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Portfolio Update – February 2020 – Coping financially after the corona virus

Portfolio Update – February 2020 – Coping financially after the corona virus

  • Corona update: All Seasons Portfolio development was -3.46% 21 Feb to 6 Mar, compared to -14.33 All-World Stocks
  • Bonds helping to avoid the worst drawdown
  • Stocks, gold and commodities in negative territories, while gold has gained back some losses during the beginning of March
  • All Seasons Portfolio Strategy shows its value during shaky markets; it is good to diversify across asset classes to decrease portfolio risk
  • After these few weeks, my confidence in the strategy remains strong

Hi and welcome back,

Let’s cut to the chase straight away – it is during special circumstance that I write this month’s portfolio update. February har been a rocky month all over the world and asset types. I am sure you have felt the effects of the spread of the corona virus Covid19 in your portfolio. I guess that you are also very curious about how the All Seasons Portfolio has performed during a time when the VIX index, which measures market volatility, has reached 54 (so far)?

Have you been at all curious how the All Seasons Portfolio strategy has worked out in the middle of the corona outbreak and the worries on the financial markets? Luckily, that is what I have set out to answer this month.

Considering that the All Seasons Portfolio is designed with the thought in mind that it should withstand the volatility on the stock market, my portfolio should have fared quite well? That is what I will answer in this month’s portfolio update.

The layout of today’s post will be that first, we will look at the past two weeks specifically how the All Seasons Portfolio has managed the risks of the corona outbreak and the volatility on the markets. We’ll go through each asset classes and look into the day-by-day development of my All Seasons Portfolio. Lastly, we will look at the month-by-month portfolio updates as we always do.

Remember to also sign up to the newsletter here to the right, or in the footer, to get reminders of all new portfolio updates. of how my All Seasons Portfolio Strategy works out.

How have you taken this turmoil in the stock markets? Sold everything to try to time the bottom, or just waiting it out. Unless you managed to sell everything on the Friday 21 February before the bear markets, then it is wisest to not do a thing. It is extremely difficult to know when stocks start moving up again, and if your getting out to wait for timing the turn, you might just miss it.

I have not done anything in my portfolios these past weeks. My separate stock portfolio is a bit rocky but I’m sure they’ll bounce back eventually. And my All Seasons Portfolio has been less affected, so no need to do much there to be honest.

So what has happened these past weeks? Let’s summarize per asset class.

Stocks, as you know, have been in a rough bear market, loosing about 11-13% in a week until 28 February. Since then, the losses have continued, and many markets are down around 15% from their highs in mid February. So now we’re back at the values from October 2019, so not too bad yet. It puts a lot in perspective about the bull run the past months. It is therefore not a crisis yet in my opinion, but rather a correction. But then again, impossible to know what the coming weeks will show.

Gold usually works as a safe haven in times like this and moves opposite to stocks. That has not been the case this time – even gold has lost a lot in value during the corona outbreak. That has two key reasons. Firstly, gold has been going up in value a lot the past months as well with some investors seeking alternative investments when worrying about the quick increases in stock values. Secondly, and most importantly, gold has been impacted by margin calls (link to Kitco). This means that investors who had invested with leverage needed to cover their positions when the stocks lost a lot of value in short time. They therefore needed provide more collateral to the lender, and did so by selling gold to settle the debt with cash. This suddenly increased the supply of gold in the market, driving prices downward.

Commodities have had a rough time as well. With many factories being closed down when workers are placed in quarantine, has lessened the demand for commodities and resources needed in manufacturing. Also, with less metals, materials and products to ship, the demand for fuel and oil have decreased, lowering the price on oil. Now, in beginning of March, a price war on oil has commenced between Russia and Saudi Arabia, which will most likely further drive oil prices down, probably below USD 40 per barrel, which are very low levels. Read more about it at Bloomberg. This has lowered the stock price of Saudi Aramco below its IPO price from late last year, even though they have among the lowest production costs in the world.

Bonds and TIPS, how have they fared? Pretty well actually. When everything else have gone south, the bond component, which is 60% of the All Seasons Portfolio, have kept the impact of the covid19 outbreak at a minimum. For example, the yield on US 10 year Treasuries has never been lower, and for the first time ever dropped below 1%. It is now trading at below 0.9% (link to Washington Post). When the yield drops, the trade price of the bond increases, so the value of my portfolio is only slightly down all in all.

Monthly Update February 2020

Now that we have looked into how each asset class have performed, let’s take a look at the usual graphs. But first, let’s stay on the corona topic. I have done a special graph this month, showing the development of each of my ETFs day by day for the 2 weeks from 21 February 2020 until 6 March 2020.

As you can see, stocks have been heavily impacted. This All-World Stocks ETF is down 14.33% over two weeks. That is quite a lot, especially when considering that the total All Seasons Portfolio is down only 3.46%.

Lately, gold has also gained back some of the losses experienced during the first week of the corona turmoil. Bonds, are moving steadily sideways and slightly up, while commodities are somewhat down. I expect that oil prices will go down during the week starting 9 March 2020, but we’ll soon see what happens.


Now, moving on to the regular updates, the current portfolio allocation is still in fairly decent shape. I should buy more stocks and commodities next to rebalance it, now that these asset classes have lost a bit of value since the January 2020 update.

The next graph, reminds a bit of the one I showed earlier for the day-to-day development. This is however the long term month-to-month development which shows how the portfolio has performed over time (the big jumps comes from when I add funds to my portfolio).

So we are down a bit from the January high, but still in a better position than in December. Things could be worse.

You can also see that stocks haven’t dropped so much over a month, as they continued to grow in value the first 2-3 weeks of February before the slump.

All in all, I am still in positive territory with my assets’ development since inception about a year ago. Now, stocks have turned down into negative territory, and commodities are back below freezing point as well.

Dividends were low, as expected. This was a leftover from before I had substituted most ETFs in my too elaborate portfolio to the allocation I have now. You can see more in the list further down to see exactly which ETFs I know hold.

We’ll finish this post with a reminder of what ETFs my portfolio consists of – what makes me sleep well at night regardless the weather outside. In comparison to 2019, I have now only one ETF per asset class, so it keeps my portfolio tidy and neat. I’m sure it makes t easier for you as well to follow what I am actually doing.

Historical portfolioClassISIN2020-01-312020-02-29Change in %
iShares Global Inflation Linked Govt Bond UCITS ETFTIPSIE00B3B8PX14€456.69€458.81+0.46%
Invesco US Treasury 3-7 Year UCITS ETFGovt Bond MidIE00BF2FNQ44€380.95€390.83+2.59%
iShares Global Govt Bond UCITS ETFGovt Bond LongIE00B3F81K65€1,122.66€1,143.78+1.88%
Invesco Bloomberg Commodity UCITS ETFCommoditiesIE00BD6FTQ80€316.49€297.21-6.09%
Xtrackers Physical Gold ETCGoldGB00B5840F36€513.92€511.25-0.52%
Vanguard FTSE All-World UCITS ETFEquityIE00B3RBWM25€1,081.02€991.90-8.24%
Total€3,871.72€3,793.77-2.01%

So what is next for me? Basically all my graphs, and common sense, tells me to try to get hold of some cash to add to my portfolio and add more to the stocks pile. Check back in a month’s time in the March update to see whether I managed to do so.

How has the corona virus impacted your portfolio? Are you better of than the stock market indicies and have you been prepared for such a bear run?

It is not so that bonds “finally show their value” in a portfolio as I have seen someone comment on Twitter, but rather they always provide an insurance to times like these, and lets you worry less over the big bumps that otherwise occur. Otherwise Benjamin Graham should be considered an utter fool and his book The Intelligent Investor could be left to rot, but I don’t think that is the case.

It was a long post this month, but hopefully it has given you something to think about, and perhaps some inspiration as well? I am sure I will touch upon the corona virus also next month, but we’ll see about that when we come around to it.

In the meantime, remember to sign up to the news letter in the footer below, and do let me know what you think here in the comment section or on social media.

Thank you very much for your attention and shown interest,
Nicholas


Looking for further reading in isolation amidst the coronavirus outbreak? These times are a great opportunity to reflect on what is happening in the world around us and how that impacts how we invest.

The Black Swan by Nassim Tayeb has become a modern classic and a must read for any investor. The book shows how we cannot expect to be able to predict the market, but that black swan events will occur and then all economic models in the world are thrown out the window.

If you have not prepared your portfolio before such an event happens, then it is too late when the covid-19 slashes more than 20% of the value of global stocks in 14 days. So take this time to reflect, and make sure that you are prepared when the next black swan arrives, and you’ll be sleeping better every night.

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