Time for another update on my ARF!
January to June 2025 was arguably the craziest six months since I started managing my own pension thirty years ago, a craziness exemplified by my experience with Nvidia. In December, after selling three-quarters of my Apple shares (after it had risen in value to 24% of my ARF at end November) I invested slightly under half the proceeds in Nvidia at $137.20 a share. By end March 2025, Nvidia was down over 20% to $108 a share, but it then bounced back, to $158 by 30 June, up 15% on the purchase price; however, the dollar fell over 12% in the six months, eroding a significant portion of the gain - all very confusing.
There was one consistent theme in the period, however, the exact opposite of what happened in the same period in 2024.
In #42 above, I remarked that my ARF has a barbell shape - “high dividend” and “low dividend” shares, with little in the middle. I said that 91.6% of dividends received in the first half of 2024 came from “high dividend” shares, but the value of “high dividend” shares fell by 2.2% while “low dividend” shares rose by 22.2%. I ended by speculating:
“I wonder if there was a fashion in the half-year for "low dividend" shares to do well and "high dividend" ones to do less well. I don't know enough about investments to make a call. If it is a fashion, will high dividend shares come back in favour at some future date?”
It didn’t take long to get an answer!!
In the first half of 2025, the market value of the “high dividend” shares rose by 20% while the value of “low dividend” shares fell 11%, in sharp contrast to what happened in 2024. That was in addition to “high dividend” shares delivering 89% (see note) of dividend income in the period.
If there is a fashion, it flipped in the first half of 2025!
As regular readers know, my strategy is five-pronged:
* to invest close to 100% in ordinary shares;
* to invest in real businesses, not in funds (which is linked to the aim of keeping expenses low);
* to have a small number of holdings, so that I can keep track of them easily (currently, just 15 companies);
* to keep expenses low, and
* to keep turnover low (also linked to keeping expenses low).
I departed slightly from that strategy in the first half of 2025.
The cash portion of the fund at end 2024 was much higher than usual at 11.7% (compared to 0.6% at end 2023). That was partly because there wasn’t enough time to reinvest all the proceeds from the Apple sale by year-end.
The turnover rate was also much higher than usual (it was almost zero in 2023). That's because I learned a lesson from not selling a portion of my Novo Nordisk holding in mid 2024 when price rises caused it to represent over a quarter of my fund (see post #70 above). When something similar happened with Apple in December 2024, I reduced my holding drastically. That worked out well. (I also sold Apple because I thought it too expensive, but it's dangerous to think that you know more than the market; I think I was just lucky with my timing).
The classic in terms of a holding that represent too high a proportion of my fund is Phoenix Group Holdings. I’m embarrassed to admit how much of my ARF it represents. I decided in the first half of 2025 to reduce my holding. It was a tough call, because Phoenix has served me well since I first bought into it more than a decade ago, but I made a move in that direction (not a big one: it's still my largest holding). All the sales in the half-year (€62 for every €1,000 worth of fund at the start of the period, as per the table below) were of Phoenix Group Holdings.
Cash movements in the first half of 2025 (per €1,000 of fund at the start) were as follows:
Cash at start: €117
Plus: Dividends: €26
Plus Share Sales: €62
Less Purchases: (€155)
Less Withdrawals (€29)
Less Fees (€3)
Cash at end: €18
The fund’s market value increased, to €1,023 at 30 June 2025 for every €1,000 at the start of the year. Allowing for pension withdrawals of €29, the return for the half-year was +5.3%.
As mentioned in post #127, I also look at smoothed returns. Market value at 31 December 2024 was €1,528 (from a starting value of €1,000 at €1,000 on 31 December 2013); the smoothed value at that date was €1,396. Allowing for regular withdrawals (€45 in the six months), the market value fell to €1,429 on 30 April but had risen to €1,564 by 30 June. The smoothed value increased each month, reaching €1,425 by 30 June.
The graph of market values and smoothed values since 31 December 2013 is as follows:
Note: The split of the portfolio and of dividends between "high dividend" and "low dividend" shares wasn't as straightforward in HI 2025 as in 2024. In 2024, there were minimal transactions in the period, so it was easy to complete the split. In 2025, judgements had to be made on whether and how to allocate transactions and dividends. I tried to restrict the analysis to shares held for the entire period.