Thursday, 2 January 2020

2019 ISA Review


Hello everyone, happy new year and welcome to the 20s! From an investment perspective 2019 was another volatile one, but unlike 2018 at least the markets finished with a flourish, with the UK in particular benefiting from a significant festive boost following Boris's majority in the election.

The FTSE Allshare total return (including dividends) during 2019 was 19.17% (according to www.ftserussell.com/products/indeces/uk ). Not too shabby. Handily my ISA portfolio trumped that by a whisker posting 19.93% (NB this figure is net of all fees).

As always, for the sake of simplicity, any shares bought using "fresh" capital (i.e. monies not from re-invested divs or sales of existing holdings) have been discounted from the return.  

My top 5 performers over the year were CMG - +88.9%, AAPL +85.9%, GOCO +50.3%, RMV +44.3% and BKG +40.3%

Bottom 5 were DPEU -47.7%, IMB -21.5%, AA -21%, CARD -18.5% and FEET -7.56%

My US stocks notably provided a tailwind (US indices did very well last year), but as over 70% of the portfolio is UK listed I feel that the Allshare TR is still a valid benchmark.

Here's how things currently stand:


Rank Ticker P'folio %
1 FCSS 6.91%
2 BRK.B(US) 6.33%
3 IGG 4.82%
4 FEET 4.50%
5 BATS 4.29%
6 IMB 3.84%
7 GOOG(US) 3.74%
8 ULVR 3.56%
9 SBUX(US) 3.56%
10 VVAL 3.43%
11 MYI 3.29%
12 DGE 3.20%
13 RTN 3.16%
14 LLOY 3.14%
15 IGR 2.90%
16 PEP(US) 2.75%
17 DIS(US) 2.67%
18 LGEN 2.66%
19 AAPL(US) 2.55%
20 FLTR 2.22%
21 DOM 2.19%
22 GSK 2.15%
23 RB 2.09%
24 SGE 2.01%
25 AA 1.88%
26 IHG 1.76%
27 CMG(US) 1.64%
28 AUTO 1.39%
29 PM(US) 1.21%
30 MONY 1.11%
31 RMV 1.08%
32 GOCO 1.06%
33 BKG 1.06%
34 MO(US) 1.05%
35 PZC 1.04%
36 AMZN(US) 1.03%
37 AZN 0.99%
38 MARS 0.67%
39 CARD 0.42%
40 DPEU 0.35%
41 Cash 0.29%
       
There has been very little turnover (trading) since last year, I jettisoned my holding in the F&C Commercial Property Trust and have top sliced CMG a little, and have also added a small holding in Amazon.com, but aside from that, the only other portfolio activity has been to top up existing holdings.

Doing nothing helps keep costs to a minimum, and thus I endeavour to keep turnover as low as possible. I am reasonably confident that the majority of my holdings should do well on a 5 year time horizon and I intend to hold each for at least this duration.  They all have relatively strong economic moats which hopefully shall withstand the test of time, but obviously I must re-evaluate each holding periodically in light of prevailing circumstances. 

Performance over the past few years has moved relatively in sync with the index, which is quite surprising as there isn't really that much benchmark overlap. Rolling 5 year portfolio growth is 49.96% vs 43.8% for the All-share. It's been quite a while since I've outperformed the index by more than 5%. Not since 2013 to be exact. Having 41 holdings does diversify risk and volatility, but it also appears to bring a degree of mediocrity.   

Notably my top ten holdings by portfolio weight at the start of 2018 have all detracted from performance during the last 2 years, my (slight) index outperformance over this period has been generated by a lot of smaller holdings stepping in to do the heavy lifting.

The tobacco sector, to which I am overexposed, remains very unloved, and also my overseas Investment Trusts have not fared well. With luck, a reversal of fortunes in these areas could see a marked improvement in overall relative performance.

The valuations/yields of big tobacco companies seem absurd to me, and most are forecasting dividend hikes over the next few years. The regulation of vaping in the US will massively benefit big tobacco as regulation acts as a barrier to trade to smaller companies and should mean that the oligopoly of nicotine delivery remains intact. Imperial Tobacco (IMB) seems a lame duck in the sector and is the only one I haven't added to in 2019, but priced at a forward PE of 6.86 and a forecast dividend yield of 11.1% it still looks decent value. Notably IMB recently started quite a large share buyback operation which should add value to the outstanding shares given the current market price.

There are a number of holdings that I am quite excited about, but to review them all would make this a very long post. If anyone would like me to comment on a particular holding please let me know below or DM me on twitter @mattbird55.

In other news my "Adventurous" pension, which is invested in a mix of active and passive open-ended funds finished up +17.6% which is relatively disappointing in comparison to benchmark, yet I am still above the IA Global Index since inception. Unfortunately I did hold a bit of Woodford Equity Income which was a huge disappointment, but luckily this was offset in part by stellar returns from Slater Growth (+36%), Buffettology (+25.5%), Fundsmith Equity (+24%) and a US tracker amongst others. The Slater Growth return seemed quite prescient following my interview with him in December last year (scroll to bottom of this link to view:- https://www.falcofinancial.co.uk/model-portfolios )

When I have a little more time I intend to evaluate my ISA portfolio metrics as I did last year, I will post findings from that at a later date, but In short not much has changed materially.

Until then, all the best.
 

Wednesday, 2 January 2019

2018 Review


2018 was mightily frustrating from an investment perspective, it was the first year I incurred a capital loss since the credit crisis (2008).

My ISA portfolio (individual equities & Investment Trusts) was down -8.44% over the year. I suppose I should be content that this is ahead of the FTSE All Share Total Return (my benchmark) for the year (-9.47%), but it's hard to see the bright side when faced with a capital loss.

Notably -5.58% of the drawdown was caused by my exposure to the tobacco sector,  which had a shocking year after various setbacks including the potential ban of menthol cigarettes in the US (which constitute a sizeable portion of British American Tobacco's revenues.)

The five biggest fallers were BATS - 49.4%, CARD - 41.1%, DOM -33.6%, PZC -33.6% & PM. (US) -31.4%

The five biggest gainers were CMG (US) +55.3%, IGR +46.3%, SBUX (US) +20.7%, AZN +15.0%, GSK +12.8%

Out of interest this year I've calculated some metrics from the portfolio to get an idea of the weighted average ratios. Terry Smith does something similar in his annual newsletter for his Equity fund. I've had to exclude info from the Investment Trusts I hold as well as from Berkshire Hathaway due to lack of data, so just taking the individual stock holdings as a weighted average here are the following portfolio metrics:

  • Forward PE = 16 (UK average = 11.2 - source - Stockopedia Jan 2019)
  • Forecast Div yield = 4.4% (UK Average = 4.21% - Stockopedia Jan 2019)
  • Forecast EPS growth = 10.6% (UK average = 10.5% - Stockopedia Jan 2019)
  • Portfolio ROCE of 31.7%, NB this is skewed around 9% by the ridiculously high ROCE of Rightmove, the figure excluding RMV is 22.7%. Average ROCE of FTSE 100 is 14% - source Fundsmith Annual Letter Jan 2018  
  • Operating Margin = 27.3% (UK average 13% source - Fundsmith letter Jan 2018) 
  • FCF Conversion of 89.2% (FTSE 100 -  96% Fundsmith letter Jan 2018)
  • PEG - 1.51 (1.07 UK average)
Notably the portfolio is a lot more expensive than the UK average on a PE basis, but also a lot higher quality as measured by ROCE and Operating Margin. I was surprised that FCF conversion was relatively low but quite a few of my holding have substandard FCF Conversion (for example BATS - 38.9%) which collectively have lowered the average. EPS growth is similar to UK average although I like to think that many of my holdings have more reliable growth relative to the UK market as i don't have too many heavily cyclical holdings.

Gathering stats in this manner has drawn attention to the holdings that detract from the averages and thus was a useful exercise in my opinion.

Here's a full list of current holdings with percentage weightings:


Rank Company %
1 FCSS 6.88
2 BRK.B 6.38
3 IMB 5.93
4 FEET 5.91
5 IGG 4.80
6 ULVR 4.08
7 BATS 3.60
8 MYI 3.59
9 AZN 3.56
10 DGE 3.39
11 SBUX 3.30
12 GOOG 3.25
13 LLOY 3.16
14 IGR 2.84
15 FCPT 2.68
16 DIS 2.55
17 RB. 2.49
18 LGEN 2.46
19 PEP 2.33
20 RTN 2.25
21 GSK 2.19
22 CMG 1.98
23 SGE 1.96
24 DOM 1.94
25 PPB 1.87
26 IHG 1.83
27 AAPL 1.72
28 PZC 1.28
29 MONY 1.12
30 AA    1.09
31 BKG 0.92
32 DPEU 0.85
33 GOCO 0.85
34 PM. 0.82
35 MO. 0.78
36 IBM 0.68
37 CASH 0.67
38 MARS 0.60
39 CARD 0.59
40 RMV 0.49
41 VVAL 0.35




Total  100.00

There has been some mild chopping and changing and some new positions initiated including AA, VVAL, GOCO, MONY, DPEU & PPB. Positions in AZN and FCSS were reduced slightly.

Trade wars and Brexit aside, I'm quietly confident that the portfolio as a whole will deliver on its forecast EPS growth over the year to come, and hopefully by the end of 2019 the underlying holdings will have re-rated upwards substantially to reflect this. 

In other news, my pension which is invested in a mix of open ended funds performed a bit better due to higher global exposure, but still lost -3.28%

My bearish calls this time last year on Bitcoin/Crypto & and also Nvidia turned out to be correct, but unfortunately I didn't get around to putting any shorts on to profit from their falls. Nvidia's drop was particularly rapid following a profit warning fairly late in the year. It strikes me that it's quite hard to time a short even if you have a reasonable idea of how things might pan out. It's far harder from a timing perspective than long only, buy and hold investing.

That's all for now folks. Fingers crossed for a better 2019!