More on Year End Review and Impact of Population Fall

After writing a review of my portfolio performance for last year (see https://roliscon.blog/2021/01/04/year-end-review-better-than-expected/ ), which I only considered as “satisfactory” being well ahead of my FTSE-AllShare benchmark, I have noticed quite a number of investors on Twitter claiming to achieve 40%, 50% or even higher returns. How did they achieve that? Or was it a case of only those who achieved good returns reporting them?

By comparison Citywire ran an article that compared the performance of professional fund managers which suggested a balanced growth portfolio might have returned 5% – see  https://citywire.co.uk/funds-insider/news/how-did-your-portfolios-performance-in-2020-compare-to-the-pros/a1447576?  

First it’s worth bearing in mind that my portfolio is very diversified across FTSE-100, FTSE-250 and smaller company (e.g. AIM) shares listed in the UK. I also hold a number of UK investment trusts which gives me exposure to overseas markets, and some Venture Capital Trusts (VCTs). Although I have some emphasis on AIM shares, they are not the very speculative ones.

It’s interesting to look at the Annual Reports of two VCTs which were recently issued – Unicorn AIM VCT (UAV) and Baronsmead Second Venture Trust (BMD) and which I hold. Unicorn reported a total return of plus 20.3% to the end of September when historically they have been somewhat pedestrian and seem to buy any AIM shares on offer with the result that they have a very large portfolio and probably track the AIM index.

The FTSE AIM 100 Index total return was 20.6% over last year, massively outperforming the FTSE 100. It is very clear that unlike in most years, when AIM VCTs tended to be outperformed by private equity VCTs, last year was very different. AIM market shares, which often have a focus on technology, clearly benefited greatly in comparison with FTSE shares which includes many retailers, property companies, banks and oil companies.

BMD own a mixed portfolio of unlisted and AIM shares and this is what the Chairperson had to say on their performance: “The recovery of the public portfolio emphasises the benefits of having a mixture of private and publicly listed companies in the portfolio. Over the long-term, the return profiles of the quoted and unquoted portfolios have proved to be complementary with both asset classes delivering robust performance”.

It is very clear that the way to achieve great portfolio performance in the last year was to run a very concentrated portfolio of a few AIM shares and ignore the FTSE-250 companies (down about 5 % over the last year at the time of writing) and the FTSE-100 companies (down about 12%). But such a portfolio would be very risky of course and require very active monitoring and trading. It might also be great in any one year but perhaps not so consistently good over several.

This is the time of year when tip sheets publish their reviews of last year’s recommendations and their tips of the new year. Techinvest have a good track record in that regard but their 2020 tips only delivered an average gain of 9.8% so I am not feeling too unhappy about my own portfolio performance. Am glad to see I already own a number of their 2021 tips.

What are my expectations for the coming year? I rather expected the stock market to fall in the new year after the “Santa Rally” and some stocks have but it still seems to be remarkably buoyant. Is this because all those wealthy octogenarians who own shares have booked their Covid-19 vaccinations and so are in a positive frame of mind? Perhaps so and it has certainly improved my morale having just got a date booked for one despite me being only 75.

The other very good news was an article in the Daily Telegraph today that reported that the UK population is “in the biggest fall since the Second World War”. The over-population of our crowded island, particularly in London and the South-East, has been one of my major concerns for some years. This has led to congested transport systems and a major shortage of homes.

The population reduction is not because of deaths from Covid-19 which have only risen slightly above the normal levels but an “unprecedented exodus of foreign-born workers” resulting in a fall of 1.3 million in 2020. The largest fall was in London where it may have been 700,000. The article also suggests there is likely to be a “baby bust” as couples delay starting a family which might push the birth rate to its lowest on record according to estimates from PWC.

Such a reduction in the population will have negative consequences for the economy in general and particularly for the finances of Transport for London which are already in a dire state after people have been avoiding public transport.

The euphoria over the fact we might survive the epidemic surely needs to be tempered by the gloomy prognostications for the UK economy.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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