The portfolio is up 7.45% on the year to date.

Ever since we started tracking the Slow & Steady portfolio, I’ve been able to fill up my notepad with pages of economic woe between updates.

And even though real news – such as which semi-naked royal has been caught in front of a zoom lens this time – is now making a comeback, my trusty misery detector tells me:

  • The US economy grows like a malnourished child whose mum smoked 60 a day during the pregnancy.
  • Europe and the UK continue to wallow in recession, while Spain dithers over its bailout.
  • Food prices are on the rise after US crops wilted during the summer drought.
  • Petrol prices tick up every time the Israelis and Iranians beat their chests.
  • Emerging market growth has sagged.

But all that creeping doubt was blown away by Draghi’s promise to hoover up European debt, the Fed priming the QE3 pump, and Britain coming third in the Olympic medal table.

How else do you explain the Slow & Steady portfolio’s surge to an all-time high of a 5.22% gain since purchase? That’s a year-to-date gain of 7.45% and a 14% improvement on the situation 12 months ago.

If we fancied a Demi Moore-style roll in our riches, then we’d be smothering ourselves in a pile £391.77 deep!

These are heady days, my friends.

The portfolio is up by 5.22%

The Slow & Steady portfolio is Monevator’s model passive investing portfolio. It was set up at the start of 2011 with £3,000. An extra £750 is invested every quarter into a diversified set of index funds, heavily tilted towards equities. You can read the origin story and catch up on all the previous passive portfolio posts here.

Still, the annualised gain of 2.56% means we’re down after inflation. That means we’re not doing any better than an instant access savings account.

Hey, where did Demi go?

We must learn to enjoy this period of stagnation as an exercise in self-discipline, remembering Warren Buffett’s observation that, “The stock market is designed to transfer money from the active to the patient.”

News slash

One development I was hoping for was a cut in our cost base, after HSBC announced major price slashery for its index funds.

However, as usual, the investment picture is about as clear as a smartphone contract covered in mud. HSBC have not cut the Ongoing Charge Figure (OCF) – the new name for TER –  for the retail index funds we’re familiar with in the Slow and Steady portfolio.

Instead, they’ve created a new incarnation of their index funds, called the C class. The OCFs are very low – try 0.18% for the FTSE All Share index C fund.

DIY investors can get these funds from some execution-only brokers that use Cofunds to power their platform.

So far, I’ve found the C class funds via Clubfinance and Commshare. However, other Cofunds platforms like Cavendish Online and Bestinvest aren’t registering the C class online yet.

This may change and you may get a better result if you phone directly. I’m going to do some more digging into this and report back next week.

However the whole point of the C class is that HSBC have stripped out any trail commission from the OCF. That’s why the funds are so cheap, that’s why they’re referred to as ‘clean’. (Hmm, that’s probably what C class stands for?)

I personally find it difficult to believe that any platform isn’t going to levy some kind of fee on top for hosting these funds. Otherwise they’re not going to make any money.

So until the confusion fog clears, the Slow & Steady portfolio will stick with the regular retail versions of the HSBC index funds. And, sadly, the OCF has actually crept up on all six of our equity funds. The average OCF of our portfolio is now 0.37%, up from 0.35%.

That’s still going to be cheaper for most small investors than the Vanguard LifeStrategy ready-made option, once you take into account platform fees. But the gap is closing.

On a cheerier note, we were blessed by the chinkity-chink of tiny dividends rolling into our kitty.

The Slow & Steady Portfolio is invested in accumulation funds that automatically reinvest our dividends, but it still helps to know that we’re benefiting from a little corporate largesse every now and then.

Our funds yielded the following payouts last quarter:

  • HSBC American Index: £24.98
  • HSBC European Index: £28.40
  • HSBC FTSE All Share Index: £23.86
  • HSBC Japan Index: £6.28 (Wow. Thanks, Japan)
  • HSBC Pacific Index: £9.80
  • L&G All Stocks Gilt Index: £19.43
  • L&G Global Emerging Markets Index: £15.20
  • Total income: £127.95

Comparing that £127.95 payout against our total portfolio gain of £391.77 (which includes our reinvested income) only serves to underline the importance of dividends to a portfolio’s growth story.

New purchases

Every quarter we offer another £750 to the money gods.

UK equity

HSBC FTSE All Share Index – OCF 0.28%
Fund identifier: GB0000438233

New purchase: £125.13
Buy 34.8937 units @ 358.6p

Target allocation: 19%

OCF has gone up from 0.27% to 0.28%.

Developed World ex UK equities

Split between four funds covering North America, Europe, the developed Pacific and Japan.

Target allocation (across the following four funds): 49%

North American equities

HSBC American Index – OCF 0.3%
Fund identifier: GB0000470418

New purchase: £204.67
Buy 96.1788 units @ 212.8p

Target allocation: 26.5%

OCF has gone up from 0.28% to 0.3%.

European equities excluding UK

HSBC European Index – OCF 0.35%
Fund identifier: GB0000469071

New purchase: £41.93
Buy 9.3879 units @ 446.6

Target allocation: 12.5%

OCF has gone up from 0.31% to 0.35%.

Japanese equities

HSBC Japan Index – OCF 0.33%
Fund identifier: GB0000150374

New purchase: £70.92
Buy 124.8750 units @ 56.79p

Target allocation: 5%

OCF has gone up from 0.29% to 0.33%.

Pacific equities excluding Japan

HSBC Pacific Index – OCF 0.46%
Fund identifier: GB0000150713

New purchase: £27.90
Buy 11.881 units @ 234.8p

Target allocation: 5%

OCF has gone up from 0.37% to 0.46%.

Emerging market equities

Legal & General Global Emerging Markets Index Fund – OCF 1.06%
Fund identifier: GB00B4MBFN60

New purchase: £66.863
Buy 148.0580 units @ 45.16p

Target allocation: 10%

OCF has gone up from 0.99% to 1.06%.

UK Gilts

L&G All Stocks Gilt Index Trust: OCF 0.23%
Fund identifier: GB0002051406

New purchase: £212.6006
Buy 114.24 units @ 186.1p

Target allocation: 22%

Total cost = £750

Trading cost = £0

Platform fees = £0

Average portfolio OCF = 0.37% up from 0.35

A reminder on rebalancing: This portfolio is rebalanced to target asset allocations every quarter, mostly using new contributions. It’s no problem to do this, since the vanilla index funds we’ve gone for do not incur trading costs, so long as you choose the right platform.

Take it steady,

The Accumulator

Further reading:

  1. The Slow and Steady passive portfolio update: Q1 2012
  2. The Slow and Steady passive portfolio update: Q2 2012
  3. The Slow and Steady passive portfolio update: Q1 2011


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