Monday 06 August 2018 by Jonathan Sheridan Trade opportunities

Jon Sheridan's $1m portfolio - 31 July update

FIIGs Jon Sheridan, updates his sample $1m portfolio. Internal rate of return since he began is a healthy 5.79%pa


It has been a relatively quiet time in markets since the last update in mid March.

The US 10 year yield has traded in a range between 2-8-3.0%, not quite being able to break and hold above 3%.  The AUS/USD foreign currency rate has similarly traded in a range firmly centered around 74 cents.

Rhetoric on the other hand has ramped up to new levels, with the incipient US-China trade war and the Brexit “Chequers” option giving media outlets plenty to crow about.

Equity markets have seen some of the gloss come off, with the previous tech darling stocks in the US getting punished after poor forward results guidance.

In terms of the portfolio, I have kept it pretty consistent, content to keep collecting the coupons and happy I own a quality list of bonds.

US high yield has sold off somewhat in the last few months, contributing to an underperformance in that part of the portfolio, but July saw a recovery amongst a backdrop of limited supply, and the currency also played a little bit of ball to balance out.

That was also the story in AUD high yield, where I did the only trade in the period, which was to realise a small gain on the CF Asia Pacific bond we held as a small overweight position, and use the proceeds to invest in the new Virgin 8.25% 2023 bond at primary.

Given this is a small issue and was heavily oversubscribed, I expect this to do well for us in a relatively short period of time, and I will probably roll out of it again into another new deal when one presents itself.  The high coupon makes a replacement need to look outstanding as a switch!

Performance since inception remains strong vs. the entry yield of 5.04%pa, with the IRR to date being a strong 5.79%pa.  This is down on the last update due to the US HY as mentioned above, but also with the natural effect of a longer period over which the returns have been made.

At current levels the portfolio has a YTM of 4.97%pa looking forward, which I am keen to continue exceeding with the trades being done.


Note: Prices accurate as at 31 July 2018 but subject to change.