Thursday 27 October 2011

At the close: Markets rally in relief at EU summit outcomes.

Index asc Value Chg  % Chg 
CAC 403368.62199.006.28 %
Dow Jones12253.62384.583.24 %
FTSE 1005713.82160.582.89 %
FTSE MIB16954.68882.765.49 %
IBEX 359270.50438.004.96 %
Nasdaq 1002407.8773.083.13 %
Xetra DAX6337.84321.775.35 %

As at 20:50 GMT


Thought it important for completeness to show the main European and US market gains at the close.

Earlier post:
- Markets rally in relief at EU summit outcomes.

Markets rally in relief at EU summit outcomes.

Index asc Value Chg  % Chg 
CAC403278.96109.343.45 %
FTSE1005661.64108.401.95 %
FTSE MIB16649.13577.213.59 %
IBEX359059.10226.602.57 %
Xetra DAX6218.76202.693.37 %

Phew!
Looks like markets have responded to the outcome of the EU summit with a huge sense of relief despite the numbers put forward being less than non-EU experts had suggested would be needed, and there being little, or no detail in place as yet.
The summit's decisions appears to have been sufficient to buy the EU time to flesh out the required detail and stave off what was looking like a potentially disastrous collapse of the Euro.

I am just now listening to Van Rompuy, (President of the EU Council ) who appears to be talking very intelligently about the extreme and varied forces that brought markets and economies to this point, how they and the contagion risk have been vastly underestimated, and the need for shared responsibility going forward.

Angela Merkel also looks to have starred managing to balance the politics of her domestic and European position particularly in galvanizing German parliament approval to leverage up the ESFS fund. In doing so she appears to have kept stakeholders ultimately focused on the EU and the Euro.

So what are we looking at in this "three pronged" deal:
- an agreement with private banks on a "haircut" of 50% on Greek debts
- Eurozone lenders to increase core capital by EU106bn (after Greek debt write downs)
- an increase to the Eurozone's ESFS bailout fund of EU1tn taking the total to EU1.4tn.

Although there is no detail yet you can see the main market beneficiaries are the French CAC; Germany's Xetra; and Italy's MIB with opening gains in excess of 3%.

As hoped for, Banks have accepted debt write downs. 
Historically, there have been many cases of banks taking significant debt write downs and, in most cases, have survived and recovered. 
But the difference this time, and the most significant unknown, was the risk of contagion, credit crunch and potential collapse of the banking system. 
I feel that an assumption out of today's agreement is that major lenders are not isolated and will continue to be backed.

However, the question I raised in an earlier post is still relevant here and that is where is the money going to come from? 
Surely its more than an assumption that China and Brazil will potentially add to any aid from the IMF but at what cost and what are the future implications.
Significantly, this could signal a real turning point with influence and wealth swinging between the old to the new emerging economies and could really change the investment rules across the global economy.

Other caveats continue to be around Greece and Italy regarding sovereign debt levels. Greece has obviously been given a huge breathing space but what will it do with it? 
As for Italy, still the next biggest domino in the firing line. It needs to set an example and take the necessary brave steps to rebalance its finances in line with its temporarily constrained prospects.
There is also still the nagging doubt that this agreement might not be enough. And, that it might only provide breathing space unless attitudes change and responsibilities are taken up.

As suspected Banks and Miners appear, at least initially, to be the major beneficiaries of the post EU summit relief and top the FTSE100 leaderboard. 
I understand Banks being there but not necessarily miners which, at least to me, seem more strongly linked to economic growth, which hasn't been resolved or discussed.

But, lets hope that this is more than a relief rally, that the detail is timely and, importantly, doesn't disappoint in order to provide some much needed stability.

Phew!

Related articles:

William Hill "back online".

William Hill @ 225.1p, -3p (-1.32%).

There seems to have been some bizarre goings on at William Hill online recently with news that employees at its Israeli based online support centre had walked out on fears that their jobs were to be migrated to Gibraltar.

The first public inkling came in a company release on the 18th October (www.williamhillplc.com: Statement re William Hill Online Marketing) in which William Hill confirmed the resignation (as far back as the 27the Sept) of Eyal Sanoff, the Chief Marketing Officer of William Hill Online's Tel Aviv team. 
In addition, a number of senior managers were the subject of disciplinary action following disruption at the centre in Tel Aviv which resulted in 180 staff walking out.

Bizarrely media reports also speculated that the company had hired the services of former Israeli Intelligence Officers in an attempt to regain control of a situation which seemed to be escalating with tales of computer system sabotage and related operations in Bulgaria and Manilla also affected by staff walk outs.
More recent media reports suggest that WMH have sacked 7 senior managers and a number of junior staff following findings which suggest an attempt was being made to set up a rival operation.

In a further company release yesterday William Hill stated that they reached agreement with staff and restored WMH Online to normal operations. The company also expressed their continued commitment to the Tel Aviv operation.

William Hill Online (a 79% : 21% joint venture with Playtech) has been a success for the company and has looked set to be an key piece in the company's future growth strategy. 

Disappointingly for me this incident came out as the share price was pushing new 52 week highs of 244p causing me to consider cashing in the portfolio's investment on the basis that:
- until next years Olympics and European Championships there seems little "exceptional" events to drive the shares higher than 244p. 
- bought for recovery and the dividend, the shares have staged a strong performance (seeming to be strangely defensive) in the face of recent market volatility.
- at 244p, and in line with the previous point the forecast P/E rises above 10 times and the forecast yield falls below 4% suggesting that the shares were either undergoing a re-rating or becoming a little "frothy".
- it seemed prudent to free some cash up ahead of any EU summit outcome.

In summary then, it seemed reasonable to realise some gains, given that the shares had achieved my ambitions for them, which could be recycled into more solid long term opportunities.

At 244p, the portfolio's investment in WMH was showing a potential capital gain of 42.7% which when combined with the additional 7.8% in dividends received, adds up to a satisfying 50.5% profit in 22 months.
As it is the murky incident (and my dithering), has meant my missing the opportunity as well as reducing the total gain to 39.45% (temporarily I hope). 
But, the shares did also go ex dividend today which means the holding has qualified for a further dividend, payable on the 8th December, equating to another 1.6% return on my original investment.

A decent return so far then, and an investment that could yet gallop further. Particularly if the company's recent investments in the US enable WMH to capitalise on any speculated liberalisation in online gambling.

Related articles:

Wednesday 26 October 2011

BG advances on Q3 update.

BG Group @ 1395p, +17p (+1.23%)

BG added to the good news for the Oil and Gas section of my portfolio with its own Q3 update which reported:
- a 17% year on year increase in pre-tax profits to $1.9bn (from $1.3bn)
- a 59% year on year increase in cash-flow
- increased demand for liquefied natural gas is such that BG now expects to report operating profits of $2.4bn from its LNG operations which are in excess of previous guidance.

On the slight downside production only grew by 1% mainly due to reported downtime in North Sea operations over the last 9 months but, all operations are now back on stream. Remaining global operations have grown in line with plans.
In the various media reports, the company's Chief Executive, Sir Frank Chapman appeared to be particularly enthusiastic about the company's investments in Brazil and Australia which are expected to underpin future growth. In Sir Frank's words these projects "were advancing with "material progress"."

On the back of the Q3 update, the shares did advance 5.9% to an intra-day high of 1406.5p before ending the day  at a slightly more modest 1378p (+3.8%). 

The shares are still well shy of their 52 week high of 1564p but have continued to advance today and closed at 1395p.

Related articles: 
- www.bg-group.com: 2011 THIRD QUARTER & NINE MONTHS RESULTS

BP gushes up on Q3 update.

BP @ 453.45p, -3.7p (-0.8%).

So BP had a day in the sun yesterday which is a nice change for the company. 
The company's Q3 update seems to have been well received triggered by a strategy update from Bob Dudley, the CEO.
Strange that the urgent need for liquid funds to cover costs and liabilities after the Macondo well tragedy which led to the company's divestment program has possibly been the most positive strategic activity since the tragedy. To the point where they have now announced an extension to that program in the Q3 update. 
The key is still to maximise the selling price of slow growth assets in order to raise funds to invest in higher growth assets. But if it was that easy.....

Anyway, along with news that the asset sale program will now increase to $45bn from $30bn, Bob Dudley also declared that these results mark a "clear turning point for the company" as cashflow, freed from the shackles of exceptional costs related to Macondo, and profits finally started to look positive again with $5.14bn (or £3.2bn) recorded for the quarter.
Net debt also fell slightly to $25.8bn from $26.4bn.
Dudley also predicted a doubling of BP's group profit margin over the next 5 years!

The shares closed at 457p (+4.3%). 

Related articles:

EU summit: like rabbits in the headlights?

So yet another test of the nerves as the EU summit continues to stumble and give out all the wrong signals with less than 24 hours to go before their own extended deadline for a solution is breached.
Too much time bickering, and a failure by Sarkozy and Merkel to publicly manage their body language (when questioned about Italy), followed by a cancellation of a finance ministers meeting early tomorrow (now today) suggests that there is still no detail to a plan so markets can probably look forward to the same vague assurances and shared concerns that have been rolled out for the last 12 months.

Will these platitudes be enough to convince the world that the Euro has a future and that EU ministers recognise the risks. 
We shall have to wait and see.

I guess that there can be some similarities drawn with the recent high stakes poker game that played out in the senate over the US debt ceiling with politics seeming to override the central issue. 
Although, it could also be argued that this was a less complex situation than the one playing out in the EU.

Testing times.

Monday 24 October 2011

Miners top the leader board.


Company
Value Chg
Kazakhmys 925.00 p 8.00%
Lonmin 1,112.00 p 7.65%
Antofogasta 1,178.00 p 7.48%
Rio Tinto 3,373.50 p 7.06%
Xstrata 1,016.00 p 6.78%

FTSE100 @ 5548.06, +59.41 (+1.08%)

Interesting to see the swing on miners today which was sizeable enough to push miners into the top 5 positions in the FTSE100 movers list.
The sector bubbled up nicely following positive manufacturing data out of China which served to push up metal prices, particularly copper.

Along with financials, mining would, on the face of it, appear to have suffered more than most from the heightened fear of recession, slowing Chinese growth, and sovereign debt default. Subsequently they have also been a large drag on the FTSE100.
Should these fears subside then I would expect these sectors to recover strongly relative to the FTSE and other sectors, which probably means a spell of under-performance from my portfolio given the lack of coverage in these 2 sectors. 
Although, to be fair, Aviva does provide some cover of financials and there is exposure to commodities through the portfolio's investment in BP and BG.

Restoring confidence and calming the fear still comes with a dangerously "big if" though given the mixture of messages coming out of the EU summit.
For example, its fine to inform the banks that they require additional capital, but where is it going to come from?
I would also suggest that, although finding a solution to the EU's sovereign and financial institution debt would resolve the most immediate concerns of another credit crunch it will not instantly reduce inflation, create jobs, and restore stalling growth.

However, just to avoid another credit crunch would be a hugely comforting step forward.

Saturday 22 October 2011

Have markets and the EU set us up for a fall?

Slightly concerned that  markets have been getting ahead of themselves in their enthusiasm for a solution to the Eurozone's problems (but then I haven't understood the retreat either), when there isn't actually a solution yet and other than vague re-assurances that a plan will be unveiled there seems to be little solid evidence to suggest that there is the firepower and collective will to save the euro, and support sovereign and financial institutions' liabilities within the deadlines communicated.
After all, the deadline has already been extended to Wednesday.

EU leaders continue to dither and give less than positive signals regarding the solutions on the table which is particularly disconcerting when the suggested estimates seem to fall short of non EU analysts e.g. 
- 100bn to recapitalise banks (EU) v 200bn (non-EU).
- 1.5tn (EU) v 2 tn (non-EU) for the bailout funds

I have to caveat the EU numbers as tending to be from speculative sources but there seems to be a number of German politicians voicing caution regarding the level of success being proposed v markets' expectations.

Perhaps the nature of politics is so contained behind closed doors that they just don't have the experience or understanding to manage the larger, more fickle global stage. Or perhaps there is the self satisfied feeling that it won't affect them within their own little circles of influence and status.
It also seems to me that every suspected weakness and criticism of a European state is there to be seen: indecision, significant differences in prosperity between regions (Greece needs a devalued currency and low interest rates to recover but the central bank has been raising them), and then the usage of such a key issue by Slovakian politicians for their own purpose.

We shall have to wait and see but it seems painful that despite the build-up to the weekend summit it seems likely to come down to the agreement of 2 people, Nicolas and Angela.

Fingers crossed that markets aren't going to be too disappointed!

Wednesday 19 October 2011

Apple update: record breaking 4th quarter results disappoint!

Apple @ $422.24, +$2.25 (+0.54%).

Slightly worrying that Apple missed expectations for the first time since 2004 with 4th quarter sales revenue of just $28.34bn, yes that's $28.34bn! 
This is a 28% increase on last years 4th quarter but, as analysts were expecting $29bn its still a miss.
And despite net profits increasing by 53% to $6.62bn it looks like the share have been punished in after hours trading with a fall of 6.4% potentially taking the shares down to $395.05.
Its worth saying that again though - sales are up by 28% but net profit has increased by 53%!

The detail suggests that the source of disappointment lies in the sales of iPhone 4 which, at 17.1m are a 21% increase on the year before but down on the previous record quarter where 20m were sold.

Personally, I find it disconcerting to read about "after hours" trading knowing that I can't do anything about it and wondering whether there will be a knock-on when markets re-open the next day. I don't know if this is actual dealing or just market makers adjusting prices to news ahead of market opening. If it is actual dealing, is this not just a diluted form of insider dealing?
Because there have been a number of significant events at Apple I guess that it is natural for investors and analysts to be a bit jittery. 

I do think that the hype around the possible announcement of iPhone 5 and a cheaper 4S would have been enough to persuade some potential buyers to hold fire (remember this speculation has been ongoing for the last 6 months at least).
And, there is Christmas to think about and how many potential buyers (for a loved one), will be holding off for a Christmas purchase.
It is human nature after all.

On the first point, I guess it is a little old news now so I didn't post an update on the update on the update but Apple did. 
And, what do you know, despite analysts being disappointed in the lack of an iPhone 5, Apple has sold 4m 4S's in the first 3 days of availability, double the records set by iPhone 4s.
So, perhaps when this announcement came out we were already looking into the future and that the numbers should be considered alongside the 4th quarter report as they have possibly had a material impact.

Its easy to be dragged along with the iPhone debate but, as the company makes these other products as well:
- iPad sales were 11.12m, up 166% on last year
- 4.89m Mac sold, up 26% on a year ago.
- But, as expected, iPods continue to decline with sales of 6.62m, down 27%.

So looking ahead we have the holiday season coming up, gross margins increased to 40.3% (last year 36.9%), and 63% of Apples 4th quarter revenues were international. 
And, then there is iPhone 5 and iPad 3 to look forward to!

Related articles:

Earlier posts:
- Shares update: Apple's third quarter results.
- Apple 2nd quarter update - profits up 95%!
- Apple update: Ipad 2!   
- Is Android a reason to invest in Google?
- Globally Diversified Technology, Growth, and Hedge portfolio!!!

Tuesday 18 October 2011

GE update: Redemption of Buffett investment.

GE @ $16.23, -$0.37 (-2.23%).

GE ticked off one of the items on CEO - Jeff Immelt's list of things to do yesterday by redeeming the 10% preference share investment made by Warren Buffett in the depths of the credit crunch (www.businessweek.com: GE Redeems $3.3 Billion Stake Buffett Bought Amid 2008 Crisis).
From Buffett's perspective a 10% annual return plus a 10% redemption payment on the original $3bn investment looks to have been good business and certainly provided a lifeline for GE as it enabled the company to access a further $12bn from markets in the depths of the credit freeze.

The article goes on to mention that according to a July communication from Chief Financial Officer Keith Sherin, "GE is concentrating on repurchasing common shares and increasing its dividend".
 
Under Immelt the company has also gone through a significant restructuring which included reducing the risks associated with GE Capital.

Only recently brought into the portfolio (to replace Cisco) at $15.74, the share price is currently $16.23 and allowing for currency movements the investment is up around 5.5%.
Analysts have 20% growth factored in to this years forecasts which pitches the forward p/e at 11.8 times (2010: 15.9) with a 3.3% forecast yield.
Recent information also suggests (www.bloomberg.com: GE Beating S&P Is Profit Goal as Immelt Decade Skirts Abyss) that the company has a healthy cash balance in the region of $91bn (2010: $78.9bn).
My view is that this is a globally recognised brand geared to recovery particularly in emerging markets. And, whilst I like the aerospace exposure with its long investment and return cycle, GE also has firmly established positions in energy, infrastructure, healthcare, consumer products and finance.
So if we can just get out of October in one piece I might be able to look forward to some air miles from GE.

Related articles:

Related posts:
- Globally Diversified Technology, Growth, and Hedge portfolio update.

Monday 17 October 2011

BP update: Andarko settlement; and North Sea investment.

BP @ 425.55p, +9.15p (+2.2%).

Some timely progress for BP today, in a mixed day for the FTSE, as the company continues to seek recognition of a collective responsibility (if not accountability) with its partners and contractors in the disastrous Gulf of Mexico venture.
This progress came in the form of an announcement by the company that Andarko has reached a settlement with BP to the tune of $4bn which will go straight into the $20bn fund set up by BP to meet claims relating to the incident.
This appears to leave Haliburton and Transocean as the remaining contractors still opposed to settlement.
Andarko will also transfer its 25% interest in Macondo to BP.


Elsewhere, the company also announced that the UK Government has approved BP and partners to proceed with a further £4.5bn project in the North Sea which brings the total planned investment in 4 projects to £10bn of which BP's share is £4bn. The company believes that a further 3bn barrels of oil and gas can be produced from these projects.


Off its days highs and still very much a work in progress.


Related articles:
- www.sharecast.com: BP and Anadarko settle ... now for Halliburton and Transocean
- www.bp.com: BP Announces Settlement with Anadarko Petroleum Company of Claims Related to Deepwater Horizon Accident
- www.sharecast.com: BP wins approval on new project in North Sea
- www.bp.com: BP and Partners Investing £10 Billion in UK Oil and Gas Projects

Sunday 16 October 2011

Scottish and Southern Energy update: Dividend forecasts.

SSE @ 1352p, +9p (+0.67%)

So no longer Scottish and Southern Energy following a name change to...... SSE.

But name change aside the company recently announced that it is on course to increase its dividend by 2% above inflation and still remain maintain within its established dividend cover range following planned capital expenditure of around £1.7bn (www.sharecast.com: SSE's dividend cover in its established range).
Should be good news for investors then with a forecast yield of 5.9% although I am a little concerned at the declared "established" dividend cover range when it has been on a 4 year downward trend to the most recently reported 1.5 times. 
Will it continue to be squeezed I wonder?
But with 2010-11 operating cashflow per share of 185p comfortably above earnings per share of 112p and, last years net interest payments of £298m more than 4 times covered by profits of £1.477bn perhaps it is a case of needing to recognise the strengths of a utility and the stability of its earnings.
£1.7bn of capital spend represents around a 10% increase to existing liabilities reported at £16.249bn. So anything like a proportionate increase to the interest payments shouldn't put undue pressure on the company's cashflow. 
The company's net profit after tax last year was £1.078bn which with the dividend accounting for around £702m (298,900,000m shares x 75p) leaves around £376m surplus. Possibly linked and on a positive note I see that cash balances increased by £216m last year to a reported £476m.


However, on the downside there is a potential flare up in the relationship between the "big six" energy companies and Ofgem following the regulator's release that recent price increases could result in each company increasing its margins per customer by up to £125.
Prior to this SSE had been trying to improve its customer perception by stating its intention to auction all of its generated energy supply (effectively making it available to new and smaller players and thereby increasing competition), and criticising the remainder of the big six for their abundant and confusing tariffs whilst reviewing its own.
The company has then gone on to be the first to suggest an issue with the regulators assumptions ie that it is a theoretical snapshot and fails to include capex.

Seemingly trying to differentiate itself the company might just be alienating itself from its peers and the regulator so ( I would suggest), needs to be very clear and genuine about its internal and industry "shake up" initiatives in order to win over sceptics of the energy supply industry.


As to its performance whilst in the portfolio.
Well, it might be off its 52 week highs of 1423p but, at 1352p, SSE currently represents around 2.5% of the portfolio. And, since the inception of the portfolio's index on the 1st Jan 2010, SSE has contributed with an individual share price gain of around 17.47% and a further 12.59% in dividends. 
Which, as all dividends are kept in the portfolio, gives a total gain of 30.06% on the original investment at 1151p.
For reference, the year to date numbers are 10.37% share price and 6.12% in dividends, so that's a 16.49% gain in total against the 1225p price that the shares stood at on the 31 Dec 2010.
So a steady performing investment that still looks it will pay dividends then (if you can forgive the pun!).


Related articles:
- www.sharecast.com: SSE's dividend cover in its established range 
- www.sharecast.com: SSE hits back at Ofgem margin claims

Previous posts:
- Scottish & Southern Energy Preliminary Results

Friday 14 October 2011

New Portfolio Updates page.

OK so some of you might already have noticed and stumbled on the new "page" entitled Portfolio updates which I originally set-up to provide a quicker link to the portfolio updates (surprising with a title like that!).
But I have also been playing around a bit with the Google finance functions and as a result have been experimenting with using it to illustrate "delayed prices" on the site.
Still very much experimental at this stage as I debate how best to take advantage of the functionality (if at all?).
At the moment the list is of portfolio holdings but I am thinking along the lines of showing a watchlist but we shall see. I also need to see what other data I can pull up that might be useful.
Also, a couple of oddities in the data as well such as the 52 week highs for Tesco and Vodaphone although with it being historic data I wonder if there is an exchange rate oddity with Google being American?
At this stage I am also unable to find a code for Invesco Perpetual so I am having to update that one manually.

Might be useful but let me know what you think or might suggest.

Thursday 13 October 2011

Rolls-Royce update: IAE stake sale and new joint venture.

Rolls-Royce @ 688p, +62p, (+9.9%)

Rolls-Royce flying high in the clouds today on the back of last nights announcement that they are being bought out of their 32.5% stake in the IAE venture for around $1.5bn however they will also continue to profit from flying time for the existing installed base of V2500 engines flying on A320 wings.
This is likely to see future contributions to profits with an estimated £140m in the first year but this contribution is expected to slide over the next 15 years as the fleet ages and replacement aircraft and engines come through.
In the same announcement, Rolls-Royce announced details of a new joint venture with Pratt & Whitney to produce engines for the 120 -230 seat passenger aircraft which serves to fill in a sizeable hole for me as an investor if Rolls-Royce didn't have a presence in this sector of the market which over the next 20 years is expected to require around 45,000 engines and be worth around $2 trillion (Boeing announce 737 MAX for 2017.).

Elsewhere, Rolls-Royce also announced a $99.9 m contract to provide support on the Adour engined T-45 Trainer aircraft used by the US Navy.
This came hot on the heels of news that the company had also taken its first order for its Environship concept for which the company "will design and provide integrated power and propulsion systems for two technologically advanced cargo vessels, which have been purchased by Norwegian transportation company, Nor Lines AS."

Lots of good news then which when you take into account the first delivery of the 787 to All Nippon Airways should have analysts reaching for their eraser and black inked pens particularly when the company is actively giving profit guidance so explicitly.

Related article links:

Earlier posts:
- Paris Air Show: Review

Monday 10 October 2011

Apple update to the update: Apple's iPhone 4S breaks pre-order record

This slightly later article makes reference to Apple's announcement of a company record for pre-orders for its new IPhone 4S which has exceeded 1m in the first 24 hours of availability.
So there is a demand for it then!

Interestingly the 3GS model continues to rack up sales in the US and is now being offered free with a 2 year contract

Related articles

Previous post:
- Apple update: IPhone 4S 200,000 pre-orders on AT&T in 12 hours!

Aviva update on Euro zone exposure.

Its not enough to give me a warm feeling yet but, given Aviva's recent underperformance, it is heartening to hear Andrew Moss, CEO - Aviva, expressing his comfort at the company's exposure to eurozone debts along with a view that the company's capital surplus of £7bn is in place to absorb any issues that arise. 
Still it requires optimism that the authorities will resolve the situation and in Andrew Moss's own words "the question is where the line in the sand will be drawn".

Related article:

Sunday 9 October 2011

Apple update: IPhone 4S 200,000 pre-orders on AT&T in 12 hours!

Apple @ $370.03, -$7.34 (-1.95%).

Interesting that despite the disappointment that IPhone 5 wasn't announced and following its availability to pre-orders:
AT&T said it had ''more than 200,000 preorders in the first 12 hours alone'', making the iPhone 4S ''the most successful iPhone launch we've ever had.''(www.informationweek.com: Apple Sells Through Initial iPhone 4S Stock).

And, still wearing my shareholders hat:
The iPhone 4S has a smarter processor that allows it to be used on a wider variety of networks, including that of Sprint Nextel, which will sell and host an iPhone on its network for the first time. Apple says the iPhone 4S will be available for use by networks in 70 countries by the end of the year – what it called its fastest global rollout for any iPhone version. (http://www.entrepreneur.com: Apple's iPhone 4S Announcement Disappoints).

So, whilst I share the disappointment in the lack of a new "look at me" design the increased power and network availability are positive selling points to me as an investor whilst it still leaves the IPhone 5 brand available for "the next leap forward".
Tim Cook, CEO - Apple has previously stated that IPhone 5 would be geared to the next generation of mobile wireless capability, LTE, but at present incorparating the fledglng technology would have resulted in too many compromises which is the general view taken on the first generation of LTE phones and chipsets where additional power consumption has led to bigger batteries and weight being added to the first wave of phones (www.electronista.com: Apple: LTE iPhone would have required 'design compromises' ).
This desire not to compromise the user experience would be entirely in line with Steve Jobs philosophy so its a relief to see no change to what has been an outrageously successful philosophy.
So despite the shares having pulled back around 10% from highs of $413 since the IPhone 4S announcement and the passing of Steve Jobs, it does look like the 4S is just the warm-up act to what is looking to be a full and exciting 2012 for Apple with expectations of IPhone 5 and IPad 3. Lets hope that they are are up to spec and worth the wait!


Related articles:
- www.heraldsun.com.au: Apple's iPhone 4S preorders may be the 'most successful ever'

Thursday 6 October 2011

September 2011: Portfolio Update.

Another roller coaster of a month for markets but, despite a monthly deterioration, the portfolio has managed to cling onto positive territory for the year to date albeit a minor 1.29%.
The FTSE continues to swing wildly and fell by 4.93% in the month to finish at 5128.48. This mark also continues to be below the 5412.88 that the FTSE recorded on the 31st December 2009.
The first few days of October have once again mocked me as markets have declined on fears of Greek default and another credit crunch as Belgium bank Dexia flirts with collapse, the Eurozones continuing failure to take decisive action on the fate of the Euro, Greece's place in that, and the future level of Greek debt v. Bank liabilities.
The investment compass is totally lost at the moment as every type of investment swings wildly. Shares, bonds, commodities and even gold continue to swing by sizeable percentage points on a daily basis. 
The dollar is currently strengthening as a seeming safe haven?

I do find it very hard to believe that "traders" can seemingly move so quickly in and out of investment classes or even that there is a collective mind behind  a complete sell-off in shares. 
I have never been certain whether this is market maker dealing, automatic triggers by computerised systems, leveraged instruments or a combination. Whatever it is, it isn't rational and is truly scary at times.

As reported in August's update Cisco has gone and has been replaced by General Electric. And, a further investment in Aviva now means that the Portfolio is fully invested. 

I have been feeling my head for bumps since investing further in Aviva but have stated a number of times that I am genuinely trying to change my investing behaviour which means I am trying to view these falls as buying opportunities (see Market Update: Is it time to be greedy?) and I feel Aviva's sell-off is overdone.

It is highly likely that you will not manage to find the bottom of the market, or even of a share price, when investing during these periods though.
Its not much but you can at least be certain that you haven't bought at the top!
It would be comforting and ego massaging to always buy at the bottom and just watch an investment appreciate but this is almost impossible to achieve and this greed (or fear it might fall further), can be the difference in getting hold of what you believe to be a long term winner or missing out.
As markets have shown recently it seems impossible to predict which direction they might go in on a daily basis seeming to react differently on different days to the same commentary. Which leaves the only view that matters as your own and where you think a company or an index will be in the future?
Unfortunately, these buying opportunities (if that is what they are) always seem to coincide with the end of the world being just around the corner!

Anyway back to the portfolio, dividends came in from Invesco Perpetual (re-invested), BP, Microsoft, and Scottish and Southern Energy.
In a change to the table statistics I have started to record a dividend yield for Invesco Perpetual. These are Accumulation units so dividends are re-invested.
When I first invested in them I didn't appreciate that the dividends would still be issued (albeit on paper) before re-investment which means that there is a potential tax liability for high earners if the units are not held within an ISA.
As for how I am measuring the yield I am using the last 2 payments so am showing a historical actual yield for the investment which is different to the consensus forecast that I am using for the remainder of the portfolio.
Along with recent dividend yielding investments it does serve to hike up the portfolio's forecast yield (if held for 12 months) to 4.42%.
Given the current climate I have to add a caveat here though that dividends can be cut!

Elsewhere, Apple at $381 and supported by a strengthening dollar again breached the 100% gain threshold for me but have since wallowed following the disappointment of IPhone 4s being announced but no IPhone 5. 
Following the sad news of Steve Jobs passing I am actually wondering if IPhone 5 has been held back in the knowledge that Jobs illness was reaching its end. Not sure why I think that but it did occur to me. But, it could still be down to problems as rumours suggest.

I'm not about to jump ship on Apple but will, as suggested previously, need to keep a close eye on Jobs legacy.

National Grid continues to be the star of the portfolio during the current chaos (see Boring old National Grid: up 15.73% year to date!) for which I am grateful. 
I don't expect it continue that way should markets start to recover or for it to continue to be immune in any further escalation to the current situation but it has performed very well through this year.
The only other investment worth a mention at this point is Vodaphone which is around 3% up now. 
With a forecast yield of 7% and a p/e of 10.6 times I am looking for between 10 and 15% per annum from Vodaphone as it comes through the other side of its strategic review of minority operations to refocus on growing its revenues.
And, as a bonus there is an additional 2% special dividend to come in January following a payout from its 45% stake in Verizon Wireless (the 2nd largest US wireless carrier). There is still debate about whether this is a resumption of dividends yet but bodes very well for the future and should add significantly to Vodaphones income.

I have also added period end prices to the table.





Forecast 1 month YTD 21 mnth

Price % holding Div. yield % gain % gain % gain
R-R 595.00p 28.13% 2.89% -7.03% -4.49% 23.06%
National Grid 638.50p 20.09% 6.13% 2.82% 15.46% 17.64%
Aviva 305.40p 7.96% 8.84% -8.21% -14.75% -12.76%
Inv. Perp. High Inc. *** 483.92p 7.06% 3.96% 2.20% 2.21% 14.53%
Apple ** $381.18 4.46% 0.00% 3.35% 18.30% 101.91%
BP 388.50p 4.07% 4.51% -3.47% -16.55% -10.75%
IG Group 447.10p 3.39% 4.77% -0.02% -12.33% 48.60%
William Hill 226.20p 3.02% 4.05% 0.22% 32.51% 32.29%
Centrica 297.70p 2.67% 5.13% -0.50% -10.22% -5.74%
Morrisons 290.50p 2.62% 3.70% 0.52% 8.56% 14.81%
BG Group 1241.50p 2.59% 1.18% -6.79% -4.21% 13.89%
Scottish and Southern 1295.00p 2.56% 6.25% -0.38% 5.71% 12.52%
Microsoft ** $24.89 2.35% 2.14% -2.11% -10.76% 3.52%
Vodafone 166.25p 2.30% 6.59% 3.26% 3.17% 3.17%
General Electric ** $15.48 2.31% 3.09% 1.59% 1.59% 1.59%
Tesco 378.00p 2.16% 4.13% -0.16% -5.24% -5.24%
BAE Systems 267.30p 1.91% 6.91% -2.91% -19.00% -16.27%
Cash
0.36% 0.00%











100.00% 4.42%






1 Month YTD 21 Mnth
Virtual Portfolio gain (incl. Divs)

-2.10% 1.29% 28.06%
FTSE gain (excl. Divs)

-4.93% -14.11% -5.25%
- 1 month gain   5394.53 - 5128.48




- YTD gain         5971.01 - 5128.48




- 21 month gain 5412.88 - 5128.48











Transactions:





01/09/2011 Divs Inv Perp @ 11.53p per share


02/09/2011 Buy General Electric @ $15.74 (1.61943)
07/09/2011 Buy Aviva @ 310.42p


13/09/2011 Divs Microsoft @ 8.53p per share


20/09/2011 Divs BP @ 4.32p per share


23/09/2011 Divs SSE @ 52.6p per share


Notes: 





*     US Dividends are adjusted for exchange rate and 15% withholding tax
**   Sterling : Dollar exchange rate = £1: $1.5579 as at 30/09/11

*** Invesco Perpetual Accumulation units (Dividends re-invested). Yield shown is based upon most recent payments.


The performance of the portfolio relative to the FTSE100 continues to be very pleasing. The profile and direction of the 2 indices continue to be similar but the FTSE appears to be much more extreme in its movements on the downside. This probably has a lot to do with hard hit sectors like Banking and Mining which aren't really represented in the portfolio with the exception of Aviva which appears to be similarly affected by the sell-off in financials.

Click to enlarge, back button to return.

Looking forward the key requirement appears to be confidence. Confidence that is, that Governments and Central Banks have the will and the resources to provide a safety net to consumer, corporate, and sovereign debts which, despite the pain of the credit crunch is seemingly immeasureable and still expanding.
I am not sure that satisfying markets and speculators in the short term just because "thats what they want" is the right solution though. At least not without a change in attitudes and expectations which seems to be the biggest failing of the last banking bail-out.

If nothing else it would seem only to serve to make a bigger bonfire for "next" time by putting another sticking plaster over the immeasureable and growing mountain of debt that itself is just a symptom of the real issues of unrealistic expectations, greed, and a dog eat dog attitude with minimal social and corporate responsibility.
All of these "victims" need to take responsibility (rather than rely on the next bail out) and put their own houses in order if real growth is ever going to be achieveable and sustainable again.

For myself, it would be nice to see some sanity and rationale restored.

Related Posts:
- Market Update: Is it time to be greedy?
Market reaction to Bernanke keynote speech is just bizarre! 
- Contagion Flu!

Links to previous Portfolio updates: 
- May 2011: Portfolio Update
- April 2011: Portfolio Update