CashNews.co
Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Saturday is my birthday, which real Aussie men ignore, in the same way we would losing an arm to a shark. “Ah, it’s nothing mate . . . I’ll hold the beer with me other one.” What grates, though, is that my age rises a notch, which means less time until retirement.
The actuarial window needed to grow my pension is closing fast. As Martin Amis wrote of one’s fifties in his novel The Pregnant Widow (I’ve just read it; don’t bother): “The minutes often dragged but the years tumbled over each other and disappeared.”
It sure feels that way to me, especially with four young kids screaming for ice cream. My stated aim of having a seven-figure portfolio before I turn 60 becomes harder with every rotation of the earth around the sun.
Whereas at 51 an annual return of 8 per cent was required, I now need 9 per cent for Project One Million to deliver. This is already bordering on fantasyland — the long-run real annual return for the S&P 500 index is 6.5 per cent and that’s about the best there is.
Luckily, I’m a journalist and not running funds professionally any more. So it’s as much about the story as any statistical probability of success. Then again, since my last birthday my portfolio is up 12 per cent. A full head of hair could yet be mine.
Indeed, 5 per cent of the world’s multi-asset funds have returned 9 per cent annualised over the past eight years, according to LSEG Lipper data. Not impossible then — however my self-managed pension is only up 6.8 per cent year-to-date. I must crack on.
The weird thing is that my returns feel much better than that. Since January, I’ve made double-digit gains in my FTSE 100 fund. Same in my Asian one. Together, these account for half of my total pot.
Sure, a quarter of my assets are in Treasuries. But they are a hedge — bonds rallied nicely during last week’s equity meltdown — doing what they are supposed to. I’m actually pleased with their 2 per cent return given how strong stocks have been.
No, the gap between reality and my perception is mostly due to the recent crash in Japanese shares. This has reduced my fund’s 10 per cent return a month ago to 6 per cent today — despite the market rebounding 16 per cent.
I have also lost track of oil prices in 2024 due to the size of the swings. Nymex crude went from $70 to $87 a barrel in the first third of the year, back to $73 in two months, then up 14 per cent in four weeks. Only to lose it all again in similarly short fashion.
Likewise, having made a 13 per cent return when I last looked, I am surprised to see that my SPDR World Energy fund is now only 4 per cent in the black. No doubt the ESG brigade will applaud this. But remember that lower fossil fuel prices spur demand.
What I hope to receive from my wife on Saturday morning, therefore, are some hot investment ideas. I’m still watching the iShares listed private equity ETF, however a survey just published of global fund managers by Bank of America has them more confident of lower interest rates over the next 12 months than at any point this millennium.
Private equity loves cheaper money, but the contrarian in me gags. If everyone thinks borrowing costs are coming down, at worst they will rise for sure. At best, lower rates are already priced in. I am hoping for a cheaper moment to buy PE.
Meanwhile, to eke out a 9 per cent return, every basis point matters. Hence, once in a while, I like to compare the actual moves in my funds with the indices they are supposed to mimic.
The performance of my portfolio is the only one that counts, after all, and includes all the fees taken by the platform provider as well as the manufacturers of the ETFs themselves. Shenanigans with exchange rates or tracking errors are also revealed.
Just as my waistline is the final scorecard of too many pubs and not enough windsurfing, investment returns should only be measured this way — and naturally the industry doesn’t like you doing it.
Take my emerging market Asia ETF. The gain in value since January 6 (there have been no inflows or outflows over the period) is 10.7 per cent. The index is up 12.3 per cent, however. Readers may find similar inconsistencies in their own funds.
What is going on? Well for starters I chose an ETF which trades in pounds, with a base currency in dollars. Sterling has appreciated 1 per cent versus the greenback this year, so that’s some of the difference.
Then there are fees, which amount to 23 basis points. I won’t have suffered additional trading costs as I haven’t added or withdrawn any money this year. That still leaves more than 30 basis points of returns unaccounted for. Not massive, but enough to pay the fees of another ETF.
Mysterious too. As was the fact my FTSE 100 fund has risen 2.3 percentage points more than the Footsie index itself. Then I remembered the latter does not include dividends and buybacks, whereas I chose the option to reinvest or “accumulate” any payouts.
I also can’t explain other anomalies, such as why the reference benchmark is up 7 per cent year-to-date while my Japanese fund is 6 per cent higher, despite the yen losing almost 3 per cent of its value against the pound. I should have only bagged 4 per cent.
Not that I’m ungrateful for that one — like having knees that still bend. At 52 years old, I’ll take anything. But my birthday is a timely reminder that I need to take more risk — in my portfolio, if not when swimming Down Under.
The author is a former portfolio manager. Email: [email protected]; Twitter: @stuartkirk__