Friday, 3 January 2014

Happy New Year!! - 2013 Review.


Happy new year everyone! Hope you had a good 2013 and many thanks for reading!

Benchmarking

Last year was a great one for dabbling in stocks, and I'm quite pleased with how things have gone.  Jan 3rd 2013 the FTSE 100 was sitting at 6047 and it has risen to 6725 today, which including dividends received would have given you a total return of around 14.6%.

The FTSE All Share (which is the capitalisation weighted aggregate of the FTSE100, FTSE 250 and FTSE Small Cap indices), did slightly better, rising from 3170 to 3598, which including dividends received has given a total return of 16.78% over the year. I think the All Share will prove a more accurate benchmark going forward as it fits my holdings more closely than the FTSE 100 as shown in the table below.

Over the same period my holdings have risen 27.3%, this figure includes all dividends received and expenses paid, no new money has been added to the portfolio. The current breakdown of holdings is as follows:

Company Market Amount % of Holdings % FTSE 100 % FTSE ALLSHARE
AstraZeneca FTSE 100 £15,227.01 10.61 10.61 10.61
BAE Systems FTSE 100 £7,288.37 5.08 5.08 5.08
Berkshire Hathaway (B) S&P 500 £4,355.55 3.03
British American Tobacco FTSE 100 £11,102.69 7.73 7.73 7.73
BT FTSE 100 £5,302.40 3.69 3.69 3.69
Cairn Energy FTSE 250 £4,050.08 2.82 2.82
F&C Commercial Property Trust FTSE 250 £5,731.22 3.99 3.99
Fidelity China Special Situations FTSE 250 £8,352.80 5.82 5.82
GlaxoSmithKline FTSE 100 £14,987.64 10.44 10.44 10.44
HSBC FTSE 100 £4,617.90 3.22 3.22 3.22
Imperial Tobacco FTSE 100 £9,794.26 6.82 6.82 6.82
JP Morgan Russian Securities FTSE Small Cap £1,892.15 1.32 1.32
Lloyds Banking Group FTSE 100 £18,643.05 12.99 12.99 12.99
Molins FTSE Small Cap £2,236.85 1.56 1.56
Murray International Investm Trust FTSE 250 £8,970.88 6.25 6.25
Oakley Capital Investments AIM £5,973.60 4.16
Polo Resources AIM £1,173.21 0.82
Templeton Emerging Markets FTSE 250 £3,978.00 2.77 2.77
Terrace Hill AIM £2,133.02 1.49
Tesco FTSE 100 £1,663.45 1.16 1.16 1.16
Cash £6,086.79 4.24
Total £143,560.92 100.00 61.74 86.27



Typically the returns from each holding have varied dramatically; Lloyds Banking Group, my biggest holding, gained about 60%. BT also gained 60%, BAE systems up 23%, Fidelity China up 20%, AstraZeneca up 19% plus many of the house builders that I sold earlier in the year made huge gains in the spring. On the down side Tesco have been disappointing (down 5%), as have my natural resource plays which have been stagnant or falling. Also I have been disappointed with the performance of Murray International Trust which has fallen since I purchased, and lost all it's premium to NAV. In hindsight I overpaid for this fund yet I still expect it to perform going forward.

New Holdings

Just before Christmas I sold down some of my holdings in Tesco, AstraZeneca, GlaxoSmithKline, BAT and Imperial to buy Templeton Emerging markets and Oakley Capital Investments.

Templeton Emerging Markets is a popular investment trust run by Dr. Mark Mobius who has a great track record for overseas investing. As I have very limited knowledge of overseas businesses I will be using funds like this, Murray International and Fidelity China to gain exposure to global equities.

My purchase of Oakley Capital was quite speculative. They are a fairly small AIM listed company who recently announced that they will be working in conjunction with Neil Woodford (Invesco Perpetual's star manager) to launch his new solo career in April using their offices and back office functions. It isn't very clear how much this will financially benefit Oakley but Neil is well respected within the industry and will doubtless attract billions in investment funds when he moves. Oakley are trading on par with their NAV so hopefully the potential downside of holding the shares will be limited.

Gold & Bonds

Over the last few years I have been very bearish on long dated bonds and gold, having written a few articles on the subject.

Gold has had a disastrous 2013, its worst in 3 decades in fact, falling almost 30%. Bonds have also had a terrible time, in most cases losing significant amounts.

I'm still bearish on both these asset classes, especially bonds, and think returns are likely to be poor in 2014. Risk averse investors that are heavily exposed to bond markets could be in for a rough year.

Equities

I think global equity markets represent fair value at the moment. I prefer the UK to the US. The All Share is trading on a PE of 14.9 which is more or less it's long term average, and a good bit cheaper than the S&P 500 at 17.38.

The US significantly outperformed the UK in 2013, maybe because the UK market has a higher exposure to mining/natural resource stocks which underperformed in 2013. There are quite a few natural resource stocks that are now looking very cheap on paper; if this remains the case I expect that I will increase my holdings in the sector. My recent purchase of JPMorgan Russian Securities is very much a natural resources play as their market is heavily weighted in miners and oil/gas explorers, which explains why the Russian RTS index is so cheap trading a PE of 5.95.

I also prefer the UK to most of Europe as I believe the risk of economic implosion is lower here, and European valuations are not low enough to warrant the extra risk.

I continue to like China, their market looks very cheap given the growth potential. My Fidelity China fund has massively outperformed the Chinese indexes this year and is still trading at an 8.6% discount to NAV.
Despite Anthony Bolton's impending exit from the helm I think 2014 may prove a bumper year for this fund.

Many investment houses are tipping Japan for 2014, but this is an area I will be keeping away from. The Nikkei has performed admirably in 2013 but it is arguably the dearest developed market in the world, trading on a PE of 23.5. I think that Japan's ultra loose monetary policy is questionable and undoubtedly attracting short term money to their shores. Also they have possibly the worst demographic make up in the world, with increasingly fewer working age people to support their aging society. Their strict immigration policy isn't helping with this.

Oil

It's been a fairly benign year for the black stuff, Brent Crude has risen about 3.54% over the year which has been good for inflation figures and has provided a stable platform on which business could thrive. As previously stated I think that stable energy prices are crucial to long term economic success and hopefully we will see more of the same in 2014.

That's it for now, wishing you all the best in 2014, I hope it's a great year for you all.

Matt.

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