Happy Easter Monday everyone.

I had planned to write a review of Q1 today. As posted in last week’s Share Watch, Q1 was marginally down at minus 0.77% and while I would prefer to be making money, this performance compares favourably to all of my benchmarks – by some margin. I note there are a handful of Twitterati who have posted positive Q1 results. I doff my cap to you guys and am delighted for you.

During the quarter, my focus has been on far more than monitoring performance and I think that might make for more thought provoking copy today. Apart from wrapping up full-time employment, I have spent much of the quarter continuing to fine tune my portfolio with particular attention to volatility and natural yield. In fact, the sharp correction in early February and subsequent market moves have been really excellent timing for me in that respect, as I was able to stress test my portfolio holdings for their behaviour in more volatile market conditions.

I have created a new Performance and Analysis page where the key dimensions that I am looking to measure/manage will be updated quarterly. Ditto, I will now be updating portfolio holdings/weightings quarterly (so that both pages remain in sync), although I will cover any trading activity via the Share Watch bulletins.

Portfolio Aims
Over the long haul, I am looking for this overall fund (held via a combination of SIPPs, ISAs and Trading Accounts) to generate a perpetual return to provide for our retirement and secondarily, leave a nice inheritance for our children. In simple terms, that means taking out less than the amount by which the portfolio grows.

However, I also want to have some degree of predictability in my returns, minimising drawdowns and having relatively low volatility and low turnover of portfolio constituents. Broadly speaking, I am looking to carry low-to-medium risk while giving sufficient attention to the upside in order to deliver capital growth.

What does that mean in practice?

Weighted Volatility
At present, the weighted volatility of the portfolio is 2.95 (minimum 0, maximum 5) which corresponds with an “Adventurous” rating in Stockopedia speak. My aim is to get this below 2.5 and closer to 2 during the year, so that it becomes closer to “Balanced” overall.

Natural Yield
At present, the natural yield in the portfolio (i.e. the amount of return that will be generated via dividends) is quite low at 2.68%. That’s because I clearly have a strong bias of growth holdings (21) versus income holdings (7), presently. The income holdings (currently only 4 shares and 3 investment trusts) have a natural yield of 6.04%, so it is easy to see how natural yield could be increased across the portfolio. Of the growth holdings, 6 do not currently pay a regular dividend, although I expect 3, perhaps 4 of these to begin doing so during 2018.

My aim is for the natural yield to rise above 4% during the course of this year, perhaps even as soon as Q2.

Stock Rank Averages
I have made no secret in the past of my focus on quality and this is clearly reflected in an average quality rank of 82 (out of 100). Momentum is a respectable 77 and value (I struggle to find value shares that meet my quality criteria) a surprisingly high 54, giving an overall Stock Rank average of 83. I do monitor Stock Ranks quite closely and note any significant movements among portfolio constituents. The current balance is probably about right, although I would like to get all of the averages a little higher.

Excluding IQE
When I review the portfolio constituents, the one oddball is IQE. It really isn’t a good fit for any of the criteria or indeed, the long-term portfolio aims and make-up. So, I ran a scenario where I sold IQE at its current price and reinvested the proceeds equally across the 12 companies (6 new and 6 existing) on my targeted buy list.

Interestingly, it didn’t really affect the Stock Rank averages which increased to Q84 V56 and M78 for an overall Stock Rank average of 86. However, the effect on weighted volatility was more marked, reducing it to 2.43 and similarly, increasing the natural yield to within a whisker of 4% (excluding special dividends).

Well, there’s food for thought. I could pretty much place my portfolio exactly where I am aiming for it to be by just selling out of IQE completely and redeploying the proceeds across my targeted buys. Certainly, it is my intention to reduce exposure to IQE during the second quarter. Whether I exit completely remains to be seen but it is usually better to make decisions with the head rather than the heart. Hmmm.

I hope you like the new look performance and analysis page. It will be interesting to see how these metrics evolve over the next quarter throughout 2018.

Enjoy the rest of the bank holiday and I shall see you at 7am on Twitter for you know what!


Disclosure – at the time of writing, I own shares in IQE, mentioned in this article.