The end of the calendar and financial years are times to take stock, as the financial markets are structured around these dates and a lot of analysis takes place about what worked (or didn't).
But when your investment strategy does well - or badly - there is always a question to ask: was it just luck or is it a result of judgement (good or bad)? And how good is your judgement anyway?
It has been said that the way we think (sometime illogically) is partially due to the remnants of our ancient 'chimp brain', which provides much of the emotional and instinctive wiring to our thought processes. So, was the portfolio due to the man or the monkey? Champion or chimp?
The excellent performance of the DIY Income Investor portfolio continues, with a dizzying 29% total return in the 2012/13 financial year (after tax - but then I don't pay a lot of tax). However, this is down from the 33% return achieved in calendar year 2012 - the gain in the first quarter of 2013 was only (!) 5% compared with 9% in the first quarter of 2012. I'm guessing that, overall, this must be a quite unusual result. No doubt some other Lucky Fools have done better - but not many!
But how unusual is this return amongst other investors - and how much of this is down to luck (as a Lucky Fool) or the decisions of the man/monkey brain?
- 50% high-yield dividend shares, most of which are drawn from the FTSE 250, including a few ‘legacy’ shares (that is a flattering term for ‘poor investments’) left over from the 2008 crash;
- 50% high-yield fixed-income securities, most of which are quoted on the London Stock Exchange and almost exclusively from the UK finance and insurance sector and consisting of corporate bonds, preference shares and PIBs (I sold my UK gilts during the year)
- Some of these securities consist of Exchange Traded Funds in international dividend shares and fixed-income securities, bought at the beginning of 2013 in an attempt to diversify away from Stirling.
- UK FTSE 100: the iShares FTSE 100 (ISF) ETF is showing a 1 year return of around 12%
- UK FTSE 250: the iShares FTSE 250 (MDD) ETF - 1 year return of around 23% (the best performance of any related benchmark I could find!)
UK dividend shares:
- the iShares FTSE UK Dividend Plus (IUKD) - 1 year return of around 17%
- the SPDR S&P UK Dividend Aristocrats ETF - 1 year return of around 18% (since its launch in March 2012)
- UK corporate bonds: the iShares Markit iBoxx £ Corporate Bond (SLXX) - 1 year return of around 9.4%
- iShares Markit iBoxx £ Corporate Bond ex-Financials ETF (ISXF): 1 year return around 7.5%
- UK gilts: iShares FTSE UK All Stocks Gilt (IGLT) - 1 year return of around 3.4% (only!)
- db x-trackers Stoxx Global Select Dividend 100 UCITS ETF (XGSD): trailing 12 month total return 17.7%
- iShares DJ Asia/Pacific Select Dividend 30 ETF (IAPD): 1 year return around 19.5%
- iShares EURO STOXX Select Dividend 30 ETF (IDVY): 1 year return around 1.95%
- SPDR S&P Emerging Markets Dividend ETF (EMDV): 1 year return around -10.4% (yes, minus?!)
- SPDR Barclays Emerging Markets Local Bond UCITS ETF (EMDD): 1 year return around 6%
- iShares Markit iBoxx Euro High Yield Bond ETF (IHYG): 1 year return around 12.8%
So this good result must be due to the specific choice of asset classes and also no doubt some lucky choices of individual securities.
- Man says:
- selectively take Sterling profits
- diversify to shares of companies that have international earnings or non-Sterling ETFs (when Sterling strengthens)
- Euroland looks cheap
- Monkey says:
- banana (skin?)
Update 4/4/13: Monkeys 'make better trades than the average fund manager' - you always knew it was true... (Original paper downloadable here).