Sunday, February 05, 2017

Financial Review - January, 2017

January was a good month for the portfolio with small gains across the board producing a 2.61 percent increase in net assets.

For the year, the portfolio is up 2.61%. The adjusted change from when I retired in September 2013 is an 8.92% increase. Hong Kong liquidity stands at 38.6 months of estimated outgoings. 

Here are the details:

1. my Hong Kong equities increased. I added some additional shares in HSBC (HK:5) at HK$64.20 in January;

2. my AU/NZ equities appreciated slightly. I sold my shares in Hellaby Holding (NZX: HBY) at NZ$3.60 under a takeover offer for a nice profit (although I will miss the dividends). I purchased some additional shares in NZ Exchange (NZX: NZX) at NZ$1.06 and opened a position in Colonial Motor Company (NZX: CMO) at NZ$7.25. I am still looking for more investments in New Zealand to get a better match between income and expenses in that currency;

3.my equity ETFs were up (India, Hong Kong and China) in line with the local markets;

4. my position in silver rose;

5. all tenants are paying on time but we have one vacancy and a second tenant moving out shortly. The current vacancy is in a building is currently subject to a lengthy renovation exercise. A new tenant has agreed to starting a new lease in three weeks' time at a rent which is above the discounted rate which the previous tenant was paying but below the level the property would achieve after the building renovation has been completed - a much better outcome than having an extended vacancy. The property needs to be to be redecorated (it has been several years since it was last done). I have already secured a new tenant for the property which will become vacant shortly and will only need to do minor touch up work before the new tenant moves in. The rent is about 4% lower than the previous rent;

6. both the NZD and thee AUD rose against the HKD/USD. I purchased some NZ$ @ 5.56 HK$;

7. my position in bonds remains small;

8. expenses were very high due to starting my elder daughter in boarding school (school fees, air tickets, hotel, hire car etc) but had been fully accrued;

9.there were no transfers to Mrs Traineeinvestor;

10. there were no derivative transactions this month.

My HK cash position fell during the month due to the high expenses and the remittance of funds to New Zealand. I currently hold 38.6 months of expenses in HKD cash or equivalents.

I also had another look at total household gearing. Total liabilities (including accruals) is less than 10 percent of total assets. There is obviously plenty of capacity there to increase debt levels if I could find the right opportunity.

Tuesday, January 03, 2017

Previewing 2017

Finances:

The local Hong Kong stock market is currently offering reasonably good value based on trailing numbers but faces headwinds in the form of (i) expectations of further interest rate increases (ii) very expensive property prices (iii) stagnating rental levels (iv) a high currency and (v) the prospect of a US incited trade war once Trump takes office. Given that there are a number of large, well managed companies offering trailing dividend yields of 4-5% which I believe are likely to be sustainable, I am tempted to add to the portfolio. However, European and US markets are currently at very high levels and face all or some of the same headwinds as Hong Kong. If/when they correct (or enter a bear market), history would suggest that the Hong Kong (and other countries') market will move down.

It is also highly relevant that (i) I no longer have any employment related income, meaning that I need a certain amount of income from my investments to meet expenses and (ii) our savings need to last us for 40+ years which means that, over the longer term, I have to generate real returns at least equal to our annual cost of living.

Short term: I have no plans to make any major changes to the portfolio, instead looking to make ongoing incremental changes/investments:

1. USD income will be applied at reducing the balance of my USD margin facility;
2. RMB income and bond maturities will be reinvested in RMB denominated bonds/equities. This is a very very small part of the portfolio and I have no plans to buy more RMB;
3. I will be investing/reinvesting my existing AUD/NZD cash balances in more ASX/NZX listed equities;
4. I am tempted to increase my exposure to the AUD/NZD but am unsure of the timing. Given that I want to increase AUD/NZD asset allocation over the longer term, it probably makes sense to make regular transfers;
5. I will add to my HK equity portfolio as and when value is identified. I have no wish to let cash levels build too high.

Long term: I wish to add to the property portfolio in both Hong Kong and New Zealand:

6. for New Zealand, I have a very specific target and will have to wait for a property in that area to come onto the market and then I will have to pay through the nose for it. This particular purchase is more about having a place to live in should we decide to spend more time there than it is about being a good investment;
7. for Hong Kong, the double stamp duty is a major disincentive to buying another property. I am hoping that when the time comes, prices will be lower and at least some of the punitive taxation measures will have been removed. Optimal timing is in early/mid-2021 when two mortgages will be paid off. If valuations, interest rates, stamps duty etc are aligned, then I will look to buy. If not, I'll invest elsewhere.

Non-Financial: just more of the same for 2017 – continue my studies, keep writing the next novel, work on my fitness (not good at the moment) and possibly clean up several years worth of unfixed photos.

Annual Review 2016

2016 was an interesting year. From a financial perspective it was neutral. We ended the year with the household net worth up 3.7%(1). Net decreases in emerging market equities and declines in the AUD/NZD v USD/HKD were more than offset by net cash flows from properties, equities, bonds and  two part time incomes and a small increase in the values of our Hong Kong properties (2).  We are 14.0% higher than on my retirement at the end of September, 2013.

Cash flow from investments was close to record highs in spite of having to do at least one renovation.

Liquidity is currently high and gearing has fallen to 7.8% of total assets (from 11.4%). Unless we take out new loans, it will continue to decline as mortgages are repaid.

Of the non-financial matters, 2016 saw me complete a very slow marathon, start another degree, finish and self-publish my first novel, start a second novel and get laid off. We did more travelling than usual and, finally, Mrs Traineeinvestor started a new full-time job late in the year.

On the whole, it was a very good year for our household.

NOTES:

(1) this differs from the 2.3% increase reported in the December, 2016 Financial Review because of (i) inclusion of Mrs Traineeinvestor's assets and (ii) inclusion of increases and decreases in the mortgagee values of Hong Kong real estate.

(2) only properties which have an HSBC online mortgagee valuation are included. Two Hong Kong properties are not listed in the on-line service and are valued at unsolicited offer prices made several years ago and which are now much less than current market values.