IIt was a slow and regular quarter for the Slow & Steady portfolio. Our passive investing model is up just 1% over the past three months.
Nevertheless, we’ve got now had three consecutive quarters of growth – and that has actually added color to our assets.
Here are the numbers in Right-o-vision™:
The portfolio is a model portfolio for passive investing. It was arrange in early 2011 with £3,000. Each quarter a further £1,264 is invested in a diversified set of index funds tilted towards equities. You can read the story of the way it was created and find all previous posts on the passive portfolio within the vaults.
Winners of the last quarter:
- Emerging markets: 5.4%
- UK equity: 3.7%
- Industrialized countries excluding Great Britain: 2.5%. (The USA was the leader, Europe barely moved and Japan was a burden)
The downside? Global small-cap stocks and global real estate stocks each lost almost 3%, while UK government bonds fell 1%.
At least government bonds are up 4% year-on-year. However, their performance has been a horror show over the portfolio’s 13 years of existence, mainly as a consequence of their crash in 2022.
America, the attractive
The S&S sector’s recovery last yr was extremely one-sided, driven primarily by our developed markets fund, whose performance was heavily supported by a robust US engine.
The US share has increased by around 27%. The UK, Europe, Japan and emerging markets have only achieved a return of around 13%.
Quite a spot – and reason enough to wish you had the gift of clairvoyance.
don’t look back
Blame it on the whim of summer, but I did something you need to never do. I went back to the unique members of the portfolio to envision on their performance.
It’s a type of mental torture. Like any hindsight exercise, you are asked to assume a parallel reality by which you were an all-knowing genius who could predict the very best path prematurely.
Below are the cumulative nominal returns of our starter funds from January 2011 to today – excluding all of the reallocations, incremental contributions and asset allocation changes we’ve got revamped time:
ETF data and charts from . Returns include dividends but exclude inflation.
Don’t worry about me, I’m lying within the gutter watching the celebrities (and stripes).
Bigger and higher
How exceptional was America really? I find it easier to measure performance by annualized returns:
- United States: 14.9%
- Europe: 7.4%
- Japan: 6.8%
- Great Britain 6.2%
- Pacific excluding Japan 5.3%
- Emerging markets 3%
- Government bonds 1.5%
Consider this: The average historical return for stocks is 8%, while government bonds only yield 4%. (These are nominal returns before fund fees.)
From this attitude, every asset underperformed throughout the lifetime except the US. This alone brought the portfolio’s total return to a good level. Treasuries and emerging markets actually lost money assuming average inflation of three%.
Just have a look at the expansion in China since 2011 – and yet the emerging markets have been catastrophic. Those who bet on the apparent growth story don’t necessarily repay in shareholder profits.
Keep this in mind in the event you are tempted by an AI-focused ETF today.
Crystal balls
Now let’s take a better look and undergo every asset class I’d have plausibly chosen in 2011:
I actually considered investing in tech on the time, however it looked as if it would me that the sector was already covered by the US and later the World tracker. That’s all true, and yet the 100% tech fund achieved a whopping annualized return of 20%, in comparison with “only” 14.8% for the US and 11.6% for the MSCI World.
The technology sector was also a transparent growth driver in 2011. Everyone was enthusiastic about it. However, there have been also many warnings that the sector was overvalued and that it might be difficult to attain above-average returns.
As time went on, the warnings for China proved to be prescient, but not for the technology sector.
Well, to be honest, given the presence of technology within the US core fund, I’d not have invested greater than a further 5% on this category anyway.
Key technology gone
Apart from the three largest funds – all of that are driven by the large technology corporations – all of the others performed sluggishly within the historical rearview mirror.
Cash is the worst performer with an annualized return of 0.81%, making it an enormous loser after 3% inflation.
Interestingly, the two.65% yielded by index-linked government bonds means they track long-term inflation quite well – after negative yields and fund fees got in the best way.
The Linkers also performed significantly higher than the Gilts during this era.
Commodity returns were terrible. Only 1.82% versus a nominal historical average of seven.5%.
Gold’s 5.4% annualized return may not look like much at first, however it’s actually spectacular in comparison to the opposite defensive asset classes on the map.
Keep in mind, nonetheless, that defensive asset classes are less about their long-term returns – although we still aim for positive returns here – and more about what they do when stock prices stumble.
On the expansion side, business real estate (5.6%) and the high-yielding Global Select Dividends were quite mediocre in comparison with a traditional global tracker.
What does this prove?
If you went all-in on the Nasdaq over a decade ago and threw that diversification nonsense overboard, then congratulations.
Did you simply get lucky? On the equity side, there have been good reasons not to speculate within the US in 2011 – and even within the technology sector. Those were bets I used to be definitely not qualified to make.
Lars Kroijer summed up the dilemma in his excellent contribution as follows:
If you’re chubby or underweight a rustic relative to its share of the worldwide equity markets, you’re effectively saying that a dollar invested within the underweight country is less smart/informed than a dollar invested within the country to which you allocate more.
So you’d argue that you simply see a bonus in allocating funds otherwise than the trillion-dollar international financial markets do.
But you can’t try this in the event you don’t have the crucial skills.
And we agreed that we’ve got no limits…
Everything I’ve learned about investing over the past few years only confirms the wisdom of Lars’ words.
It’s sometimes fun to look back and gain insights.
But it makes more sense to look forward with humility.
New transactions
Each quarter, we throw 1,264 kilos of fresh meat to the market wolves and hope they turn around and allow us to tickle their bellies. Our share/steak is distributed among the many seven funds in our portfolio in line with our predetermined asset allocation.
We balance in line with Larry Swedroe’s 5/25 rule. This was not applied this quarter, so the trades are as follows:
British equity
Vanguard FTSE UK All-Share Index Trust – OCF 0.06%
Fund identifier: GB00B3X7QG63
New purchase: 63,20 €
Buy 0.232 units at £272.59
Target allocation: 5%
Stocks of industrialized countries (excluding Great Britain)
Vanguard FTSE Developed World ex-UK Equity Index Fund – OCF 0.14%
Fund identifier: GB00B59G4Q73
New purchase: £467.68
Buy 0.705 units at £663.53
Target allocation: 37%
Global Small Cap Stocks
Vanguard Global Small-Cap Index Fund – OCF 0.29%
Fund identification: IE00B3X1NT05
New purchase: 63,20 €
Buy 0.152 units at £416.84
Target allocation: 5%
Emerging market equities
iShares Emerging Markets Equity Index Fund D – OCF 0.19%
Fund identifier: GB00B84DY642
New purchase: £101.12
Buy 50,883 units @ £1.98
Target allocation: 8%
Global property
iShares Environment & Low Carbon Tilt Real Estate Index Fund – OCF 0.18%
Fund identifier: GB00B5BFJG71
New purchase: 63,20 €
Buy 28,757 units at £2.20
Target allocation: 5%
British government bonds
Vanguard UK Government Bond Index – OCF 0.12%
Fund identification: IE00B1S75374
New purchase: £316
Buy 2,384 units at £132.55
Target allocation: 25%
Global inflation-indexed bonds
Royal London Short Duration Global Index-Linked Fund – OCF 0.27%
Fund identifier: GB00BD050F05
New purchase: 189,60 €
Buy 179,546 units at £1,056
Dividends reinvested: £64.15 (purchase of one other 60.75 units)
Target allocation: 15%
New investments Contribution = 1,264 €
Trading costs = 0 €
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Average Portfolio OCF = 0.16%
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Always take it easy,
