Saturday, 30 December 2017

2017 End of Year Results


2017! Where did that go? Time has really flown this year.

To recap: global indices have rallied hard, with the UK lagging somewhat. However I calculate the All Share Total Return to be +12.6% for the year, which isn't too shabby.

My own personal stock portfolio performance totals +15.8%, so a slight out-performance, which makes up a little for the -4% underperformance last year.

My rolling 5 year performance is 82.37%  VS  61.27% for the All Share TR. I'm sticking with the All Share TR as my yardstick, despite a gradual increase in exposure to the US.

The FTSE AIM index has been on fire, returning +33% for the year. Unfortunately I haven't had much exposure to this.

In recent years I have been put off by AIM, because the long term stats for the AIM index are terrible. An FT article written in 2015 around AIM's 20th birthday ( https://www.ft.com/content/ea2bd724-140c-11e5-abda-00144feabdc0 ) mentions that since inception, AIM has lost -1.6% per annum, and states that 72% of all the companies ever listed on AIM would have lost you money.

I have experienced such losses on AIM first hand, mostly via investments in oil/mining exploration companies that talked a good game, but never seemed to achieve what they anticipated.

Hence, due to statistics and experience, I've since tended to stay well away.

However, it strikes me that it is these oil/mining companies that are probably holding the AIM index back. If you stripped these out of the long term results, the returns probably look a lot better. I will endeavour to pay more heed to small/micro stocks in 2018!

Here is a list of my holdings as they currently stand:

  
Company %
Fidelity Special Situations China 8.79
AstraZeneca 7.26
Imperial Brands 6.77
British American Tobacco 6.58
Fundsmith Emerging Equities Trust 5.94
Berkshire Hathaway B Class 5.72
IG Group 5.50
Murray International Trust 5.38
Lloyds Banking Group 3.78
Diageo 3.01
Alphabet 2.86
Unilever 2.84
F&C Commercial Property 2.66
Legal & General 2.65
Domino's 2.62
GlaxoSmithKline 2.31
Pepsico 2.18
Disney 1.99
Intercontinental Hotel Group 1.86
Starbucks 1.81
International Greetings 1.78
PZ Cussons 1.78
Restaurant Group 1.77
Reckitt Benckiser 1.70
Apple 1.59
Sage 1.14
Berkeley Homes  1.01
Altria 0.98
Chipotle Mexican Grill 0.96
Card Factory 0.91
Philip Morris 0.90
International Business Machines 0.79
Marstons 0.65
P2P Global 0.58
Cash 0.48
Rightmove 0.46
 
Turnover since last year has been relatively low. My main activities have been to top up IG Group, Domino's & Restaurant Group. Domino's and IGG have rallied nicely since, Restaurant are still in the doldrums.

I've benefited from takeover bids for WS Atkins, which I subsequently sold, and Unilever which didn't go through, but helped buoy the share price.  

I sold some of my position in Glaxo earlier in the year, in hindsight I should have sold it all, as they have been very weak since.

My tobacco holdings, British American and Imperial, were both very weak over the year. I've used share price weakness to top up on Imperial Brands and also initiate new positions in Philip Morris and Altria, which are US based tobacco companies. Whilst morally debatable, tobacco has been the best performing sector over any medium to long time frame you could mention, and I'm hoping for some reversion to mean eventually.

I've also initiated some new small positions in Rightmove, Starbucks, Card Factory and IBM.

You may have noticed that I do gravitate towards the Mega Cap stock, partially because I find it immensely gratifying to see my holdings in action. I spend quite a bit of cash with many of these holdings on a regular basis, begrudgingly in some cases, which is usually a sign of a very well structured moat!

As a side note my other investment, a portfolio of managed OEIC's and Unit Trusts (circa 90% equities, 6% cash, 4% property), has matched virtually identically my DIY YTD efforts.

This year, through work I've had the pleasure of meeting a few great fund managers, including Keith Ashworth-Lord (Sanford DeLand), & Nigel Thomas (AXA Framlington). It's always good to hear from these veterans about how they go about stock selection. It seems the best fund managers are usually very humble, and always keen to share their experience and opinions.

Uncharacteristically I haven't read many investment related books in 2017. A couple of note of the few were Phil Oakley's 'How to Pick Quality Shares' and also Kerry Balenthiran's 'The 17.6 Year Stock Market Cycle', both of which I'd recommend!

A round-up of 2017 wouldn't be complete without some reference to Cryptocurrency and Bitcoin etc. For years I've been saying Bitcoin is a fad, and should not be seen as a viable investment. I likened it to Tulipmania back in 2013 ( http://www.mattjbird.com/2013/11/bitcoins-and-tulips.html .) Amazingly since then it has continued to confound me, with the price per coin continuing its parabolic ascent (currently circa $13,000.00 but has touched $20,000.00.)

I did not anticipate for a moment the amount of people who would get sucked into this, despite it not being a viable currency (too volatile) or a legitimate investment (i.e. it's non productive and has no intrinsic value).

My feelings about crypto haven't changed since 2013, and I still think it will end in tears for many people. I'm now starting to wonder whether it may be possible to profit from the eventual collapse?

Futures trading now allows you to bet against the currency which might be an option. But also I've been looking at potentially shorting businesses that are benefiting from the crypto-boom.

In particular Graphics Card producers such as NVIDIA (US) have had increased sales in recent years as people are buying their product specifically to 'mine' cryptocurrencies. The cards people are buying are very high end (expensive) and if/when this blows over there could be a large oversupply of said cards for some years. NVIDIA's share price has gone up 10 fold over the last couple of years, it might well fall back if sales decline.

I've made initial enquiries into Jan 2020 'out of the money' put options & this could be a viable way of betting against the collapse whilst capping the downside risk. NB I don't generally do this kind of thing and am a total novice, so please don't try this at home unless you know what you're doing!

That concludes my investment year. Many thanks to you all for reading, and in particular thanks to all the Twitterati PI's who continue to be a great source of information and knowledge. You know who you are!

If you have any questions please feel free to comment or alternatively contact me via Twitter

Have a great 2018!

Cheers,

Matt.
   

Saturday, 31 December 2016

Portfolio Update 2017


The end of the year is nigh, so it must be time for an annual portfolio update!

It's been a hectic year. I added quite a few holdings including a few new US holdings in early January 2016 and these have all made decent gains over the year from dollar appreciation following the Brexit vote. Also some of my larger UK stocks also received a boost for the same reason. Unfortunately later in the year, following Trump's victory, I experienced a bit of a slump despite a broadly buoyant market.

A small part of my portfolio has been sold down and invested into a portfolio of Unit Trusts & OEICs, but I won't comment on the performance of that at this stage, as it's been invested less than a year.

Unfortunately during 2016 my stock portfolio has underperformed my benchmark index, the FTSE All Share, marking the end of a 7 year out-performance spell.

This was largely because I am very underweight mining/resource stocks which have rallied significantly this year, on the back of a recovery in oil and commodity prices. The All Share Total return has been roughly 16%, and my return for the year including dividends but minus fees was 12% so an underperformance of -4%, which I'm still very happy with considering I own zero resource stocks.

Over a 5 year rolling period my portfolio has delivered a return of 82.7% against a return of 61.6% for the All Share TR over the same period. So thankfully it has been worth the effort!

My top 3 performing holdings this year were: Murray International Trust (+49.6%), Intercontinental Hotel Group (+39%), and IG Design (+31.18%).

The 3 worst were IG Group (-36.05%), Berkeley Group (-20%) & Marston's (-14.02%)

IG Group were hit particularly hard recently when the FCA announced that they may clamp down on the amount of leverage allowable for CFD and spread betting contracts.

Holdings as they stand are:


Company %
GlaxoSmithKline 8.09
Imperial Brands 8.02
Fidelity China Special Situations 7.84
AstraZeneca 7.75
British American Tobacco 7.47
Berkshire Hathaway 6.34
Murray International Investment Trust 6.22
Fundsmith Emerging Equities Trust 5.89
Lloyds Banking Group 4.28
F&C Commercial Property Trust 3.29
Legal & General 2.96
Alphabet 2.89
Unilever 2.79
PZ Cussons 2.26
Reckitt Benckiser 2.09
BAE Systems 2.07
Diageo 1.94
PepsiCo 1.89
Walt Disney 1.88
Intercontinental Hotels 1.86
Chipotle Mexican Grill 1.70
WS Atkins 1.55
Apple 1.48
IG Design 1.33
Sage 1.16
Marstons 0.97
Berkeley Group 0.84
Restaurant Group 0.72
P2P Global 0.70
IG Group 0.63
Domino's 0.58
Cash 0.52

I'm happy with the portfolio as it stands, and don't anticipate making any huge changes. I may add to my positions in Restaurant Group and IG Group as I think these both look attractive at current price levels, also I am looking to acquire a holding in IBM as I'm quite interested in their Watson AI software technology which I think could be a source of growth for the IT goliath.

If you have any questions/queries please leave a comment here or get in touch via twitter @mattbird55

All the best for 2017!

Matt.



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