Sunday, 3 January 2016

Happy New Year - 2016!


Happy new year everyone. Time for my annual portfolio review.

It's been another difficult year on the investment front, with virtually all asset classes posting either lacklustre or negative real returns. According to CNBC, 2015 was 'the hardest year to make money in 78 years' (click here to see article). Warren Buffett's Berkshire Hathaway (a holding I own) lost over 11%. His worst year since 2008.

While I think CNBC are being a tad over-dramatic (I found 2008 a lot harder!), things certainly haven't been easy. The FTSE All share (My benchmark index as 88.37% of my holdings fall within it) has dropped -2.2% over the year. Adjusted for dividends of approx 3.8% the total return has been a measly 1.6% *Figures from year starting Jan 3rd 2015. 

Over the same period my holdings have posted a total return (including dividends less all fees) of 5.3% which marks a 7th consecutive year of index out-performance.

Over the last 5 years my cumulative total return has been 64%, not far off double the returns of the All Share at around 36%. I'm quite pleased with my results but a growing bugbear is that a few of the fund managers I follow have performed even better, with total returns in excess of 100% over the same period in some cases. This begs the question: do I hand my money over to them to manage, or do I carry on with DIY investing? I think ultimately I'll do a bit of both. 

As always there have been significant winners and losers within the portfolio. The three best holdings have been: Google (Alphabet) which is up +45% over the year, Imperial Tobacco up +29.4% & BT up +21%. The three worst losers have been Murray International Trust -15.21%, Templeton Emerging Markets -23.96% and BHP Billiton which I bought into in the summer and gradually sold out again after further research, total loss on that holding was about -25%.   

This is the portfolio as it currently stands:


Company Market % of Holdings
AstraZeneca FTSE 100 11.44
Lloyds Banking Group FTSE 100 9.97
Imperial Tobacco FTSE 100 9.30
GlaxoSmithKline FTSE 100 8.16
Fidelity China Special Situations FTSE 250 7.58
British American Tobacco FTSE 100 6.99
Murray International Inv Trst FTSE 250 4.98
Berkshire Hathaway (B) S&P 500 4.92
BAE Systems FTSE 100 4.90
HSBC FTSE 100 4.13
BT FTSE 100 3.81
F&C Commercial Property Trust FTSE 250 3.72
Unilever FTSE 100 2.85
Templeton Emerging Markets FTSE 250 2.68
Google (Alphabet) NASDAQ 2.68
PZ Cussons FTSE 250 2.21
Oakley Capital  AIM 2.14
Legal & General FTSE 100 2.01
Marston's FTSE 250 1.37
Berkeley Group FTSE 100 1.26
International Greetings AIM 1.18
P2P Global FTSE Small Cap 1.01
Molins AIM 0.53
Cash 0.18

Mining/resource companies and emerging markets have had a hammering this year hence the poor performance of Murray International, Templeton Emerging Markets and BHP Billiton as noted above. Commodity prices have fallen to their lowest levels for years, and huge depreciations in emerging market currencies against the dollar have been a big detractor for emerging market based investments.

Interestingly I have been reading a book by Jim Rogers called Hot Commodities (my dad's signed copy no less.) The book was written in 2004 and in it Jim touts commodities as a good bet for around a decade. His reasoning was based on the phenomenon of super cycles in commodity markets caused by long term dynamics in demand/supply cycles. He also notes in the book that during commodity boom cycles, equities tend to perform poorly, and during commodity bust cycles equities tend to perform well - which does make sense as lower commodity prices mean lower business costs and more money in the pockets of consumers. Jim does have quite a good track record for being right about things. He co-founded the Quantum hedge fund with George Soros, which managed to deliver returns of around 4200% in its first 10 years. 

Not only was Jim pretty accurate with his call on commodities, he was also somewhat prophetic in noting that the financial system in the USA was up the spout, and he expressed specific concerns over US mortgage financiers Freddie Mac & Fanny Mae. It's unfortunate that people like him aren't more actively involved in government.   

12 years have passed since Jim wrote that book, and perhaps we are now seeing the end of the commodity super cycle he described, and the start of a commodity crunch. If so, and commodity prices are set to be weak for a prolonged period, this could provide a strong tail wind for equity returns. The graph below (from Fidelity) attempts to highlight bull and bear markets in equites. Let's hope we're due another secular bull market!  



fidelity market super cycles


On a separate note, In an attempt at trying to improve my investment performance, and get it more in line with some of the fund managers I follow, I've been doing quite a lot of reading, and as a result I've changed my investment selection process. Now my primary investment criteria is quality, as measured by various metrics including ROE, ROCE, cash conversion etc. Valuation is secondary. This is a significant change as valuation used to be the first thing I screened for and quality was of secondary concern. The rationale behind this change can be summed up with two Buffett quotes.

1: ''It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.'' 

2: ''Time is the friend of the wonderful company, the enemy of the mediocre.''

Best Wishes to you all, I hope 2016 is a good year for you, financially and otherwise!

Sunday, 25 January 2015

CAPE Crusading in 2015 - Annual Portfolio Review


A belated happy new year to you all! I hope you all enjoyed the festive season? Time for my annual investment review, and I think the only thing hitting a 52 week high at the moment is my weight!

2014 was a difficult year for UK equities, the FTSE AllShare (my benchmark index) fell in nominal terms dropping -2%. However if you include dividends received it made a meagre gain of 1.3% (figures from Jan 3rd 2014 - Jan 3rd 2015).

I managed to outperform a little. My total return including dividends received but minus all charges was 4.9%. Hardly much to shout about, but looking back over a 6 year period (admittedly the bottom of the credit crunch) the All Share has delivered a total return (including dividends) of around 92% whilst my ISA portfolio is up 195% over the same period after all costs.

2014 could have been far more profitable if it hadn't been for a few very poor performers dragging down my averages. Among the culprits were Tesco, JP Morgan Russian Securities, Cairn Energy, Polo Resources, Oakley Capital & Molins. It has been a very bad year for small caps, energy/resource stocks and supermarkets. I have offloaded all these holdings aside from Molins and Oakley capital.

Holdings that made great positive contributions to the portfolio this year include Astrazeneca, BT, Fidelity China Special Situations Trust, F&C Commercial Property Trust & Berkshire Hathaway.

Since my last review I've picked up a few small holdings in Marston's, L&G and also the US tech giant Google. This is how things currently stand:



Company Market Amount % of Holdings

AstraZeneca FTSE 100 £19,602.40 13.00
BAE Systems FTSE 100 £7,943.56 5.27
Berkshire Hathaway (B) S&P 500 £5,910.34 3.92
British American Tobacco FTSE 100 £11,048.00 7.32
BT FTSE 100 £5,593.95 3.71
F&C Commercial Property Trust FTSE 250 £6,519.92 4.32
Fidelity China Special Situations FTSE 250 £10,724.68 7.11
GlaxoSmithKline FTSE 100 £13,110.84 8.69
Google NASDAQ £2,396.18 1.59
HSBC FTSE 100 £8,145.72 5.40
Imperial Tobacco FTSE 100 £11,720.72 7.77
Legal & General FTSE 100 £1,328.40 0.88
Lloyds Banking Group FTSE 100 £17,943.22 11.90
Marston's FTSE 250 £2,006.47 1.33
Molins AIM £952.84 0.63
Murray International Inv Trst FTSE 250 £8,679.84 5.75
Oakley Capital  AIM £4,948.64 3.28
Templeton Emerging Markets FTSE 250 £4,203.68 2.79
Urban & Civic FTSE small Cap £2,317.50 1.54



Cash £5,743.69 3.81

Total £150,840.59 100.00




















Looking forward I am still cautiously optimistic. The UK market is still reasonably priced on a CAPE (Cyclically Adjusted Price Earnings) basis.

For an illustration of this check out this article from a few months back http://www.thisismoney.co.uk/money/investing/article-2738966/How-use-CAPE-beat-market-global-CAPE-values.html

The table on the lower right of the article documents the CAPE figures for all major markets. Note how expensive the US is looking after another stellar run this year. America is undoubtedly the best country in the world in which to do business, but is it a good enough prospect to warrant the valuation premium? I'm not so sure.

Greece and Russia represent the two cheapest markets globally, but I think both countries are in need of a significant catalyst before I would consider investing. If Greece pulled out of the Euro, or if political tensions ease around Russia, the investment case may become appealing. (NB I have recently exited a Russian investment trust because of the worsening predicament there.)

China is getting plenty of negative press lately due to the 'slowing' of their economic growth. There are plenty of issues to consider when investing in China but I'm not particularly worried about their GDP growth figures, which at 7.4% are still over double that of most developed nations. As you can see from the CAPE article above, China is still an attractively priced market so with a bit of luck my Fidelity China special situations fund will have another cracking year in 2015.

Last year I expressed concern about the investment prospect for gold and also long duration bonds. Over the course of the year gold has gone nowhere, and due to its non productive nature has been a poor holding. Long duration bonds however have continued to rally, thanks mainly to continuance of loose economic policy from central banks, the latest boosting factor being the European Central Bank giving the green light to Quantitative Easing (Bond Buying). Many government 10 year bonds are now so expensive (German & Japanese in particular) that they are yielding almost nothing. What is the point in tying your money up for 10 years when the yield is lower than you'd get in an instant access savings account? The rationale of course is that you will benefit from further capital appreciation of the bond price due to the bigger fool effect i.e. the hope that some bigger fool will come along and pay more after you. The bigger fools in question being the central banks. Long dated government bonds are seriously overvalued and I remain convinced they will deliver poor returns in the long run.

As most of you are aware, we had a huge fall in the price of crude oil during the second half of 2014. If prices remain at current levels, we should see a big impact on company profits from a reduction in business input costs and increased consumer discretionary expenditure.  This factor along with the banking sector slowly returning to health, could provide a tail wind for business in 2015.

I hope you all have a happy and prosperous year folks!
 
Matt

  

















































































































































































































































































































Friday, 17 October 2014

Pension Choice: Annuity VS Flexible Drawdown


I've penned a blog post on the Seer Green website that attempts to weigh up the pros and cons of both annuities & pension drawdown schemes (UK).

The article centres on flexible drawdown which has recently become more accessible to retirees since new legislation came into place earlier this year. From next April it will be accessible to all. 

The article only intends to highlight the main issues involved, and should not be viewed as advice. Please follow the link below.

 http://seer-green.com/blog/2014-10-17-pension-options-annuity-vs-flexible-drawdown





Thursday, 16 October 2014

Jack Bogle Video


Here's a link to a great little CNBC interview with Jack Bogle, founder of Vanguard. He tries to put the current 10% market pull-back into perspective, and explains why we are not in a bubble in relation to corporate earnings, unlike the situation in 2000.

http://video.cnbc.com/gallery/?video=3000320728

Saturday, 11 October 2014

Portfolio Update October 2014


Since my last portfolio update in July, the markets have been volatile to say the least, as can be common during the May - October period. The last six weeks especially have seen the FTSE 100 nosedive around 550 points (8%). Unfortunately many of my holdings have fallen with the tide. I haven't calculated whether I'm outperforming the All share at this point (I'll leave that until the new year), but I'm guessing I'm roughly on a par. On the plus side I've received a fair bit of dividend income lately, and have some money to reinvest at these lower prices. More on that later.

After reviewing my laggard stocks back in July I opted to sell my last tranche of Tesco shares. I managed to get out at 283p. My purchase price for these was between 360p-400p so needless to say it has been a poor investment. The only real silver lining is that since selling, their shares have collapsed further still to 185p, so things could have been worse if I'd stayed invested.

Warren Buffett is also down on his Tesco investment, to the tune of about £465m: at least I'm in good company.

As discussed previously Tesco are facing severe headwinds, the era of growth through land grabbing and store opening is coming to an end as the market nears saturation. I think the current price war and resultant tight margins will extend for quite some time as the sector consolidates and weaker players are driven out of business. M&A activity may become a new driver of growth for those who remain. I think Tesco have the resources to ride the storm, and at 185p a share, are definitely worth looking at again.

The proceeds from the Tesco sale along with some dividend income were reinvested into HSBC and JP Morgan Russian Securities. Hopefully HSBC should be a fairly safe bet going forward, they have a strong revenue stream and are more financially robust than most other British Banks, they pay a juicy 5% dividend too. JP Morgan Russian is more of a geopolitical punt. Russian equities are incredibly cheap now by most valuation yardsticks and this trust is trading at quite a wide 13.6% discount to NAV. The situation in Ukraine will have to be resolved before it strikes any pay dirt though. In the meantime there is a reasonable dividend of circa 4% (although fairly hefty annual fund management costs).

Stocks haven't been the only asset class taking a hammering lately. Commodities are down too. Notably Brent crude oil has dropped below $90 a barrel for the first time in years. How long this downturn will last is anybody's guess and it is obviously bad news for miners & oil producers, but cheaper fuel and energy should act like a global tax break, and will hopefully aide business profits and consumer spending the world over.

I do have a little dividend income left to invest in this autumn stock sale. Companies on the radar include BHP Billiton, Marstons, L&G and possibly Tesco again, all effectively income plays.



Monday, 7 July 2014

Slater Investments Ltd


Just over a month ago I had the pleasure of attending a lunch hosted by Mark Slater of Slater Investments Ltd at the Royal Exchange. The purpose of the lunch was for Mark to give an overview on the performance of two of his funds (MFM Slater Growth & MFM Slater Income), plus he highlighted some recent sales and acquisitions that the funds had made.

Mark obviously has investment in the blood, being the son of the venerable investor and financial author Jim Slater. His share picking strategy seems to stem closely from the methodology prescribed in his father's books, the growth fund certainly concentrating on smaller businesses with good growth potential as screened by the PEG ratio amongst other measures.
I have been following the growth fund for some time and over the past five years it has risen by a spectacular 272%.

It must be said that smaller companies have had a great run of late, and if there is a pull back in the market, smaller company funds could be hit the hardest. Nevertheless Mark has proven adept at dealing with downturns (see table below), hence MFM Slater Growth should be a decent investment for the long run.

The MFM Slater Income fund has only been running since 19th Sept 2011 but performance so far has also been good; another fund I'll be keeping a close eye on.

Incidentally I happened to come across this table in the Times last Sunday:




 If you can't make out the small print it basically documents the percentage of months a manger has outperformed the market during downturn periods. Many of those in the list manage income funds, which you would expect to perform better during a downturn. But as Mark is more geared towards smaller growth companies I think he's done well to make this list.

NB. For anyone wondering if they should ditch the Invesco High Income fund now that Neil Woodford has left to set up his own venture, it would appear Mark Barnett looks a good replacement, on this measurement at least.




  


Friday, 4 July 2014

Portfolio Update July 2014

Since the 3rd of Jan (my annual review date), the FTSE All Share index (my chosen benchmark index) has gained 1.9% and delivered approx 1.6% of dividend income giving a total of 3.5% growth.

The total growth of my portfolio over the same 6 month period (including dividends less all charges paid - no new money has been added) equates to 2.9%. A bit of a disappointment after last year's returns.

The 0.6% under-performance is mostly attributable to sizeable share price falls in Oakley Capital, Polo Resources, Cairn Energy and Tesco. Also Lloyds is down a little off it's highs, which has had some effect as it is one of my largest holdings.

I am currently reviewing all the above companies and there will be some imminent changes.

On a positive note some of my holdings have performed well & contributed to the small gain, namely AstraZeneca, Imperial Tobacco, Murray International Trust & Templeton Emerging Markets Trust.

Here is a current breakdown:


Company
Market
Amount
% of Holdings
% FTSE ALLSHARE
AstraZeneca
FTSE 100
£18,903.80
12.80
12.8
BAE Systems
FTSE 100
£7,190.17
4.87
4.87
Berkshire Hathaway (B)
S&P 500
£4,590.11
3.11

British American Tobacco
FTSE 100
£10,982.16
7.44
7.44
BT
FTSE 100
£5,451.66
3.69
3.69
Cairn Energy
FTSE 250
£3,033.09
2.05
2.05
F&C Commercial Property Trust
FTSE 250
£5,736.00
3.88
3.88
Fidelity China Special Situations
FTSE 250
£8,234.60
5.58
5.58
GlaxoSmithKline
FTSE 100
£14,865.38
10.07
10.07
HSBC
FTSE 100
£5,501.90
3.73
3.73
Imperial Tobacco
FTSE 100
£10,982.16
7.44
7.44
JP Morgan Russian Securities
FTSE Small Cap
£2,160.00
1.46
1.46
Lloyds Banking Group
FTSE 100
£17,837.19
12.08
12.08
Molins
FTSE Small Cap
£2,039.31
1.38
1.38
Murray International Investm Trust
FTSE 250
£9,236.24
6.26
6.26
Oakley Capital Investments
AIM
£5,060.74
3.43

Polo Resources
AIM
£579.71
0.39

Templeton Emerging Markets
FTSE 250
£4,318.43
2.92
2.92
Urban & Civic
AIM
£2,224.80
1.51

Tesco
FTSE 100
£1,436.15
0.97
0.97





Cash

£7,292.62
4.94






Total

£147,656.22
100
86.62

I'll be posting again soon, as and when changes are made.