Tuesday 1 May 2012

Portfolio Performance vs. Professionals

The theme of this blog is Do-It-Yourself investment. Today, let's take a look at the professional competition: how has the DIY Income Investor portfolio performed against the funds?

The DIY Income Investor portfolio is based on cash, high-yield dividend shares and high-yield fixed-income securities, like corporate bonds, preference shares and PIBS. For this comparison, the performance of the cash component is excluded.

Recently corporate bonds have been performing strongly. Citywire has published a comprehensive summary of the performance of a range of high-yield bond funds over three years.

Source: Citywire

Over three years the European high-yield bond fund sector has been the star performing bond sector. However, given the recent default in Greece - and potential problems in Spain, Portugal and Italy, this is clearly the high-risk end of the bonds market. Moreover, interest in European high yield has waned recently, with a shift to US high yield.

There is a direct correlation between higher yield and a lower credit rating and hence higher risk of default. And like the equity market, high yield is vulnerable to changes in sentiment - linked to the business results and fundamentals of the companies they represent.

By comparison, the total return on the DIY Income Investor portfolio performance has been:
  • FY 2009/10: 57.2% 
  • FY 2010/11: 5.7%
  • FY 2011/12: 5.9%

This total to a total returns gain of around 76% over the last three financial years. This turns out to be a respectable performance by comparison with the high-yield bond funds above - and was partially due to a big rebound by the equity market in FY 2009/10.

Citywire also provides data for funds over other time periods and for other asset types. If you look at these you will see that the DIY Income Investor portfolio has not performed quite adequately by comparison over 1 and 3 years for both bonds and equities. In particular, over one year many equity funds lost money. As for the 'mixed asset' funds - forget it: the DIY Income Investor portfolio romps home comfortably in the lead over both 1 and 3 years.

Add back the not-insubstantial fees that these 'professionals' charge and the DIY Income Investor approach seems to have worked pretty well.

How is your DIY portfolio doing?

I am not a financial advisor and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.


  1. I agree about the DIY-Investing approach, albeit I take a slightly different tack (capital growth + some dividends). The negative impact of fees on our hard earned money is something to avoid - regardless of the strategy being followed!

    Regards, Mick.

    1. Hi Mick

      Yes - I reckon going DIY saves you at least a couple of percent on your yields.

  2. I'm interested to know what software/tools you use to keep track of your portfolio. Current;y I have an array of spreadsheets (that i should probably amalgamate) that I update with month end valuations. What is your approach?

    1. Hi James,

      I use a multi-page spreadsheet(I've posted about this).

      Most of the prices are scraped from the internet (another post).


      Although I have tried to automate it, I do end up fiddling with it a lot!

  3. I use the Portfolio on the FT.com website as my portfolio tracker - with a different portfolio for each of my brokerage accounts. Works well (though the prices are a shade optimistic) and displays the results in consolidated form or by brokerage. Recommend.

    It's also free: http://www.ft.com/cms/275bc334-3063-11dc-9a81-0000779fd2ac.html

  4. I use TradeTrakker, relatively inexpensive and very functional.

  5. Hi

    I have been watchng your blog for a while and notice a distinct move into non-dividend based shares - more PIBS and bonds.
    I was reading Buffets letter this morning and was thinking about his comments about times of low stock prices and growths actually is a superb time to buy as dividend and yield investor.

    Do you not think a re-invest dividends and continued purchasing of dividend shares will not lead to the same sort of return you saw in 09/10 - which looks like a recovery of a tough 08/09 for you?

    1. Hi Anonymous.

      Interesting comment - Buffet is usually spot on - and at heart he is an income investor, buying companies that generate surplus cash.

      But yes, you are quite right, I have been reallocating to have a greater share of high-yield fixed-income holdings (one of my New Year resolutions) - they now make up half of my portfolio. The reason is serial disappointment with high-yield dividend shares (the latest is HOME). However, dividend shares do show the greatest volatility, and therefore potential for recovery.

    2. Hi

      Interesting - I am still a believer in dividends and growth sahres though maybe a selection based more on growth prospects than simply dividends.
      Of course the proof is in the pudding and as such I am running several portfolios and it will be interesting long term to see how they preform against each other.

      The big problem with the dividend shares lately seems to be the double whammy of the high yielding bank shares and now retail shares being nailed.

      I have been caught on a few as well but hopefully patience will prevail ( I am thinking 5 - 10 years of patience though)

      If you get your timing right your approach could do well though.If only we had the benefit of hindsight before the fact.

      I will keep following yoor strategy and progress with interest - thank you for going to the effort of blogging.