Monday 20 May 2013

Sell in May?

Many of you are probably familiar with the stock market adage: ''Sell in May, go away, come back on St Leger day.'' This little ditty illustrates that the period between November and April tends to offer strong equity returns, but during the period May to October, equities tend to stagnate, and you would be better off in a cash fund.
Whilst I'm sure the statistical data that proves this anomaly is kosher, I'm not sure a long term investor should pay much heed to it. By the time I'd sold all my holdings and bought them back again I would have incurred significant trading fees and also lost out on dividend payments.
As it happens I have made a few disposals this month, but I've reinvested the money elsewhere, because it's ''time in the market'', not ''timing the market'' that is the key to successful long term investment.* 

Last week I sold my remaining holdings in Barratt and Taylor Wimpey making 172% and 166% profit respectively on the initial purchases prices.
I initially bought into the house building sector because most of the companies were trading at huge discounts to Net Asset Value (NAV). This is no longer the case, plus I also get the feeling that there is a lot of speculative momentum trading going on that has caused the sector to rise so rapidly. Many of the building companies are still nowhere near their pre-crash highs, but I think the investment case is now not as strong, and the sector could be due a sharp pullback if the macroeconomic picture should turn sour.

I have split the proceeds four ways. Three of them are a top up of existing holdings: Imperial Tobacco, Fidelity Special Situations China, and Murray International Trust. The fourth is a new addition and a bit of a deviation from my existing holdings: F&C Commercial Property trust.
I think that commercial property could be a great investment going forward; it's certainly an out of favour sector having bared the brunt of the recession. Property valuations are cheap and yields are relatively high. This particular fund has performed admirably since it's inception 8 years ago, and has made cumulative gains of  19.5% over the last five years despite a huge drop in value in 2008. Its total expense ratio is a reasonable 1% and its dividend yield is 5.8%, which is significantly more than I was getting from the residential house builders. One downside is that it is trading at a 4.4% premium to NAV.

By moving out of the residential house building sector and into less volatile investments that are offering far higher yields, I feel I have taken some risk out of the portfolio and positioned it well for the future.
I am concerned that if/when the US Fed announces an end or a tapering to its QE program, that this could have a negative effect on equities. High yielding shares that have strong dependable revenue streams should provide better protection should such a pullback occur. The investment into China Special Situations being the exception to this strategy, as the yield on that fund is fairly low. However I think that the China fund should outperform the residential housing sector going forward, hence the switch.

*Quote:  George Riles, First Vice President and Resident Manager, Merrill Lynch, Albany, GA




Wednesday 15 May 2013

Buffett on Strategic Asset Allocation

There was a great video on CNBC last week that compliments my last post about Strategic Asset Allocation (SAA) quite nicely.

If you click the link below and scroll to the second video down in the smaller window, you'll see Warren Buffett waxing lyrical about bonds and their relative value.

At one stage Becky Quick mentions that one of her colleagues was advised that he should have a 40% exposure to bonds. It's clear from Warren's response that he doesn't agree with that advice, and thus probably doesn't agree much with SAA either.

Here's the link -