With 2015 almost in the bag this is a good time to sit back and review your investment performance for the year.
For me there are a few things I’m most interested in checking: 1) Total returns, 2) dividend yield and 3) what I learned this year that may help improve my approach and returns in the future.
But first, a little background info:
- I run a virtual model portfolio which is identical to my personal portfolio in terms of holdings
- I manage it according to a defensive value investing strategy which I have been developing since 2010
- The portfolio and its benchmark (the Aberdeen UK Tracker Trust) started in March 2011 as virtual portfolios valued at £50,000 pound each
- Buy or sell trades include the bid/ask spread, 0.5% stamp duty and £10 broker commission
- All dividends and other cash returns are reinvested
14.3% total return in 2015 versus 0.8% for the FTSE All-Share
The model portfolio went from £71,358 at the start of the 2015 to £81,551 at the end, for a total return of 14.3%. This is significantly better than the All-Share tracker benchmark, which went from £67,498 to £68,050, a total return of 0.8%.
Outperforming the market by 13.5% is the portfolio’s best one-year result relative to the market so far, so I am of course very pleased with that. It beats the previous record, where it outperformed the market by 6.5% in 2012, by a country mile.
However, although I am pleased to have thoroughly beaten the market in 2015 I am well aware that this degree of outperformance is very unlikely to continue.
More realistically, I would like to beat the market by about 3% (at least) over the long-term, so let’s have a look at how the long-term returns are going.
10.7% annualised return since 2011 versus 6.6% annualised return for the FTSE All-Share
Since I started managing and tracking these portfolios in early 2011, the model portfolio has, at least most of the time, achieved my goal of beating the market by 3% over the long-term.
With a 10.7% annualised return compared to 6.6% for the UK market, the rate of outperformance has been 4.1%. I’m happy with that, although of course I realise that the past is not always a good guide to the future!
Having said that, as the years roll by I am gradually becoming more confident that my strategy and the defensive value approach in general are likely to outperform the market under most circumstances.
Here’s a chart of the returns to date.
And here’s a table with the total return results for the model portfolio and its FTSE All-Share tracker benchmark for each individual year:
|Year||Model Portfolio||All-Share Tracker||Difference|
That’s the total return picture, but I am just as interested in dividend growth and the dividend yield as I am in capital gains, so let’s have a look at those.
Dividend yield of 4% versus 3.5% for the FTSE All-Share
One of my goals is to have the model portfolio produce a higher yield than the FTSE All-Share at all times. So far it has achieved this every day since 2011, and it currently has a 4% yield compared to 3.5% for the All-Share.
To be considered as an equity income fund, a unit trust must have a yield of 110% of the All-Share’s yield, or 3.85% today, so the portfolio makes the grade on that basis too.
Dividend return of £3,243 versus £2,384 from the All-Share Tracker
Given that the model portfolio is worth more than the FTSE All-Share and that it has a higher yield as well, it should be no surprise that it has produced far more in dividends this year; 36% more to be precise.
This comparison is somewhat confused by changes to the dividend payment dates of the benchmark investment trust, but I think the comparison is broadly representative of the underlying (rather than market) value of the two portfolio’s holdings.
The chart below shows the dividends paid in each individual year.
In terms of raw performance then, I am more than happy with 2015. However, it wasn’t all plain sailing and there were some problems through the year that needed to be addressed and learned from.
2015’s winners, losers and lessons learned
No portfolio goes up in a straight line (unless your name is Bernie Madoff) and few equity investors will get through a year without suffering share price declines or operational problems with some of their holdings, and I am no different.
2015 was the first year in which I sold an investment at a loss since I switched from deep value to defensive value back at the beginning of 2011. It was not a pleasant experience, but so far it has not been a frequent one either.
Here then are all of the investments I sold in 2015, along with their results, lessons learned and a link to each post-sale review article, so that you can save yourself some trouble by learning from my mistakes.
|Date||Company||Holding period||Total return||Lessons|
|February||ICAP||2 years 10 months||42%||None. This was a successful investment.|
|April||Balfour Beatty||3 years 8 months||9%||Be wary of companies that rely on large one-off contracts. Be wary of companies with large pension liabilities.|
|June||Serco||1 year 1 month||-50%||Be wary of companies that rely on large one-off contracts. Be wary of companies that have made large acquisitions.|
|August||RSA Insurance Group||3 years 6 months||19%||For insurance companies, look at the combined ratio for profitability and the premium to surplus ratio for balance sheet strength.|
|October||Cranswick||2 years 11 months||135%||None. This was another successful investment.|
|December||JD Sports||4 years 9 months||234%||None. The investment went as well as I could ever expect.|
Overall I would say I have enjoyed investing in 2015, despite a bit of a rough patch in the middle of the year thanks to weak performances from Serco, Balfour Beatty and RSA.
Hopefully your results have been even better than mine, but either way let’s hope for a positive 2016 in both the stock market and beyond.