocks have come down a lot already (the forward P/E for the S&P 500 has gone from 22 to 16 times) but the earnings estimates these forecast numbers are based on have actually risen slightly in recent months.
Portfolio / comparators
My portfolio
Vanguard FTSE Global All Cap (fund)
Vanguard Life Strategy 60 (fund)
Vanguard UK All- Share Index (fund)
FTSE All-Share Equity Investment Trust Index
H1 2022
-16.7%
-11.1%
-10.9%
-4.6%
-19.0%
FY 2021
+16.2%
+18.9%
+9.9%
+18.2%
+12.8%
Annualised Return since Jan 2018
+5.9%
+7.4%
+3.7%
+2.0%
+5.3
Notes: I use the Vanguard global tracker fund as my main benchmark and I have
a stretch target of beating it by 2-3% per annum over the long term. The more conservative Life Strategy 60 fund (a global 60% equity/40% bond portfolio), a
UK index tracking fund, and an index of UK investment trusts provide additional reference points. All returns are measured in sterling using a unitised method for my portfolio that adjusts for any new money put in or any withdrawals.
It’s disappointing to lag global markets of course but given the circumstances behind the fall, the make-up of my portfolio and the fact I haven’t made any significant changes to it, I wouldn’t say it’s a surprise.
Most commentators are calling this a bear market right now on the basis of what’s happened in the US. The S&P fell 21% in the first half on a price-only basis while the NASDAQ 100 dropped 30%.
Global markets measured in US dollars notched up a loss of around 20% on a total return basis.
‘THE LONG-TERM CASE FOR THE 60/40 PORTFOLIO IS PROBABLY RATHER STRONGER NOW THAT YIELDS ARE COMING BACK TO MORE SENSIBLE LEVELS’
DIY Investor Magazine · July 2022 40