My Passive Investments - July 2018 (+2.39%)
A short term look on long term investing
This is the second 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. This means, when it comes to selling any portion of my investments, any capital gain is tax free.
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.
For July, all markets, and therefore all funds are up. The Global, US, UK and Emerging funds are up 3.04%, 3.14%, 0.8% and 3.62% respectively. The total monthly return of my investments is therefore 2.39%. The UK had the lowest monthly return (0.8%) which dragged the total. But this is what diversification is for.
Logically, my portfolio is now skewed slightly towards the 3 funds which were up around 3%. The Global (30.2% weighting), US (35.2% weighting) and Emerging (5.1% weighting) funds are now slightly above target of 30%, 35% and 5% respectively. The UK fund (29.5% weighting) is the only fund lower than it’s target of 30%. This is addressed when I rebalance my portfolio as I invest at the start of each month.
Returns Since Inception
Since this is my second monthly report, I can now include returns since inception. Inception in this case being the end of May 2018. The Global, US, UK and Emerging fund returns are all positive. The funds have grown by 2.82% (Global), 3.69% (US), 0.97% (UK) and 0.63% (Emerging) respectively since the end of May 2018.
You can see the sector breakdown of my entire portfolio below. Note these numbers are rounded so might not always total 100% exactly. There has been little movement in the sector breakdown of my entire portfolio in July. Overall, financials has increased slightly and the cash segment has decreased slightly.
Some sectors are easy to identify and comprehend. ’Health Care’, for example, is pretty self explanatory. Other sectors are more difficult to differentiate. You might ask, for example, what the differences are 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, energy 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.
Global: Financials (22.46%), followed by Industrials (13.86%) and Consumer Goods (11.65%).
US: IT (23.62%), followed by Financials (15%) and Health Care (13.5%).
UK: Financials (26.77%), followed by Consumer Goods (13.89%) and Oil & Gas (13.71%).
Emerging: IT (27%), followed by Financials (23.48%) and Consumer Discretionary (9.43%)
In future reports, I will be looking in more detail at how these top sectors change as time goes on.
North America continues to dominate geographically, accounting for 51.3% of my investments. Looking into some funds in more detail, US stocks make up 54.1% of the global index fund. This has increased from 51.3% in June. On a side note, the global all-cap index fund offers interesting insight into the performance and influence of various markets around the world. Whilst the US represents 54.1% of this fund, Europe represents 14.1%, followed by the Asia-Pacific region at 12.7%.
Whilst not measured here, it is interesting to point 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.
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 (72.4%). 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.
I have changed this section slightly from June. Instead of a breakdown by fund, this looks at individual investments in my portfolio overall. From next month, I will also add in +/- data so you can visualise how this changes over time.
The top 2 investments are two companies traded on the London Stock Exchange, Royal Dutch Shell (2.8%) and HSBC (1.8%). This might be surprising considering that the US equity index fund accounts for 35.2% of my portfolio and the Global all-cap index fund (dominated by companies traded on the NYSE) accounts for 30.2% of my portfolio.
However, 29.5% (with a target of 30%) of my portfolio is a UK-all share index fund. This increases the representation of UK-based companies in my portfolio overall. Even though Apple, for example, is worth more than each of these companies, it accounts for a smaller percentage of each fund it's included in.
Whilst impossible to predict the future, if it's current rate of growth continues, Apple could be the first public company to achieve a $1 trillion value. It's value or market cap, is just over $949 billion (correct as of 31/07/18).
Update: 2nd of August, 2018 (2 days later) - Apple is the first public company to reach a market cap of more than $1 trillion.
But the big news in July is Facebook. On July 25th, Facebook released their second quarterly earnings report for 2018. Whilst the company continues to grow in revenue and user base, growth was lower than investor expectations.
As a result, Facebook’s stock price dropped from $217.50 to around $176 in the space of 24 hours (25th to 26th of July). This represents a drop of over 19%. The total value of the company fell by nearly $120 billion (from just under $628 billion to $508 billion).
If this doesn’t display the importance of diversification, I don’t know what will. Facebook is one of the largest individual investments in the Global and US fund. However, despite a dramatic fall in stock value, the Global and US funds which include FB still increased in value this month.
I am a big believer in dividend reinvestment for long-term growth. 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.
Goals For August
I am in the process of drip-feeding an equally divided lump sum into the market over the next year. August will be month 4 of that process. Drip feeding is designed to insure against a falling market. Therefore I will only ‘benefit’ from this insurance if the market experiences a downturn. Any decline (bear market) is difficult to predict but continuing to invest during a fall can actually increase returns over the long term. Drip-feeding insures against a falling market, the system 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. Until then, I will use new capital to rebalance.
That concludes the July 2018 update. If you liked this post, hit the like button down below. If you want me to talk about anything in more detail, or if you just want to contribute to the discussion you can do so in the comments section down below.
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