My Passive Investments - August 2018 (+1.91%)
A short term look on long term investing
This is the third in a series of monthly reports on the performance of my own passive investment portfolio. Firstly, my investment decisions are exactly that, my own. As as UK-based investor, I based each investment decision on my own research. These are, by no means, investment recommendations. Before making any investment decision, you must do your own research and/or speak to a professional.
Why Do A Report?
You can read more about this in my first passive investor report, which I made back in June 2018.
My Passive Investment Strategy
Long term, my aim is to invest a portion of my savings every month. An important note here is that the numbers you will see in this report reflect the gains and losses of my invested capital only. When I invest more, for example, I would not state this as a gain in the value of my portfolio.
Similarly, if I sell a portion of my investments, this would not be stated as a loss in the value of my portfolio. The numbers simply reflect the performance of the underlying investments. Simply put, a loss/gain does not take into account buying/selling assets.
Vanguard Stocks and Shares ISA
All investments are held in a stocks and shares ISA with Vanguard. You can contribute anything up to the limit of £20,000 for the 2018/19 tax year. This means, when it comes to selling any portion of my investments, any capital gain is tax free.
August Returns (+1.91%)
Illustrated below you can see each fund I own, the target weight of that fund in my portfolio overall, the actual weight and the monthly return. When you invest in an index fund, you are effectively buying into an already well-diversified portfolio. For example, the ‘Emerging Markets Stock Index Fund’ consists of over 1,099 individual stocks. These funds each represent a market of their own.
In portfolio weightings, I now include 2 decimal places rather than 1 to provide more detail. Even though there are 2 decimal places, they are still rounded figures so sometimes they will not total to 100% exactly.
The complete monthly return for August was 1.91%. 2 funds were up and 2 funds were down. The Global and US funds were up 2.3% and 5.02% respectively. The UK fund was down 1.31% and the Emerging fund was down 1.69%. Since the Global and US funds make up 65.13% of my entire portfolio, this made my monthly returns positive overall (1.91%).
My portfolio weightings are less skewed than last month because I invested on the 22nd of the month rather than the 1st (I rebalance my portfolio as I invest). The date suits me better, cashflow-wise, so I will continue to invest on this date going forward.
Returns Since Inception (+4.44%)
Below are my returns since inception. Inception being the end of May 2018. The total portfolio return is +4.44%. The Global (+5.24%) and US (+9.08%) funds are positive and the UK (-0.51%) and Emerging (-1.24%) funds are negative. This highlights the importance of diversification.
You can see the sector breakdown of my entire portfolio below. Note these numbers are rounded so might not always total 100% exactly. Some sectors saw small movement. IT and Consumer Discretionary are down 0.1%. Consumer Goods and Oil & Gas are up 0.1%.
Technology is now being included on the list, rather than cash. The difference between 'IT' and 'Technology' can be confusing. Effectively, the difference is in what each is valued for. IT is valued for the delivery of information (eg. a phone/computer). Technology is broader and can be valued for the delivery of transportation or energy etc.
The other major confusion is between 'Consumer Goods', 'Consumer Services' and 'Consumer Discretionary'.
Consumer goods are products bought by the average consumer. These products are the end result of a production or manufacturing process. Food would be an example of a consumer good.
A consumer service (a.k.a customer service) is a process which ensures consumer satisfaction. An example of this would be a phone or e-mail interaction.
The consumer discretionary sector is comprised of desirable but non-essential goods. Luxury items, entertainment and leisure would be included in this. The financial sector is, globally speaking, a dominant market sector. This is reflected in the sector breakdown above. ‘Other Sectors’ can include utilities, materials, and real estate.
Top Sectors In Each Fund
Not including ‘other sectors’, here is a more detailed breakdown of the top 3 sectors in each fund. Note the dominance of the IT sector in the US and the Financial sector in the UK.
Global: Financials (22.46%), followed by Industrials (13.84%) and Technology (13.34%). Technology is now the 3rd largest sector, replacing Consumer Goods (3rd in July).
US: IT (23.55%), followed by Financials (15%) and Health Care (13.49%). No change in the top 3 sectors from last month.
UK: Financials (26.78%), followed by Consumer Goods (13.89%) and Oil & Gas (13.69%). No change in the top 3 from last month.
Emerging: IT (26.95%), followed by Financials (23.55%) and Consumer Discretionary (9.38%). No change in the top 3 from last month.
North America continues with it's geographic dominance, accounting for 51.1% of my investments (down from 51.3% last month). Europe (including the UK and Eastern Europe) has grown as a percentage of my portfolio by 0.3%.
Whilst not displayed here, it is worth pointing out that some regions make up a substantial portion of the world market despite a small geographical size. Japan (8.4% of the Global fund) and the UK (5.9% of the Global fund) are good examples of this. These rounded numbers are unchanged from last month.
My portfolio is weighted towards the developed world but developing countries are still represented. This is done primarily through the Emerging Markets fund (5% target weighting). The Asia-Pacific region is well-represented here (72.46%). No change from last month.
This large share is influenced to a great extent by the size of the Chinese market. Central America, South America, The Middle East and Africa only make up a small percentage of each fund and therefore my entire portfolio (2% in total).
This section looks at the biggest individual investments in my portfolio overall. So what happened this month?
British American Tobacco and Alphabet (Google's parent company) switched places this month. They are at the same rounded percentage (1.1%). Instead this reflects a minor change in their decimal point value (as a percentage of my overall portfolio).
The other more major change is the inclusion of Diageo in my top 10 investment list. Diageo is the world's largest producer of spirits and a key beer producer. Notably, this replaces Facebook. Facebook has not recovered much ground since the release of their Q2 earnings report for 2018. The stock plummeted from $217.50 per share to $176 in late July. Since then the price has fluctuated and has struggled to rebound. As of today (31/08/18) the stock is priced at $177 per share.
My 2 largest investments remain the London Stock Exchange traded Royal Dutch Shell (2.8%) and HSBC (1.8%).
Apple, after hitting a $1 trillion value at the start of the month has increased in value to $1.07 trillion. Numbers like this are sometimes difficult to comprehend. But this represents an increase in value of $70 billion ($70,000,000,000) in the space of one month. Their stock price hit $225 today, an 11%+ increase in value since the start of the month. This will be an interesting stock to watch, with the next Apple event scheduled for September the 12th.
Amazon also broke a record this month, hitting a stock price of over $2000 per share on Thursday the 30th of August. This is largely in part due to events that occurred on Wednesday the 29th of August. Morgan Stanley, the American multinational investment bank, raised Amazon's price target (a projected price level) to $2500 per share, valuing Amazon at around $1.2 trillion. It will be interesting to see if Amazon is next in line to enter the $1 trillion club.
The Vanguard Index Funds I own are all accumulating. This means any dividend income is automatically reinvested so I don’t have to process that myself. I am huge advocate of dividend reinvestment for long term wealth-building.
Goals For September
I am in the process of drip-feeding an equally divided lump sum into the market over the next year. September will be month 5. I decided to drip-feed my lump sum as insurance against a market decline. I will only benefit from this 'insurance', over investing all at once, if the market declines during the next 7 months.
Investing consistently is important to me. Any decline (bear market) is difficult to predict but continuing to invest during a fall can actually increase returns over the long term when prices rebound. Drip-feeding insures against a falling market, the system of continuous, regular investing insures against emotion-based decision making.
I am rebalancing my portfolio as I invest to maintain it’s current risk profile. Portfolio drift, where the weightings (ie. 30% in fund A) can shift from target as time goes on, can occur if this is ignored. I will need to use a different strategy once the drip-feed process is complete next year. In all likelihood I will continue to use new capital to invest and rebalance at the same time. But until then, I use a portion of my lump sum and new capital to rebalance.
That concludes the August 2018 update. If you liked this post, hit the like button down below. Also, in the comment section down below, let me know if there’s anything you want me to include in next month’s report. I’d love to hear about your investing experiences as well. I read and reply to every comment.
If you’re looking for resources to better your own personal finances, here are some of my recommendations:
Facebook - UK Passive Investing Group - Join A Like-Minded Community
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Rich Dad, Poor Dad by Robert Kiyosaki
The Little Book of Common Sense Investing by John C Bogle
The Intelligent Investor by Benjamin Graham