January Portfolio Performance -0.9% vs.- 4.0% fall in the FTSE 100

Well after a good start to January the stock markets turned and headed south. 2 out of 3 companies on the S&P index in the US, beat expectations with their Q4 results. US GDP came in way ahead of expectations at 5.7% for Q4'09. But nervousness about the recovery going forward are what investors focused on. Greece`s debt problems, china tightening monetary policy and some other weak data in the US, made investors more nervous and risk appetite reduced. Investors cut their holdings of shares and commodities.

Turning my attention to my Portfolio, January was a very good performance given the correction in the stock markets. The S&P index fell 5.5% and the FTSE 100 fell 4% in January. My Portfolio only dropped 0.9% on a like for like basis(but increased 1.2% overall, due to savings added from my day to day income, into the portfolio). The defensive positioning of my portfolio (43% cash, and half my shares in defensive UK income) meant that I was not hit too hard by the sell off in miners, oils and cyclical stocks.

Untied Utilities and Severn Trent , up 8% and 6%, helped to offset weakness in other areas. United Utilities is my 3rd biggest holding and see it as a safe, high income share for the long term. My bank holdings rallied at the start of the year but fell back but overall they are up 0.5% on the end of December. I was disappointed with GlaxoSmithKline who dropped 8% in January, more than the market, when they are meant to be defensive.

My worst performer and riskiest holding was Man Group, the hedge fund manager. I only have 0.5% of my portfolio in these. I was up 100% on them at one stage(I bought them at £1.80) but they dropped 41% in the last 10 days to finish at £2.37. This is the risk with holding riskier assets and you can now see why I have been fairly defensive so far in 2010. However I believe this company is undervalued and now has the highest dividend yield in the FTSE 100, at 11.6%. If you invest in this share just remember the risks that come with it.

Other risky assets that fell in the portfolio, were Jupiter China and Aberdeen Emerging markets. Emerging and Asian markets are susceptible to a large correction but over the long term, I believe that China and Asia are the best places to seek out growth, therefore I will hold.

And what about the rest of Q1? Well I have become more nervous about how big this correction will be but on the other hand we could rally up higher by the end of Q1. I do not want to sell holding like Vodafone, Glaxo, National Gird paying yields of 4-6% and still believe that the UK bank earnings for Q4, could surprise on the upside in February.

Therefore I will continue with the same Portfolio mix into February, defensively positioned but also able to take advantage if the stock markets do rally.