Thursday, 14 November 2013

SEMLing of Roses? (Portfolio Buy)

Orangutans smelling roses
Source
Judging from my DIY Income Investor portfolio, the world stock markets are going through a period of risk reappraisal - and the next direction could be up or down. The value of the portfolio has been steaming upwards until November, when it paused and then started dropping alarmingly.

I have noticed this hiatus and reversal pattern in the markets before. Uncertainty in the financial markets can be an opportunity or a trap - all we can do, as individual DIY investors, is to have a long-term strategy (hopefully based on some academic evidence) and try to stick to it, no matter if the markets are crashing around our ears.

My latest portfolio buy is just that - a continuation of the long-term strategy.

To recap, the strategy that I have currently in place is:
  • invest in high-yield income-producing securities
  • maintain a broad 50/50 balance between dividend-paying shares and fixed-income securities
  • diversify geographically away from the UK and £ Sterling
  • increase the proportion of ETFs in the portfolio

My latest purchase ticks all those boxes. The iShares Emerging Markets Local Government Bond UCITS ETF (SEML) - to quote iShares - aims to track the performance of the Barclays Emerging Markets Local Currency Core Government Index as closely as possible. The ETF invests in physical index securities. The Barclays Emerging Markets Local Currency Core Government Index offers exposure to emerging markets government debt from fifteen countries in local currency.

In July 2013 the benchmark index expanded its country coverage from eight to fifteen markets, with Chile, Colombia, Peru, Philippines, Romania, Russia and Thailand becoming eligible. Additionally, the market value of each country was capped at 10% to provide additional diversification within the index.

The current largest holdings are Brazil, Russia and Thailand - obviously countries with chequered financial histories. This coupled with the expected impact of QE unwinding (and a fall in the value of developed country government bonds) mean that the price of this ETF could well fall, although a lot of this is already priced in, with a 10% reduction in price over the last year.

Bloomberg gives the current yield as 5.6% - one of the best currently available from income-oriented ETFs.

With this purchase, ETFs now account for nearly two-fifths of the portfolio and the imbalance between dividend shares and fixed-income securities (brought about due to a recent spate of selling) has nearly been corrected. The overall yield of the portfolio has been raised to 5.5%.

As I said in the introduction - that's all you can do: have a long-term plan and stick to it. Then hope you come up SEMLing of roses!

[Purchase price: £52.74]



I am not a financial adviser 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.

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