Tuesday 27 March 2012

Housebuilding sector and the NewBuy scheme.

Having been asked:
"With the goverment backed indemnity mortgages in partnership with all major house builders and few of the high street lenders.....which would be your pick of house building shares?" 

...and not having had a reason to look at house-builders for some time it seemed an opportune time to take a look given the relative buoyancy of house prices despite the credit crunch, lenders' apathy and the governments attempts to kick-start the housing and lending markets.

With the introduction of the NewBuy scheme buyers of new build homes, who might not yet have the required deposit for a current mortgage, could have access to 95% mortgages as long as they can afford the premiums.
"Under the scheme, the builder will put 3.5pc of the purchase price in a shared insurance ‘pot’ and the government will guarantee another 5.5pc."  that will help to reduce the risks to the lender.
Despite the scheme's introduction my initial reaction is that given the factors affecting the macro environment: recession, inflation, and credit squeeze, there is still more than a little faith required to invest in the sector. 
Current valuations only add to that risk.
However, the sector is traditionally very cyclical and geared to recovery and low interest rates but such is the chaotic and seemingly out of synch environment at present low interest rates themselves serve little purpose given the banks own attempt to improve their capital position.

Its therefore quite a surprise to see that the housebuilders on my watchlist all seem to have some kind of healthy recovery priced in with strong forecast earnings growth putting them all onto healthy mid to high teen forecast price to earning ratio's (a surprise to me anyway).

So stepping into the Tardis, the housebuilders still on my watchlist are:- Persimmon, Berkeley, Barratt's, Bellway and Bovis. 
Across them all Profit margins and cash balances seem relatively low. 
Dividend yields are usually good from this sector but are negligible currently reflecting the cashflow concerns for me.
Obviously the right decision to cut dividends to support cashflow in this case but without this prop it begs the question of why the share prices seem so healthily rated.

The other obvious metric is around landbanks and (if I am guessing the category correctly) I have looked at balance sheet "inventories" v sales as an indicator of how much is already in place to protect future growth. Values are subjective but you would hope they are all using a comparable criteria.
Borrowings also warrant looking at particularly if they have overpaid at the height of the last boom and therefore could still be paying for the inventory not being built upon.

Anyway Persimmon looks the weakest here as it has around £2bn of inventory v £1.5bn sales. So if inventory is the land bank it has land in place to cover 1.3 years (not sure of the proportionate cost of land to sales so will assume it is 1:1 but if it was 25% land cost then this would be 5.2 years and so on and so forth).
Barratt's figure is £3.3bn to £2bn, Berkeley is £1.6bn to £742m, Bellway is £1.27bn to £866m and Bovis is £800m to £364m.

Berkeley has the highest gearing of debt to equity at 24% gross but the most amount of cash at £266m which is enough to make the net debt position 0. Bovis is similarly in a net no debt position.
Barratt's at 14% gross gearing and Persimmon at 11.7% aren't in this luxurious position and carry net debt (not enough cash to cover borrowings). 
Bellway is 9.32% with a negligible 1.55% for the net figure.

So thats a plus for Berkeley and Bovis for me particularly when cashflow can be a concern in this industry as so much needs to be paid out upfront before a sale actually brings money in.
But on a general level Persimmon and Barratt's have the higher sales figures so if margins were the same then this would potentially generate a larger profit figure. 
It might seem like pile it high and sell it cheap but is there a quantity over quality factor as well?
On an overall plus for the sector, and despite the already healthy amount of expectation built into the share prices' of these companies, the underlying strength has surprised me, with debt and cashflows seemingly under control, and healthy forward landbanks.

But I would probably go for Berkeley due to it being in the strongest cashflow position but also look at the quality associated with the "brands" being sold and the potential premium that can be realised.  
Taking another view though, this might not be the area that would benefit most from the new scheme's customer demographics e.g pile it high!

Its interesting though and will be interesting to keep an eye on the sector to see if the initiative results in greater volumes during this bumpy recovery or if it just helps to shift "sticking" stock with the insurance premium serving the same purpose as a discount (the builder contributes 3.5% of the purchase price).
Banks and lenders are still key though and have recently been warned again about their capital positions whilst the still new Financial Conduct Authority continues to look for the powers required to enforce this so there might still be a sting in the tail.

Berkeley Group @ 1346p, -6p (-0.44%)
Bellway @ 839p, -20.50p (-2.39%)
Bovis @ 510p, +5p (+0.99%)
Barratt Dev. @ 151.50p, +0.8p (+0.53%)
Persimmon @ 661.5p, -1p (-0.15%)


Related articles:
http://www.telegraph.co.uk: Builders hope for mortgage guarantee boost

Tuesday 20 March 2012

Markets down today: German Car makers hit!

Interesting to see that one of the negative drivers today across European markets is the fall in Automobile manufacturers following China's decision to raise the price of fuel by 6.4% for petrol and 7% for diesel and how this might affect sales of vehicles.

Not the only reason documented though with various aspects of Chinese slowdown also affecting miners.

But looking at Car manufacturers on my watchlist I see that:
- BMW @ Eu68.45, -3.39 (-4.72%)
- Porsche @ Eu45.02, -1.48 (-3.19%)
- VW @ Eu122.95, -5.70 (-4.43%)

I note that Daimler Benz have also been hit along with French manufacturers.

If  our love of cars is anything to go by I'm not sure that this would be anything more than a temporary blip in the long term trend of vehicle demand in China so might yet provide an opportunity to invest.

Article links:

Stock update: Apple resumes dividends for first time since 1995.

Apple @ $601.10, +$15.53 (+2.65%)

Interesting to see the reaction to Apple's announcement that it will resume dividend payouts for the first time since 1995.
It has been much anticipated but combined with a share buyback program amounts to a return to shareholders of around $45bn (£28bn), over the next 3 years. 
This will start sometime in the fourth quarter (July - Sept) with the resumption of a quarterly dividend of $2.65 followed closely by the $10bn share buyback program forecast to start in September.

Interesting for me is that Apple's shares rose on the widely expected news (there isn't too much about Apple that is unexpected these days), despite our often being a little programmed to view paying dividends as a signal that a company has gone ex growth.
This isn't always the case but it is a rare thing to hear a company saying that we have nothing that we want to do with the cash so are returning it to shareholders.
The other factor analysts seem to be focussing on is that by paying a dividend the company is now accessible (under their investment criteria) to many more pension and income funds but, if fund buying was to happen, surely that would only be a short term "technical" boost to the share price.

Anyway, depending on what returns the company makes in the next 3 years this would represent around half of the currently reported cash figure of $98bn. But, underlying that was an annual increase of $38bn which if it can keep that up will see this most liquid of assets continue to grow.

"Apple's largest shareholder, Fidelity Management, will earn $128.8m each quarter from the dividend, based on its holdings as of December 31. Vanguard Group, the second-biggest shareholder, will receive $98.5m and State Street Corp will get make $92m."
Those are handsome quarterly returns and it would be interesting to know what the value of their original investments were and how the quarterly/annual dividend compares to that.

On a slightly more cautious note as reported in the Guardian (http://www.guardian.co.uk: Apple shares cash pile as it launches dividend and share buyback scheme ):

"Apple passed the $500bn mark at the end of February, and Gillis calculates that so far the six other firms to reach that mark have lasted 90 to 180 days above that level."

So between them the issuing of the dividend and the share buyback might actually help to keep the capitalisation from getting too stratospheric. 
It should also be noted that inflation has that sinister way of making seemingly big numbers relatively small after a few years so there will come a time that $500bn no longer seems such a challenge to maintain.

At $2.65 a quarter, the forecast yield for a full year would be 1.76% against the current share price of $601.1.
However, we know that anything could happen to the share price and the dividend with such a fast moving story although you would anticipate that if the company continues to be successful and maintain its margins the dividend payout could have a significant way to go.

Not as enamoured of the share buyback program but as reported in the Daily Mail (http://www.dailymail.co.uk: Apple downloads £63bn for investors with company paying first dividend since 1995)
 "Apple will also start a $10bn buyback of its shares to counter the impact of its employee share schemes which have diluted the stock."

So I can at least see a purpose in it to maintain existing shareholders entitlements.
Not surprisingly Apple has been the only holding in my portfolio not issuing a dividend but has delivered a capital gain of over 210%.
The reinstatement of the dividend is an exciting new chapter for the company and its investors but I wouldn't be looking to buy into Apple on tha back of this.
Instead with the recent launch of the latest Ipad estimated to have achieved sales of 3 million units in 3 days across the 10 countries that it has been launched in, lets hope that overall this success story continues to run and run even with the change in the balance of shareholder returns (capital and dividends).


Related article links:

Earlier posts:

Wednesday 14 March 2012

Barnstorming start to 2012: Portfolio snap.

A barnstorming start to the year for global markets has still not taken more than a gulp for breath which makes it very difficult not to get caught up in the excitement when seeing potential additions starting to move away from the price range at which they initially come onto my radar.
As a result, I find myself needing to take a deep breath and look at the collective performance of my portfolio and content myself that, as at close of play on the 13th March, it is still performing better than the FTSE100 average.


31/12/2011 31/01/2012 29/02/2012 13/03/2012
Merchant Adventurer's Index 1409.55 1439.24 1520.8 1557.61
Monthly gains
2.11% 5.67% 2.42%
Year to date
2.11% 7.89% 10.50%





FTSE 100 5572.28 5681.61 5871.51 5955.91
Monthly gains
1.96% 3.34% 1.44%
Year to date
1.96% 5.37% 6.88%

And, as the MA Index started at 1000 on the 31 Dec 2009 you can see that, at 1557.61 (an all time high until today), it is up 55.76% in just under 27 months with dividends re-invested.
Over the same 27 month period, the FTSE100 has risen just 10.03%, from 5412.88 to 5955.91, excl. dividends.

Click to enlarge, X to return.

It re-inforces my view of the significant contribution that re-invested dividends can make to growing and diversifying a portfolio particularly when the headline index appears to be trading sideways.

Still lots of doubt around to derail the recovery but at the moment markets appear to be shrugging off any cautionary news like China's reducing growth forecasts, and sovereign debt updates.

It has also been a heavy reporting season (particularly in the US) with lots of sectors reporting end of year numbers. And, with most results generally meeting expectations, markets have embraced any "green shoots of recovery" that might have appeared in economic data as if they were beanstalks.

Suffice to say that, against the backdrop of complementary results and economic data, markets have often shown post christmas first quarter rallies (even extending to the mid year in 2011) but without a constant stream of good newsflow or a benign environment then this is difficult to maintain.
Lots going on this year with presidential elections, ongoing sovereign debt concerns, bank's capital liquidity (last night Citigroup was reported as having failed recent US stress tests), slowing growth in China, Iran etc. 
Most of which, along with quantitive easing, will be concerns for many years to come.

So any new investments need to be very selective to ensure that they are not over bought in the rally that may be "floating all boats" but it is a nice feeling to be part of it so I will enjoy it while it lasts and take some comfort that we might actually be starting a recovery. 

Earlier posts:

Monday 12 March 2012

Stock update: Apple and Ipad 3.

Apple @ $545.17, +$3.18 (+0.59%).

OK so thats quite a milestone for me and my investment in Apple particularly as my entry point was chosen to be ahead of the big Apple announcement in early 2010 which ultimately turned out to be the first Ipad. 
The Ipad and the Tablet computer market have come along way since that first announcement and the big "whats that then?" from the underwhelmed media.
Now 2 years on, the third iteration of the eponympous, genre defining, tablet computer has just been announced but where does that leave Apple with rivals at every turn.
Well I think that although not yet an envelope busting spec this latest model does represent a strategic milestone for the Ipad range.
As, although most rival tablets have failed to make the grade, the major danger (Samsung aside) has come from Amazon's Kindle Fire which, despite being a much more basic, stripped down media device, has brought a product that seriously undercuts Apple's pricing strategy.

However, Ipad 3 (I will refer to it as that even though Apple has chosen to call it the new Ipad), enables Apple to begin to push its price/product range downwards into their competitors' pricing strategy with the introduction of a new price for Ipad 2 which makes the question of the Apple experience v. the rest an even tougher one.
This has proven a huge success with the Iphone where in the last quarter (incl. Christmas) the top 3 best selling smartphones in the US were: 1) Iphone 4S; 2) Iphone 4; 3) Iphone 3GS; which means that the 3GS outsold such rivals as the Samsung Galaxy SII and HTC's army.

Back to the spec. the retina display and the new A5X chip will further enhance the polished and slick feel to the Ipad experience but the 4G compatibility will not benefit those countries (like the UK) which have not yet advanced onto such modern networks. 
However, the majority will continue to be used on various wireless networks so still enabling the new hardware to show itself off.

4G does give a glimpse of a fully enabled mobile future though.

Currently, at $545, Apple shares are on a forecast price to earnings of just 12.8 times but the caveat here is that this does require Apple to deliver a 54% increase in profits but the comparables are getting tougher against 2011 pre-tax profits of $34.2bn and sales of $108bn.
On the plus side there is:
- still that $100bn cash pile which arguably accounts for 20% of the company's $500bn capitalisation. 
- Ipad 3
- Iphone 5??
- Itv?? Yes that could be actual Apple tv, although I presume the Itv name is already taken by ITV in the UK!

So, despite the caveat, there is still lots to be excited about in Apple and the fast developing integrated mobile future that appears to be upon us.

Related articles:

Earlier posts:

Tuesday 6 March 2012

Admiral Insurance: 2011 full year results tomorrow

Admiral @ 1017p, -27p (-2.59%).

I have been very tempted in the past to invest in Admiral.
Again after their last couple of disappointing quarterly trading statements, and more recently following Credit Suisse's upgrade to outperform (http://www.sharecast.com: Broker snap: Credit Suisse upgrades Admiral to outperform) ahead of tomorrow's final results.
But, with the share price having appreciated already from their recent lows it looks too much of a gamble given the 50/50 chance of the results being well received or not.
Historically the company seems well run and the 2 founder/directors retain large stakes in the company so seem well motivated by the healthy dividend.
It has good cashflow which at 79.04p per share exceeds earnings per share (as you would expect from an upfront premium business) but has seen its premium prospect rating tarnished somewhat by a proposed investigation of referral fees and, in the last 2 quarterly statements, a worsening trend in personal injury claims which is hugely ironic given that we all seem to be paying for that trend.
So although the company has continued to increase cash balances (2010: £246.70m) there is this perceived threat to future profitability as margins on premiums are eroded.
This seems to be what the company refers to as reserve releases which have been reducing as its loss ratio increases.
My interpretation (rightly or wrongly) would be that an estimated margin on premiums received is placed in reserve (against claims) and then adjusted prior to a proportion being released into profits. The adjustment being for the loss ratio on claims which is the actual cost to the company of accident losses.

"...the reported loss ratio for H1 2011 was
76% v 66% in H1 2010. The UK market loss ratio for the 2010 accident year (the most recent
data available) was 92%. Our loss ratios remain significantly lower than the market."


So the loss ratio could still be below the markets 92% (I assume that's an average) but having increased by 10% already might well worsen further and closer to the average.

Picking the following from the interim statement;

"Outlook
... However, consistent with the trend reported in H1 2011, the frequency and expected cost of new large personal injury claims has remained above historical levels of experience. This leads us currently to expect some adverse development at the full year on the projected ultimate loss ratios for 2010 and 2011 which would affect both overall reserve movements and recognised profit commission.
If there is no reversal in Q4 of this higher than normal level of large claims, we anticipate that full year pre-tax profits will be towards the lower end of the range of analysts’ estimates, or some 10% ahead of 2010, with no further reserve releases in the second half."

So although 10% would still represent record results and be in the range of suggested expectations by the company I think it more important for the company to demonstrate that the trend in personal injury claims once again falls back to historical levels.
Anything else would obviously be a concern on a number of levels as the company would then need to find a means of increasing premiums to restore its profitability. 
This might be difficult in the short term, makes the company less competitive with its rivals and suggests a worsening trend to us all as motor insurance customers.

Can't find enough clues (other than the Credit Suisse comments) to suggest that the company might be ready to report that this trend has been brought under control.

"The key focus of the result will be on bodily injury, where the content and tone of management commentary may cause volatility (in both directions)," analysts said (Sharecast).

I read that as hedging their bets then.
If it doesn't report positively then the shares could well fall back again until the industry's collective premiums catch up with increasing liabilities.
It could well be that after having been trading for x number of years and achieved the level of growth in client numbers that it has. It now has an underlying level of risk expense from its targeted demographic that it hadn't fully envisaged and must now absorb.

So despite the prospect of a chunky dividend, I find myself still not ready to invest in Admiral until the picture becomes clearer.
I might miss the boat again but don't feel I am lucky enough to take on the 50/50 chance of a painful short term hit.

Related links:
- http://www.admiralgroup.co.uk/pdf/annualreports/2011_interim_statement_nov.pdf

Wed 7 March FTSE100 dividend impact.

Interesting to understand the potential impact (or not) that ex dividends can have on the FTSE (or a.n.other index), as estimated by Reuters (http://www.reuters.com: Ex-divs to take 11 points off FTSE 100 on Weds March 7).
 
Mon Mar 5, 2012 6:24am EST

LONDON March 5 (Reuters) - The following FTSE 100 companies
will go ex-dividend on Wednesday, after which investors will no
longer qualify for the latest dividend payout. 
    According to Reuters calculations at current market prices, 
the effect would be to take 11.01 points off the index.       
     
 COMPANY          (RIC)            DIVIDEND         INDEX IMPACT
                                   (pence)           (points)   
 Ashmore Group                       4.25             0.06
 BAT                                88.40             6.72
 CRH                                00.44 euros       1.00 
 Serco                               5.90             0.11
 Shire                               7.96             0.17
 Standard                           51.25 cents       2.95
 Chartered"
 


Just focussing on the largest impact:

BAT's @ 3201p has a market capitalisation of £63.161bn which makes it the 6th largest company in the FTSE100 which represents a weighting of 3.81% of the index's total capitalisation of £1655.788bn.
BAT's final dividend of 88.4p represents 2.76% of BAT's share price (in theory the share price based upon market capitalisation will reduce by the return of capital ie the dividend). 2.76% of BAT's FTSE100 weighting of 3.81% is 0.105%.
So thats a potential impact on the index of 0.105%. 
So to test that, applying 0.105% to yesterday's close of 5874.82 = 6.16 points.
Close enough then (it is a moving picture after all).

Standard Chartered @ 1584.75p has a market capitalisation of £38.752bn which makes it the 12th largest capitalisation on the FTSE100 with a weighting of 2.34%.

The action of returning capital via dividends and the ex.div adjustment to the share price is mechanical so it is useful to understand what impact the ex.dividend adjustment from a number of high yielding large capitalisation companies has on an index. 
Particularly as this is often lost when additional market and company factors and emotions come into play to drive a share price's direction.
  
Its something I have referred to before (FTSE 100 falls and ex. dividend impacts ) and, in reality, is the FTSE's yield.
I also see that the last time I wrote about it just 2 companies: Royal Dutch Shell and BP, accounted for a 17 point impact on the FTSE100.
As it stands today these 2 companies represent around 14.43% of the FTSE100 so it is easy to see why they have such an effect.
And taking that a step further, if we estimate that holding the FTSE100 yields 3.17% (iShares FTSE100 ETF est. distribution yield), then 5874.82 multiplied by 3.17% means that the FTSE 100 should lose an estimated 186.23 points to ex. dividends across a 12 month period.
Interesting.

Article links:

Previous posts:
- FTSE 100 falls and ex. dividend impacts

 

Monday 5 March 2012

My end of year tax planning.

Having been asked by Ritsut: " what if any provisions you make for new tax year approaching?",

I have to say that most of my planning is a continuation of previous years in that I use a self select Isa for most of my dealings and this covers the majority of my published portfolio sheltering gains from CGT and dividends from any further tax liability.
For those holdings outside of this shelter, I occasionally top slice them in order to put the funds towards my Isa allowances. 
If I am lucky then topslicing these would utilise the Capital Gains annual exemption amount of £10680 (2011-12) but I don't specifically set out to do this.
£10,680 being the amount of exempt profitable gain realised (net of applicable expenses), not the total funds received from a sale (original investment plus profits/loss).

In previous years I have also sought to maintain a roughly equal split between cash and equities so I have also used:
- cash Isa's and
- NS & I Index linked saving certificates to mop up spare savings

These instruments are tax free shelters but the events of recent years has seen the cash Isa marginalised with derisory and wealth robbing interest rates whilst Index linked savings certs have made only a partial comeback following their postponement when the attractiveness of products on offer from the increasingly risk laden savings industry created an imbalanced demand for the National Savings products which are 100% government backed and, at the time, offered superior returns which led to savings being withdrawn from banks and put into National Savings.

Although it serves as a useful reminder to people to use their allowances, I rarely see anything appealing in the investment industry's year-end fire sale, particularly when investing large amounts in April/May is possibly not the most advantageous time to invest and actually goes against much of the industry's advised "pound cost averaging" methodology. 
This drip feeding of amounts into the market averages the purchase price of unit/share prices so whilst not always benefitting from market lows (if you knew when they took place of course), you would at least mitigate the risk of buying when the market/units/share price peaks.

So I actually prefer to undertake my tax planning at the beginning of the year which gives me a little more time to make a more informed decision and also to "drip feed" savings or investments in smaller amounts. 
It also gives me time to transfer existing products as necessary.
That just leaves me with a mopping up exercise at this time of year (if I have anything left of course).

The quandary I continue to have is whether or not I should be transferring some of my cash Isa's into equities and the pros and cons of  doing this. 
It is certainly a deviation from my efforts to maintain a 50-50 balance but does the additional risk of being overweight on equities (values can go down as well as up) outweigh the risk of holding an investment in cash that, although it can be tax free, is certain to lose value against inflation due to the current and foreseeable interest rates which themselves give very little advantage over non-Isa rates?
So whilst the Bank of England and the savings industry are intent on exploiting savers perhaps there is very little to recommend in a "tax free" shelter neutered by a miniscule return.
As ever the greatest risk is in doing nothing.


2011-12:
- Dividends are taxed at:
   - 10% notional for basic rate tax payers as they are paid with a 10% tax credit
   - 32.5% for 40% rate band taxpayers (22.5% payable net of 10% tax credit)
   - 42.5% for 50% rate band taxpayers (32.5% payable net of 10% tax credit)
- ISA Limits:
   - £10680 for equity investments "inclusive" of;
   - £5,340 Cash Isa maximum investment.
- Capital Gains Tax:
   - £10,680 annual exemption limit for individuals.
   - Rates to apply in excess of the annual exemption amount for individuals:
      - 18% for Standard rate taxpayers
      - 28% for Trustees/higher rate tax payers

These are other rates and limits for  Enterprise Investment Schemes, Venture Capital Trusts etc that I haven't discussed here.

Related posts:
- Budget Musings / NS&I Index linked savings

Sunday 4 March 2012

Could BP be about to gush!

BP @ 496.50p, +.10p (+0.02%)

BP looks to have taken another positive step towards addressing the uncertainty around the shares, and the company's prospects, with a new $8bn (£5bn) settlement with more than 100,000 victims of the Gulf of Mexico oil disaster.
The out of court settlement had seemed to be a bit of an on - off affair with the postponement of the case's New Orleans Court Hearing, by Judge Carl Barbier, to give all parties the opportunity to build on progress that had been made.
However, this looked to have failed last week so it is a surprising development to read in this morning's Mail on Sunday that a settlement had been reached.
The agreement still requires approval by the New Orleans court but could enable BP to now focus on reaching an agreement with its partners, the US Government, and other states that suffered in the aftermath of the disaster.

But, as I began this post, it is still positive news for the company and will hopefully be seen as a progress whilst addressing some of the uncertainty about the company's prospects, particularly as this action, with some 100,000 claimants, was viewed as the most complicated and expected to run for 2 years or more.

If BP can close the PE rating gap with Royal Dutch Shell this would add 68p to the current price bringing it up to 564.50p but at this level the dividend yield would be just 3.54% compared to RDSB's 4.7%.
So I would expect RDSB to maintain some form of premium over BP on the basis of the better yield and better visibility of the company's earnings whilst BP continues to have legal and strategic uncertainty surrounding it.
The opportunity continues to be there for BP though, if it can resolve these concerns and ratchet up the dividend to previous levels.
But, lets see how markets judge the company's progress when they open again tomorrow.

Related article links:

Previous Posts:
- BP ex. Dividend today.

Thursday 1 March 2012

February 2012: Portfolio Update.

Wow, that's been an exciting barnstorming start to the year. 
January's momentum has continued into February (and seemingly the first day of March) enabling the FTSE100 to put on 3.34% after Greece renegotiated its credit agreements and secured approval from the EU/IMF/ECB Troika for another tranche of bailout funds which together enabled the country to avoid default.

Its been a busy reporting season but the good feeling has also been extended to my portfolio with Rolls-Royce and Apple leading the charge with gains of 10.67% and 16.92% respectively. 
Rolls-Royce powered on after achieving in excess of £1bn of profits for the first time (Rolls-Royce Powers through the £1bn Profits barrier for the first time. ) and Apple's good feeling was extended following its own record busting numbers reported in January (Apple blows away Q1 Forecasts with Record Quarterly Sales and Profits).
Recent speculation and anticipation of iPad3, brought on by an Apple announcement, also helped.

This contribution enabled the portfolio to put on 5.67% in the month and 7.89% in the year to date. 
Dividends were also received from Vodaphone, IG Group, and Invesco Perpetual.

Disappointments in February have been confined to IG Group, and William Hill, with the former seeming to have lagged the rest of the portfolio in 2012 despite good results.
It would seem that doubts remain over the company's future growth and profitability despite its track record and market position, with fears that "becalmed" markets may subdue client activity (volatility seems to aid client activity), fears over the introduction of a tax on financial transactions, and recent broker downgrades to hold from buy. 
Citi in particular have a track record of downgrading the shares prior to them extending their gains. Long may that continue!
For William Hill, following recent internal management issues (William Hill "back online".), it has been a decent bounce back in the run-up to a decent looking set of results.
So it is a little disappointing that, post results, it has lost some of those gains but that seems to be a common market theme at the moment which I am putting down to profit taking into the markets current rally.


Merchant Adventurer's Index







Forecast 1 month YTD 26 mnth

Price % holding Div. yield % gain  % gain % gain
R-R 814.00p 32.40% 2.38% 10.67% 9.04% 68.36%
National Grid 641.50p 17.00% 6.12% 1.50% 2.64% 18.19%
Aviva 368.30p 8.08% 7.26% 5.41% 22.44% 5.20%
Inv Perp. High Inc. *** 530.18p 6.52% 3.75% 3.00% 3.20% 25.48%
BP 492.40p 4.34% 4.06% 4.58% 6.93% 13.12%
Apple ** $542.44 5.23% 0.00% 16.92% 30.59% 180.89%
IG Group 442.40p 2.82% 5.03% -6.61% -7.23% 47.04%
Morrisons 290.00p 2.20% 3.71% 1.40% -11.10% 14.61%
BG Group 1517.50p 2.67% 1.08% 6.49% 10.24% 39.21%
William Hill 224.50p 2.52% 4.17% -0.09% 10.70% 31.30%
General Electric ** $19.05 2.34% 2.64% 0.18% 3.71% 22.22%
Microsoft ** $31.74 2.47% 2.05% 5.75% 19.21% 29.05%
Centrica 304.00p 2.30% 5.02% 3.61% 5.08% -3.74%
SSE 1290.00p 2.14% 6.17% 5.48% -0.08% 12.08%
Vodafone 169.35p 1.98% 7.59% -0.85% -5.34% 5.10%
Tesco 316.10p 1.52% 4.79% -1.10% -21.65% -20.76%
BAE Systems 312.70p 1.88% 5.99% 1.59% 9.68% -2.05%
Cash
1.60% 0.00%











100.00% 3.86%






1 Month YTD 26 Mnth
Virtual Portfolio gain (incl. Divs)

5.67% 7.89% 52.08%
FTSE gain (excl. Divs)

3.34% 5.37% 8.47%
- 1 month gain   5681.61 - 5871.51         



- YTD gain         5572.28 - 5871.51




- 26 month gain 5412.88 - 5871.51











Transactions:





03/02/2012 Div Vodaphone @ 3.05p per share


03/02/2012 Div (Sp) Vodaphone @ 4p per share


28/02/2012 Div IG Group @ 5.75p per share


28/02/2012 Div Invesco Perp @ 8.36p per share









Notes: 





*     US Dividends are adjusted for exchange rate and 15% withholding tax
**   Sterling : Dollar exchange rate = £1: $1.594 as at 29/02/12

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

Visually the performance to date is shown in the chart below with my chosen benchmark, the FTSE100, registering 3.34% in the month and 5.37% year to date (excl. dividends).
And, as mentioned already, my portfolio's index, with dividends re-invested, has shown a February gain of 5.67% and 7.89% year to date.


Click to enlarge back/close to return

Not sure how long this momentum will continue though, or when markets will next hit a speed-bump to jar the recovery but it seems clear that contagion fears will continue until the EU gets enough firepower together to give markets confidence that it can withstand most foreseeable shocks, and, more importantly, really wants to.
The heavy demand seen in the ECB's 2nd emergency loan auction to the banking industry also suggests that liquidity continues to be a threat to the system and, as demonstrated by recent banking results, there is probably still a level of debt risk contained within bank balance sheets.
If debts have not yet been fully disclosed, this raises an uncomfortable question for me as to the motives of individual banks: Are debts being managed with the possibility of recovery or are they merely being drip fed into annual results to facilitate bonus schemes.
It does make it really difficult to trust the integrity of the banks management when the scars of the credit crunch are still raw.

Slowing Chinese growth and any doubts (and there will be some) over a US recovery might also give markets pause.
I'm also assuming that there is still no-one with a full understanding of the possible long term effects from quantitative easing and how much damage may have been inflicted upon long term savings and pensions.

Markets don't rise without pause and confidence is often fragile when tested making it capable of swinging wildly with little justification.
But that can also be when opportunities present themselves.


Links to Portfolio updates:
January 2012: Portfolio update.
December 2011: Portfolio Update. 
- Portfolio Updates.