SCM Bond Reserve Portfolio (GBP) As at 30th April 2015

SCM Bond Reserve Portfolio (GBP)
As at 30th April 2015
Portfolio commenced 1st June 2011
25.0%
21.0%
OBJECTIVE:
To outperform cash.
20.0%
14.4%
15.0%
STRATEGY:
Actively managed. This is a welldiversified portfolio made up of cash,
credit and fixed interest investments.
It normally invests in a wide range of
ETFs to gain significant diversification
and exceptional liquidity at very low
cost.
10.0%
7.8%
5.0%
0.0%
Last Month
-1.3%
-5.0%
2014
Top Holdings as at 30th April 2015
%
ISHARES GBP CORP BND 1-5YR
23.2
ISHARES CORP BND EX-FIN
19.2
ISHARES JPMORGAN USD EM BND
15.9
SPDR BAR GBP COPORATE BND
12.4
ISHARES EMERGING CORP BND
9.3
SOURCE ETFS EMG LOC BND
8.3
DB IBOXX LIQUID CORP 100
4.7
SPDR BARC EM LOC BND
4.4
Underlying Holdings Key Statistics
(Source: Bloomberg)
Overall Asset Allocation
Last 12m
Last 3 Yrs
Since
Inception
125.00
120.00
115.00
110.00
105.00
100.00
31.05.11
31.05.12
31.05.13
31.05.14
Rolling Returns
12m to 30.04.15
12m to 30.04.14
12m to 30.04.13
7.8%
-5.8%
12.6%
Source: SCM Private LLP based on performance data from Investment
Software Ltd and Société Générale Securities Services
Cash,
2.6%
Past performance should not be seen as a guide to future returns.
The value of investments and the income from them can go down as
well as up and investors may not recover the amount of their original
investment.
Fees & Charges
Bonds,
97.4%
No. Holdings
Yield to
Maturity
Maturity
Duration
S&P
Rating
510
Govt. Bonds
1,370
Corp. Bonds
4.0%
11.0 Yrs
6.1 Yrs
BBB+
ANNUAL MANAGEMENT CHARGE: 0.4% +VAT
0.48%
Underlying ETF costs (TER)
Est. Dealing Costs (based on last 3 year
annualised portfolio turnover of 28.6%, a
recent weighted average spread of c.
0.34%, and a 0.07% commission rate)
Custody & Administration fee
0.31%
0.14%
TOTAL COST OF INVESTING
1.13%
0.20%
Fixed Income by S&P Rating
Asset Allocation Changes and Market Commentary
No asset allocation changes undertaken during April
CCC
0.8%
B
2.2%
BB
6.1%
Not
Rated
by S&P
12.3%
AAA AA
0.2% 7.5%
A
30.6%
The last few weeks have seen a major sell-off in bonds around the world, particularly
longer dated bonds and European Government bonds. The questions which clients
are naturally are asking;
i) What major changes has SCM made in the portfolio?
ii) How is the overall portfolio positioned?
iii) What do you make of the current sell-off
Over the last few months we have been reducing the average maturity of the bonds,
re-investing the dividends in shorter-term, less interest rate sensitive bonds.
Following US$ strength, we also sold our US TIPS exposure (US inflation-linked bonds)
and added to the local currency emerging market debt. In terms of PPP (Purchasing
Power Parity) emerging market currencies are now trading at 12 year lows.
BBB
40.3%
Fixed Income by Region of Risk
United Kingdom
Western Europe (Ex-UK)
North America
Asia Pacific (Ex-Japan)
South & Central America
Eastern Europe (incl. Russia)
Africa / Middle East
Central Asia
Japan
29.8%
19.0%
13.6%
11.0%
10.0%
9.8%
4.3%
1.7%
0.7%
The overall portfolio is positioned with a bias towards both shorter term and higher
yielding emerging bonds. Whilst these emerging bonds tend to be more volatile in
the shorter term, they combine a good yield with a shorter maturity than many of
the alternatives. We have avoided European denominated corporate, Government
and high yield bonds entirely.
Some of the recent bond yields were insane in our view. No doubt future bond
movements may be more pronounced, exacerbated by lower levels of bond
liquidity both in government and corporate bonds as shown below (US shown).
Fixed Income by Sector (BICS)
Government
26.8%
Financial
21.4%
Utilities
15.4%
Communications
8.8%
Consumer, Non-cyclical
6.9%
Energy
6.4%
Consumer, cyclical
5.4%
Industrial
4.9%
Basic Materials
2.8%
Diversified
0.9%
Technology
0.2%
The charts below of German and US 30 Yr yields show the dangers in investing in
insanely overvalued assets (European Government bonds) or assets where the
extra risk is not compensated by extra return (long bonds), with German and US
long bonds down c. 19% and 10% respectively from their recent peaks.
German 30 Yr Bund (2.5% 2046)
160
150
140
130
120
110
100
Source: Bloomberg
US 30 Yr Treasuries (2.5%, 2045)
103
98
93
88
Source: Bloomberg
Alan Miller, Chief Investment Officer, 13th May 2015
Performance is based on the monthly performance of the first client discretionary portfolio after all charges. Individual client
portfolios may differ due partly to differences in the timing of initial investment or withdrawals or rebalancing. The SCM Direct
Bond Reserve (GBP) Benchmark consists of the LIBOR GBP Total Return 1 Month Index. Investing in Exchange Traded Funds may
expose the investor to a number of risks, some of which are specific to Exchange Traded Funds and some of which are general
investment risks. Discretionary portfolios are not subject to the same regulatory constraints as UCITS and other regulated funds.
Risk and performance can change over time and the SCM Direct Portfolios may not be suitable for all types of investor. The tax
treatment of investments depends on each investor’s individual circumstances and is subject to changes in tax legislation. We aim
to provide investors with simple, understandable information so they can make fully informed decisions. If you are unsure about
the suitability of our investment portfolios please contact an independent financial adviser. SCM Direct is a trading name of SCM
Private LLP which is authorised and regulated by the Financial Conduct Authority to conduct investment business. Company
registered in England and Wales, no. OC342778.
The value of investments can go down in value as well as up, so you could get back less than you invest. Exchange rates may
cause the value of overseas investments and income from them to rise and fall. It is therefore important that you understand the
past performance is not a guide to future returns. SCM Direct does not give personal advice.