Investors and journalists love a round number. Last year we would have ignored strategist Neil Hennessy’s prediction for the Dow Jones index if it hadn’t been a neat 40,000. Yeah baby! Or dollar-yen at 150? A thousand words by Friday please.
All nonsense, of course — like the usefulness of knowing that one of the best-performing equity markets in the world this year belongs to Argentina. But I’m no killjoy. My personal pension closed at £470,000 exactly on Wednesday. That’s amazing.
And a sign that it’s time to do one of my quarterly performance drain-ups. I receive scores of emails per week asking for the table below to include returns data. And you’re absolutely right that it should.
The problem I’ve had when trying to show something meaningful is that the drawn-out transition of my two employee pension funds this year to a self-managed one muddied the numbers. Returns versus relevant indices would come with too many caveats.
Having said that, I’m still going to try to make an honest assessment of my performance. The number one enemy of good investing is denial — and I’m as prone to that bias as anyone. My head loves to hide in cool dark sand.
Irrespective of all the changes to my portfolio over the past 11 months — as well as some unwanted periods in cash — at least there is one number which can be tracked cleanly throughout: its overall value in pounds sterling, my base currency.
That was £438,339 on November 19 last year, the date of the first Skin in the Game column. So, as of this week, a gain of 7.2 per cent. It is a total return to be exact, as all of my funds reinvest or “accumulate” any dividends earned.
Is 7.2 per cent any good? Well, the first thing to remember is that the number is nominal. Inflation will not have flattered my return as much as it has Argentina’s, but by historical standards it has been high in the UK over the past year.
To calculate my real return — which determines my purchasing power — I use CPIH, the consumer price index that includes housing costs (which I have to pay) as well as energy, food, alcohol and tobacco. Sure, the latter are mostly volatile when deriving trends, but they are staples for me.
The Office for National Statistics has this measure up 3.3 per cent in the nine months from December 2022 to August this year (September data is not available yet). That reduces the real performance of my portfolio to 3.9 per cent.
Compare that to the best easy-access savings account deals in the UK now, at 5 per cent or 1.7 per cent real, and my 3.9 per cent is more than double. Of course, the former is risk free (at least until the next banking crisis).
Because I live in Britain and do all of my shopping here, I must deflate all of my returns by the same amount, irrespective of whether they were generated by US bonds or Asian equities. This makes analysing my relative performance easier as we can simply stick to nominal numbers from now on.
For example, my 7.2 per cent compares with 4.7 for the FTSE 100, 12 per cent for the S&P 500 and 6.5 per cent for Stoxx Europe 600 index. I would have taken that if offered, though trailing the US hurts considering I was bullish on America last year.
Then again, I would have bagged an average 8.4 per cent return if I had just purchased one of the many MSCI World ETFs that my online broker offers, thereby saving much stress and faff. Most bog standard 60:40 equity-bond funds, however, came in at around 3 per cent.
Likewise, I would have been no better off sinking all my money into MSCI EM Asia, which is up 3.8 per cent since November, though my Japan ETF has returned almost 12 per cent (remember these funds are priced in dollars but I own the sterling versions).
Beating or trailing a benchmark or index is one thing. How has my portfolio done versus other investors, though? To be fair, most institutional managers focus on a particular asset class or region, so it doesn’t even make sense to single out how poorly most of them have done.
Even balanced funds can be constrained. Some have strict maximum cash levels, for example, or will only allow a certain exposure to Asia or to corporate bonds. That said, eyeballing the returns of about two dozen multi-asset funds, I see half are in the red this year, and none is up more than 4 per cent.
Unlike me, few hedge funds can do whatever the hell they want any more either. Nowadays, they must fit a category such as macro, long-short equity, or thematic. But at least we share the goal of making as much money as possible, unlike most institutional managers who measure their funds against an index.
I am pleased to say my portfolio has done better than the lot of them. Using HFRI data from the end of November to August, the fund-weighted mean return of all hedge fund strategies is 4.1 per cent. Even the equity funds have only managed 5.5 per cent on average — and they top the list.
These hedge fund indices are measured net of fees to be fully transparent with you, whereas I have not included the cost of the FT Weekend newspaper or annual subscription to the Financial Times in calculating my returns. Call it half of 1 per cent — we still win!
Half a million pounds is the next round number I am aiming for. For that to happen reasonably soon I will probably need the mother of all bond market rallies and some good news out of China. Is it too early to ask Santa?