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.

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