About the Model Portfolio
In each monthly issue of UK Value Investor the stock screen and investment strategy are used to manage a £50,000 model portfolio. The portfolio contains around 30 companies, mostly from the FTSE 350. Companies are only added to the portfolio if they have a long and unbroken record of dividend payments. Most of them also have long histories of consistent, profitable growth.
The portfolio has had positions in many leading companies including Tesco, Reckitt Benckiser, SSE, Vodafone, Centrica and BAE Systems.
The Model Income Portfolio and Model Growth Portfolio both have the same investment goals:
- To have a higher yield than the FTSE All-Share at all times
- To have higher income and capital growth rates than the FTSE All-Share over the long-term
- To have less risk (volatility) than the FTSE All-Share
- To take no more than a few hours to manage each month
In addition the income portfolio has the goal of producing an income which increases every single year, faster than inflation and faster than a passive index based portfolio can manage.
Model portfolio performance
The portfolio began in March 2011. All dividends are reinvested and you can see the portfolio and benchmark total returns below:
To find out more about the step-by-step strategy used to manage the model portfolio, please use the buttons below:
Most investment funds are compared to a benchmark (in this case the model portfolio is compared to a FTSE All-Share tracking investment trust), but that fails to portray how the fund’s investors do, rather than the fund itself. This distinction is important because most investors underperform the funds or stocks that they invest in, primarily from:
- Overtrading – They switch from one investment to another too often, therefore incurring excessive trading costs from commission and bid/ask spreads
- Buying high and selling low – They tend to buy high, buying what has already gone up, and then subsequently sell low, selling what is falling. This of course is the opposite of the basic law of successful investing which is to buy low and sell high.
Average investor benchmark: The average investor underperforms by around 3% a year because of these two critical mistakes, according to the Barclays white paper “Overcoming the cost of being human”.
Bad investor benchmark: Another estimate of typical investor under-performance came from the book “Monkey with a pin” from Pete Comley, where the estimate was closer to 6%.
Model Income Portfolio
An income version of the portfolio was launched in October 2013. The buy and sell decisions have been backdated to March 2011, to coincide with the launch date of the original ‘accumulation’ portfolio. These trades were not made with the benefit of hindsight; instead each trades has been made with exactly the same share price as for the accumulation portfolio, so the income portfolio looks exactly as it would have done if it had started in March 2011.
The biggest difference between the growth and income portfolios is that the growth portfolio reinvests all dividends while the income portfolio pays most of the dividends out. However, it doesn’t simply pay out all dividends. Instead, it maintains a cash buffer of around 5% so that the dividend income from the companies can be smoothed out in order to produce a progressive dividend income for the investor.
The same income strategy is used for the income portfolio’s benchmark, so that both income and capital gains are directly comparable to a passively invested alternative.
Read more about this progressive dividend income strategy. You can see the income and capital results below:
|Income Portfolio Payout||FTSE All-Share IT Payout||Income Portfolio Capital Value||FTSE All-Share IT Capital Value|
Case studies of previous investments
Each month one company is added to or sold from the portfolio. This means that in each year up to six investments are sold. You can find out more about how those investments worked out by reading through sample issues of UK Value Investor, or by reading the case studies on this web site.
To find out more about this strategy, please use the buttons below:
Important notice: Please note that the model portfolio and its buy and sell decisions are not recommendations to invest or not to invest. They are not “tips”. The model portfolio exists for informational and educational purposes only, showing how an investment portfolio can be managed for decent returns, high yields, low risk and with relatively little effort.