The EU continues to be mired in infighting and paralysis by bureaucracy whilst seemingly unable to grasp the full scale and danger of the situation around them which itself seems to deteriorate on a daily basis.
Across the pond the US also demonstrated that internal politics and self interest are still significant hurdles to overcome before they can move beyond the impasse in their own budget deficit reduction discussions.
However, Central Banks appear to have temporarily heartened markets yesterday with moves to improve dollar liquidity amidst fears of a new credit crunch. I re-iterate temporarily!
Back in my portfolio there weren't too many noteworthy performances during November with most either shooting themselves in the foot (step forward William Hill and their internal coup), or being dragged down with markets generally.
IG completed their recent journey of guidance upgrades with a trading statement yesterday confirming that, due to market volatility, revenues this year will be in the region of £193m representing a year on year increase of 23%.
R-R bounced around but finished the month more positively following new orders and further actions intended to manage risk in their pension funds.
National Grid also managed to finish the month on a positive note despite going ex-dividend to the tune of 13.93p but this months highest riser was Morrisons with a monthly increase of 6.55% following broker upgrades.
As mentioned the biggest boost in November came as recently as yesterday afternoon with the surprising intervention by a group of the world's central banks which was seen as a statement of intent and kick-started markets significantly although it wasn't enough to give the FTSE100 a positive month as it finished down 0.7%, at 5505.42.
More encouragingly my portfolio (measured by the Merchant Adventurer's Index) did finish up on the month, by 0.55%, with dividend contributions coming from Morrisons; Centrica; Aviva and BAe.
Year to date the MA Index is showing a gain (with all dividends retained) of 9.75% whilst the FTSE100 is still down by 7.8% excl. dividends.
| Merchant Adventurer's Index | |||||||||||||||
| Forecast | 1 month | YTD | 23 mnth | ||||||||||||
| Price | % holding | Div. yield | % gain | % gain | % gain | ||||||||||
| R-R | 729.00p | 31.81% | 2.39% | 3.77% | 17.01% | 50.78% | |||||||||
| National Grid | 624.50p | 18.14% | 6.29% | 1.13% | 12.93% | 15.06% | |||||||||
| Aviva | 311.70p | 7.49% | 8.62% | -8.54% | -13.00% | -10.96% | |||||||||
| Inv. Perp. High Inc. *** | 492.41p | 6.63% | 3.90% | -3.09% | 4.01% | 16.54% | |||||||||
| BP | 460.75p | 4.45% | 3.85% | -0.05% | -1.03% | 5.85% | |||||||||
| Apple ** | $382.20 | 4.10% | 0.00% | -3.59% | 17.71% | 100.90% | |||||||||
| IG Group | 481.80p | 3.37% | 4.51% | 3.37% | -5.53% | 60.14% | |||||||||
| Morrisons | 322.00p | 2.68% | 3.35% | 6.55% | 20.33% | 27.26% | |||||||||
| BG Group | 1358.50p | 2.62% | 1.10% | 0.15% | 4.82% | 24.63% | |||||||||
| Centrica | 301.80p | 2.50% | 5.05% | 1.72% | -8.99% | -4.44% | |||||||||
| William Hill | 202.10p | 2.49% | 4.68% | -6.44% | 18.39% | 18.19% | |||||||||
| SSE | 1315.00p | 2.39% | 6.07% | -2.16% | 7.35% | 14.26% | |||||||||
| Microsoft ** | $25.58 | 2.21% | 2.54% | -3.15% | -8.98% | 5.57% | |||||||||
| Vodafone | 172.20p | 2.20% | 7.46% | -0.38% | 6.87% | 6.87% | |||||||||
| General Electric ** | $15.91 | 2.18% | 3.08% | -5.79% | 3.62% | 3.62% | |||||||||
| Tesco | 405.20p | 2.14% | 3.83% | 0.86% | 1.57% | 1.57% | |||||||||
| BAE Systems | 273.70p | 1.80% | 6.80% | -1.05% | -17.06% | -14.27% | |||||||||
| Cash | 0.81% | 0.00% | |||||||||||||
| 100.00% | 4.13% | ||||||||||||||
| 1 Month | YTD | 23 Mnth | |||||||||||||
| Virtual Portfolio gain (incl. Divs) | 0.55% | 9.75% | 38.75% | ||||||||||||
| FTSE gain (excl. Dividends) | -0.70% | -7.80% | 1.71% | ||||||||||||
| - 1 month gain 5544.22 - 5505.42 | |||||||||||||||
| - YTD gain 5971.01 - 5505.42 | |||||||||||||||
| - 23 month gain 5412.88 - 5505.42 | |||||||||||||||
| Transactions: | |||||||||||||||
| 07/11/2011 | Divs | Morrisons @ 3.17p per share | |||||||||||||
| 16/11/2011 | Divs | Centrica @ 4.29p per share | |||||||||||||
| 17/11/2011 | Divs | Aviva @ 10p per share | |||||||||||||
| 30/11/2011 | Divs | BAE @ 7.5p per share | |||||||||||||
| Notes: | |||||||||||||||
| * US Dividends are adjusted for exchange rate and 15% withholding tax | |||||||||||||||
| ** Sterling : Dollar exchange rate = £1: $1.5699 as at 30/11/11 | |||||||||||||||
| *** Invesco Perpetual Accumulation units (Dividends re-invested). Yield shown is based upon most recent payments. | |||||||||||||||
Visually the chart continues to illustrate a strong profile similarity between my portfolio and the FTSE100 but interestingly the very marginal month on month difference seems to have been enough for the portfolio to outperform the main index in the current environment.
 |
| Click to enlarge, back to return. |
As at the end of November the cumulative YTD difference (with my portfolio up 9.75% and the FTSE100 down by -7.8%) is a widening 17.55% (9.75 minus -7.8%).
Over 23 months the gap is now 37.04%.
I am really encouraged by the portfolio's performance, particularly given the extreme economic backdrop of this year.
But, whilst we continue to contemplate (with a tangible fear) what seemed unimaginable just a few years ago it is impossible to be comfortable and I continue to be very wary going forward.
Nightmares such as credit crunches, bank runs and major banking failures, state bankruptcy, failure of the Euro, and a break-up of the EU, have either happened or continue to be a highly possible risk.
Looking ahead, on a domestic front, December and January already look set to bring a seasonal chill to a dismal year in the form of high street losers with many retailers already raising concerns given an unseasonably mild start to the winter.
Whilst internationally and domestically, there is also still the debt and credit crunch hangover to resolve before confidence and an element of stability will return to stock markets.
But, given we are now entering December I am still hopeful for a profitable year overall.
- May 2011: Portfolio Update
- April 2011: Portfolio Update
Hi MA
ReplyDeleteOne thing that I did wonder about this portfolio is that if anything happens to RR. or NG. to depress their prices then it would impact badly upon the portfolio. You must have a lot of faith in RR.
Regards
Fenchurch
Hi Fenchurch,
ReplyDeleteagreed there is a real risk.
In the case of R-R it is something I have been aware of for sometime and have many discussions about.
Painfully, I have also experienced it, during the credit crunch when R-R fell to 230ish and the holding was greater than it is today. I was very close to selling the lot but, fortunately, held onto my nerve until the shares recovered to 600plus.
I do like the long term horizons of Aerospace both in its investment decisions and returns. The company has a £60bn order book covering 5 years work and can expect returns for 20 years and more on a succesful engine.
The move to maintenance contracts has also helped to add visibility to future earnings.
R&D is often shared with investment coming upfront from "supply chain" partners.
The company has a net cash position.
It is number 2 in a 3 company market with significant barriers to entry:- technology; capability; and finances.
There are companies and countries that are forging niches but these 3 are currently the only ones capable of designing an engine and taking it from the drawing board to a commercial product "trusted" to fly.
There are some historical reasons for the holding and, as mentioned earlier, I have taken steps to reduce it and/or its weighting hence my increased investment tranches in other holdings (NG; Aviva; BP) as opportunities arose.
But, fair to say it has also appreciated faster than I can actively rebalance.
NG in particular was an opportunity which I took ahead of the last rights issue calculating that the dividend would largely cover any dilution discount to my existing small holding.
All things being equal if NG can grow its dividend by 4.5% and its share price by 4.5% (my speculation) per annum then it will have generated a 100% return for me by 2016 and then be generating 7.5% in divdends against my original investment.
NG is also still a monopoly (held back by its US investments) and there seems little chance of a competitor ever getting the finances, regulatory approvals and planning permissions in place to build a rival infrastructure.
The percieved longevity of each company does help me sleep at night but, as you rightly point out, the main risk is the weighting of each holding.
On a sliding scale R-R is equal to the next 3 biggest holdings as is NG so there is risk mitigation of sorts there I just need other holdings to appreciate rather than see these 2 depreciate.
It therefore raises the question in my mind whether I should be looking at new investments (17 already) or topping up existing ones?
Best Regards
Hi MA
ReplyDeleteThese last years I have spent quite a lot of time mentally debating portfolio strategies. I do not find it easy , I think that you know what I mean. Personally I feel happier holding shares that are on their lower long term trendline. Where they are inexpensive compared to their history. Many of the defensive shares (DGE , RB. , ABF , ULVR etc) this is easy to see. But others have a more tortured history. RR. I see as being high compared to its history whereas NG. I see as low. I dont think that there are many real rules in this game but that would be my concern.
And Happy Birthday !
Fenchurch
Hi Fenchurch,
ReplyDeletethanks for the Birthday greetings.
I do know what you mean and have certainly gone through my own soul searching this last few years.
Funnily enough I am also in the midst of a debate with a friend now re. identifying shares on/below the lower trendline that you refer to, as a starting point to finding some form of value or providing a base for the share price.
They are fair comments that you make and I wouldn't disagree with your views on R-R or NG but would ask at what point does the trendline catch up should a company change in some way.
If nothing else it once again raises the uncomfortable question of when to sell and what the trigger should be.
In different ways I am trying to view both as long term holdings so if the price "froths" above the long term trend is it significant enough for me to sell. If I sold, it is likely that I would want to get back in lower but then run the risk of missing out waiting for the price to make it worthwhile to justify the dealing charges and a profit.
But I also appreciate the current environment where cash could be a safe haven!
At one time I would have sold if a share price "frothed" above my 1 year projection of a trendline and then bought again once it pulled back but my present thinking is to find and hold companies with what I see as sustainable cashflow and dividend growth with the latter providing a partial cushion against short term volatility.
So I guess that the question here (for R-R at least) is whether the speculated growth is achievable versus its currently high valuation given the current environment. If it is then the lagging trendline will start to follow.
Fingers crossed!
Best regards
Hi MA
ReplyDeleteI am in favour of buying a share when its at a historic low for itself. I recall that Anthony Bolton was keen on using charts to verify his beliefs about a share. As I see it about half of the game is the fundamentals (the value) and about half of the game is what everybody else is saying with their money (the beauty parade). The beauty parade is a bit more fickle.
Are you using a moving average to generate the trendlines or doing it by eye ?
The question of whether to sell if it froths also interests me greatly too. Historically I usually sell a share too soon. I often lose the decent big gains that significantly offset ones inevitable failures. I am trying to be a bit more relaxed about some holdings and currently I trying to see a bigger picture in a shares history. But sometimes it is difficult to reconcile this with ones cynical thoughts on the buy side.
I see what you mean about RR. I don’t follow it but it indeed has a high valuation.
I am now getting back to normal after Xmas , I hope that you had a good one. Looking at the markets in the UK I am currently unwilling to buy some of the attractive shares as I suspect my current holdings are sufficient for my conviction about these markets.
Regards
Fenchurch
Hi Fenchurch,
Deleteand a Happy New Year to you!
Of late it has been by eye as the last few years have tested by enthusiasm for a daily record of my portfolio on spreadsheets (although there are plenty of portfolio tools now).
Previously my friend and I used to set 1 year targets around "certain" shares such as NG based upon earnings (and a long time since, Norwich Union) that we could see in the earnings forecasts. We would then set control limits for the trading range. If it "frothed" above this range then that would be a sell until it came back below the moving average. Seemed to me a way to take advantage of the overbought side of things (and a way for him to test my predictions).
I agree with you on the fundamentals and beauty parade ratio. It took me a long time to recognise the complementary strengths of charting as a means of trying to map/predict the pattern and behaviour of investors and their subsequent impact on the share price should the herd dictate.
Historically, I also tend to have benchmark P/E's and dividend yields in mind for a sector, which I see as an average, but with the past few years many of these companies/sectors are trading below this P/E and above that yield.
This might seem at odds with any recently established lower trendline but, along with the yield, helps me stick with a share before the beauty parade makes its mind up.
So as long as other fundamentals support the yield: cash, cover,gearing,cashflow etc then my view is that the traditional long term P/E and yield will re-establish itself, with individual shares then setting their own premium's and discounts around that average.
It still looks like being a long way back so the dividend is likely to provide most of the returns/protection during this time.
But I think we might also look back on these last few years as a rare opportunity to build a high yield portfolio (v. original investment) based upon traditionally solid companies.
Almost an antiquated model really.
Markets do seem to have got ahead of themselves somewhat given the continuing focus on sticking plasters (Greece etc), which might mean another painfully drawn out summer of discontent. But, what is your conviction about the markets and what the climate might look like in 12 months time?
Best regards
MA
Hi MA
ReplyDeleteI feel as usual that things are poised. I see things rising but I just doubt that it will rise a lot (one can be wrong & must be prepared for that) I expect a crack and there should be some more compelling value about. Markets do eventually rise and will eventually leave 6000 for 10000. Its been some years of sideways movement so eventually it must rise. 12 months I could not say but my sort of notional base to the ftse 100 is about 4500 now.
I guess that we will see.
Fenchurch
Hi Fenchurch,
ReplyDeleteit is an interesting, irrational time and the current rise seems more folly than fundamentals which seem to be faltering against expectations.
I am trying not to be too pessimistic but have for sometime been trying to get my head around a view that my portfolio could easily lose 20 - 30%, and if I should be more focussed on that kind of discounted valuation.
But what would such a fall mean to me? Of course the paper valuation would be hit but if, in the long term, this is just a dip or correction, should it matter. There would be an emotional impact but can I continue to still have faith in companies and thereby control this emotion. On this barometer then, I am trying to swing over from the emotional to the opportunistic with the view that if markets seem to trade sideways then companies do also, except for anyone buying in on these dips who can then look forward to a reversal of the correction.
4500 could be a big call and in line with the last 2 years
http://adventuresinequities.blogspot.com/2011/08/hp-bids-7bn-for-autonomy-another-bid-at.html
I am prepared, I think, for a 1000 point correction. If it is not Greek led then it will be something else.
Can I ask what your feelings would be if the market did come back to 4500. Are you able to invest (as I would like to be) with a clear view of 6000 again (eventually).
My other moment of clarity is the dividend as, following years of sideways trading by the FTSE the only other real return is the dividend.
Best regards
MA