Discretionary Investment Management Service Diversified Income Model - (Sterling) October 2018
Objec ve ‐ To achieve an above average level of Sterling income, while seeking a reasonable degree of capital security
Investment Policy ‐ The manager will invest in a broad range of asset classes according to ongoing market condi ons
Strategy ‐ A wide universe of exchange traded funds, direct equi es and bonds and other income producing vehicles are as‐ sessed on an ongoing basis, in o rder to provide a broad spread of exposure by way of asset class and income source. The manag‐ er will constantly a empt to provide Cash Plus levels of income and diversifica on of risk Increasing Risk Low Risk Moderate Low Risk Moderate Risk Moderate Risk Higher Risk Aggressive Risk 3 4 5 6 7 8 Cau ous Moderately Cau ous Income Balanced Moderately Aggressive Aggressive Long Term Capital Long Capital Term Capi‐ Above Average Level of Long Term Capital Long Term Capital Growth Long Term Capital Growth Growth with high tal Growth with moder‐ Income with fair level of Growth with moderate with some constraint on with no constraint on degree of capital pro‐ ate degree of capital capital security degree of vola lity of vola lity compared to vola lity tec on protec on returns Aggressive Strategy
Launch Date: May 2016 Available through on‐line investment pla orms Dealing Dates: According to pla orm provider Minimum Cash Holding: 2% Benchmark: Bond ‐ Bbg GBP Inv Grade Corp Bnd Index Investment Management Charge: 0.35% Equity ‐ FTSE 100 Target Yield: 4% Current Yield: 5.20% (Before Pla orm and Investment Management Charge)
Bond 24 % Alt Fin 9 % Top Ten Holdings: % Cash 2 % Schroder Inc Maximiser 7% UK Equity Income 10 % TwentyFour Income Fund 7% Tideway Hybrid Capital 7% Invesco Global Fin Cap Fnd 7% SQN Asset Finance Ltd 6% HICL Infrastructure Co Ltd 5%
Infrastructure 15 % Empiric Student Property 5%
UK Equity 16 % Interna onal Public Ptnrs 5% Tritax Big Box REIT PLC 5% Pte Equity 4 % Property 20 % Greencoat UK Wind PLC 5% Last Instructed Weigh ng
6000 Monthly / Accumulated Income £5,190 5000 per £100,000 invested
4000
3000
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1000
0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
bridport & co (Jersey) Ltd · 6, Bond Street St Helier Jersey JE2 3NP Channel Islands www.bridport.ch Tel +44 (1534) 887 448
Regulated by the Jersey Financial Services Commission Discretionary Investment Management Service Diversified Income Model - (Sterling) October 2018
Model Yield 5.22% Cash 1.81% LLOYDS BANKING GROUP ORD GBP0.25 2.23% Assura PLC 2.28% P2P Global Investments PLC 2.43%
LEGAL & GENERAL GROUP ORD GBP0.025 2.44% HSBC HLDGS ORD USD0.50 2.60% ROYAL DUTCH SHELL AORD EUR0.07 2.62% GLAXOSMITHKLINE ORD GBP0.25 2.63% NATIONAL GRID ORD 11 17/43 2.87% iShares II PLC ‐ iShares UK Property UCITS ETF 2.88% MI Chelverton UK Equity Income Fund B GBP 3.07% iShares VI PLC ‐ iShares Global High Yield Corp Bond GBP Hedged UCITS 3.83% iShares Listed Private Equity UCITS ETF GBP 4.37% GCP Student Living PLC 4.61% Tritax Big Box REIT PLC 4.94% Greencoat UK Wind PLC 4.97% International Public Partnerships Ltd 5.38% Empiric Student Property PLC 5.60% HICL Infrastructure Company Ltd 5.65% SQN Asset Finance Income Fund Ltd 5.98% Invesco Perpetual Global Financial Capital Fund NT GBP 6.38% Tideway GBP Hybrid Capital Fund B GBP 6.67% TwentyFour Income Fund Ltd 6.79% Schroder Income Maximiser Z Inc 6.98%
11.00%
9.10% 9.00%
7.00%
5.00%
3.00%
1.00%
‐1.00%
‐3.00%
‐5.00%
Por olio Sta s cs (source: Bloomberg) Port (1 Month) Port (3 Months) Port (6 Months) Total Return % ‐1.29 ‐1.59 1.57 Maximum Return % ‐0.01 2.30 Minimum Return % ‐1.29 ‐1.29 Mean Return (Annualized) % ‐6.34 3.14 STD Devia on 5.43%
Sharpe Ra o 0.81
The value of Investments and any income from them, may go down as well as up (which may in part be due to fluctuations in foreign exchange rates), and investors may not get back the full amount invested. Past performance is not necessarily a guide to future performance. bridport & co (Jersey) Ltd has compiled this document and has taken care to ensure that the information contained herein is correct, but it does not warrant, represent or guarantee the accuracy of any such information, nor does it accept any responsibility for any errors, inaccuracies, omissions or inconsistencies herein. This document should not be construed as advice or as a recommendation to buy or sell any investment. bridport & co (Jersey) Ltd is regulated by the Jersey Financial Services Commission.
bridport & co (Jersey) Ltd · 6, Bond Street St Helier Jersey JE2 3NP Channel Islands www.bridport.ch Tel +44 (1534) 887 448
Regulated by the Jersey Financial Services Commission Discretionary Investment Management Service Diversified Income Model - (Sterling) October 2018
Commentary
As this was being wri en toward the end of October, the major headline was that pertaining to one of the richest men in the world ‐ Jeff Bezos ‐ the founder of Amazon who “lost” a record amount of wealth in the space of just two days ‐ $20bn. But don’t be too concerned, he is s ll the Worlds richest person…..
October was a month that will be scorched in the minds of investors as (so far) the worst month of the year and probably the worst month for risk assets since…..well, the last major sell‐off in 2016, when Deutsche bank was rumoured to be running out of capital ( FTSE 100 down by 20%). A er that event, we had the Taper Tantrum of 2013 (FTSE down by 10%), the Euro Area Crisis of 2012 (FTSE ‐20%) and the big one of 2008/09 (FTSE ‐46%). So far the FTSE is down this month by as much as 9%, before winding back to ‐5%. Lots of reasons for the sell‐off, but principally we have nervous investors worried about Italy, Brexit, Trade Wars and Rate Ris‐ es. The difference between the big drawdowns of the past and the current one, (with the excep on of 2008/09) is that they were felt in the presence of markets which were not overvalued. There were s ll reasons to be concerned at these mes, but stocks and bonds, excluding Government Bonds, had some semblance of value and recovery momentum building up underneath them. This me, there is generally no such sense of comfort, unless you look at unloved “deep value” stocks and related income strategies.
Within these record breaking periods of increased vola lity and heightened market tension we feel that the small fall in value of this Income por olio is proving to be a very good story. As bond investors first, we become concerned with any por olio value dip in any par cular me frame, although we fully recognise that markets rise and fall. To us, value changes of ‐1% and more are deeply unse ling. However, when we step away from the tunnel vision study of bond and income investments to consider the wider world, we find that our compara ve out‐performance puts into place the slight change in the value of this por olio to that of the wider market.
We do not run the Por olio against a specific benchmark as this tends to lead investment down the corridor of index hugging. However referencing the por olio against a mixture of Gilts (40%), Corporate Bonds (investment grade and high yield) (20%), plus the FTSE100 (40%), shows a meaningful outperformance of +3.35% more than the index for the year to date and +0.30% outperfor‐ mance for this month. We should also stress that 40% of the benchmark is in Gilts, which recorded a gain of 1 1/2% for this month.
The Diversified por olio has been up, running and fully invested since June of last year (although back‐tested for a year before that). In October, we had sufficient client capital to expand the por olio into it’s current range of investments. Since that me we have made some minor adjustments and added one or two addi onal funds where we understand there is a demonstrable focus on stability and income. In the course of the last 12 months, the strategy has been witness to some major market events ranging from the rise of the Labour party, and it’s effect on certain stock market areas (infrastructure), the beginning of rate rises in the UK, col‐ lapsing FTSE100 companies (Carillion and Provident) together with EMG market crises, Poli cal crises, doubling of Oil (June 17 to Sept 18) the rapid cooling of central UK property and the death of several UK retail empires ‐ not to men on the painful Brexit ne‐ go a ons and the on‐going trade wars . As such being able to outperform major indices such as the FTSE100 by as much as 7% over that 12 month me frame and finish the most vola le month with an outperformance of the FTSE by 3.50% is an accomplish‐ ment.
Our strategy stems from the over arching role we have as income investors. We invest into companies that have solid underpin‐ nings and a long term ability to be able to pay income from a strong capital base. Underleveraged property backed investments and companies that actually own long term rights to income streams from infrastructure and energy, companies that own the as‐ sets they manage to generate income returns for our por olio. We understand financial companies, such as Banks, from the per‐ spec ve of their balance sheets and look for strong liquidity ra os that can withstand economic downturns, but which have the ability to keep paying dividends. We need to be able to understand how our investments generate their returns and be sure they can con nue to do so.
We believe the por olio is posi oned to con nue to provide income from all of it’s holdings. We would prefer capital stability as opposed to the current market vola lity. We would prefer to be under‐performing our benchmarks, whilst s ll making posi ve returns amidst rising markets. However given these market condi ons which are likely to persist, we have the choice of inves ng in our por olio or selec ng the poor op on of receiving nega ve real returns combined with very low levels of interest rates from the risk free asset class, Gilts and high grade bonds. We cannot see that there is a be er way to invest for the long term income orient‐ ed investor.
bridport & co (Jersey) Ltd · 6, Bond Street St Helier Jersey JE2 3NP Channel Islands www.bridport.ch Tel +44 (1534) 887 448
Regulated by the Jersey Financial Services Commission Discretionary Investment Management Service Diversified Income Model - (Sterling) October 2018
Successful Inves ng for Income We are now in an economic age which suffers from low income returns. Low interest rates have been the norm since 2009 and it would seem to be the case that the low / moderate interest rate age will con nue for the foreseeable future. Since rates began to fall in 2009, returns generated by bonds have held up surprisingly well, buoyed by fixed rates on bonds issued before the crash and capital gains . However, we have seen that the lower for longer interest rate environment has the effect of substan ally reducing returns to bond investors as the bonds issued from 2009 and before come to maturity and the maturity proceeds are re‐invested back into the market at very much lower rates. This decline in rates has pushed bond investors to new and higher yielding markets and extremes of ma‐ turity in an effort to maintain returns. Bond inves ng is now a complex and difficult market with raised of underlying risk. Annual income returns can be overwhelmed by a market move over a few hours.
Historically, bonds have always a racted investors and savers looking for safe and secure income. Whilst “safe and secure” is arguably s ll a feature for most of the bond market, the type of income returns we had become accustomed to over the last 30 years are difficult to achieve.
The low interest rate environment however provides opportuni es in equity markets, where the outlook for companies, because of cheap funding, is looking promising. Dividend yields o en exceed bond yields issued by the same company and it makes sense to consider a combined Bond and Equity market ap‐ proach when inves ng for income. Understanding the difference between Bond and Equity inves ng is vital. Investors could be excused for believing that, in the end, the outcome is the same. The two asset classes react differently to the varying economic pulses and themes that mark the ebb and flow of markets. Rising interest rates, which combat poten ally strong infla on, caused by a pick‐up in growth, may occur in a suppor ve environment for markets as investors an cipate greater profitability as the economy picks up. Bonds in this environment generally struggle as fears of infla on and being locked into a lower rate of interest become the main con‐ cern. We provide an investment approach that combines investment into Equity, Bond markets and investment into Real Assets. Our aim is to provide a regular income to our clients without relying on either market. bridport is, by its origins and nature, a specialist in bond markets. However, our long term investment experience provides a unique ability to add to this specialisa on with careful and insigh ul analy cs with‐ in the sphere of income inves ng.
Bond investors are mostly concerned with retaining por olio value, in real (infla on protected) and nomi‐ nal terms. We work to meet specific income targets by inves ng in key value sectors of the bond market with target por olio of equi es, funds and Investment Companies that pay rela vely good levels of divi‐ dend income.
Generally, our approach will feature bonds to a greater extent than equi es, although we will not be dog‐ gedly bound to this rela onship and the approach will change over me as market condi ons evolve.
The value of Investments and any income from them, may go down as well as up (which may in part be due to fluctuations in foreign exchange rates), and investors may not get back the full amount invested. Past performance is not necessarily a guide to future performance. bridport & co (Jersey) Ltd has compiled this document and has taken care to ensure that the information contained herein is correct, but it does not warrant, represent or guarantee the accuracy of any such information, nor does it accept any responsibil- ity for any errors, inaccuracies, omissions or inconsistencies herein. This document should not be construed as advice or as a recommendation to buy or sell any investment. bridport & co (Jersey) Ltd is regulated by the Jersey Financial Services Commission.
bridport & co (Jersey) Ltd · 6, Bond Street St Helier Jersey JE2 3NP Channel Islands www.bridport.ch Tel +44 (1534) 887 448
Regulated by the Jersey Financial Services Commission