Page 46 - DIY Investor Magazine | Issue 31

QUARTERLY REVIEW: QUALITY FIGHTS BACK Hello again; here’s my latest quarterly portfolio review. After lagging behind global markets in the first quarter, I was a little ahead in both the second and the third. Year-to-date, both my portfolio and the global market tracker I benchmark against are up around 12.5% Portfolio / Q3 Benchmark 2021 Q2 2021 7.90% 6.90% 4.50% 5.60% Q1 2021 1.80% 4.00% 0.90% 5.70% Annualised since Jan 2018 11.50% 10.80% 6.80% 2.70% In other major markets, US was up 15%, Europe 12%, Japan 6%, and China down 16%; in smaller markets, both India and Russia posted returns in excess of 30%. NOT SO GREAT EXPECTATIONS Trusts4U tweeted an interesting piece from Vanguard recently where the fund giant looked at how its market forecast model had performed over the last ten years and what it is suggesting about future potential returns: US equities did a lot better than Vanguard expected over the last 10 years and non-US equities did much worse; in the 60/40 portfolio, these two effects net off. From a lower base, Vanguard expects non-US equities to perform better over the next ten years but its mid-point prediction is an anaemic-looking 6% a year; mid-point prediction for the 60/40 is just 3.8%, well below the 7.0% enjoyed over the last decade. Lower forward expectations are something I have mentioned occasionally, but I thought it was a useful way to present the data; Vanguard deserve credit for highlighting the accuracy or otherwise of their old forecasts. My portfolio Vanguard FTSE Global All Cap (fund) Vanguard LifeStrategy 60 (fund) Vanguard UK All-Share Index (fund) 2.40% 1.20% 0.80% 2.20% The usual explanatory note: I use the Vanguard global tracker fund as my main benchmark. The more conservative LifeStrategy 60 fund (essentially a global 60% equity/40% bond portfolio) and UK index tracking fund provide additional reference points. Annualised since January 2018, I’m up 11.5% compared to 10.8% for global markets; I’m a little shy of my +2-3% a year stretch target, but still pretty happy with my overall progress. Bond yields have started to rise again in the last few weeks; while they fell from mid-May to early August, my quality-type investments (Fundsmith, Lindsell Train etc) put in a decent showing again, and that’s probably why I outperformed a little in the second and third quarters. Markets have been pretty skittish for the last couple of weeks, even though the rise in bond yields has been both smaller and gentler than we saw earlier this year. That said, 2021 has been unusual in that we’ve seen no major market decline of 10% or more; I’m not even sure we’ve had a 5% drop. On average, as stock market historians often tell us, we should probably expect to see a 10% fall around once a year. After its late spurt at the end of 2020, the UK market was only marginally ahead of global markets this year at 14%. DIY Investor Magazine · Nov 2021 46