Sunday, 3 June 2012

May 2012: Portfolio Update.

Gathering storm clouds over Europe saw the FTSE100 fall -7.51% in May as it followed global markets down indiscriminately. 
The "relative" safe haven status that pushed sterling up to Eu 1.24: £1 failed to provide support to the FTSE100 given the potential impact on exports amid fears that Europe will descend into significant chaos with a queue to exit the Euro.
Further knocks came in the form of weak jobs data that shredded nerves and confidence in the strength of the US recovery. 

Closer to home my portfolio fell -2.76% despite a healthy dividend from Aviva. 
There were also few gainers in the month and none particularly notable although, for purely technical reasons, National Grid going ex-dividend reversed a 2.5% gain in the month into a -2.3% fall as the dividend entitlement was taken off the share price.

Following the bad news driven pullback in commodity prices and Euro concerns the dollar has also strengthened from recent lows of $1.62 against sterling to May's closing rate of $1.54 to the pound. In turn this has yielded a small benefit to my portfolio's  US holdings.

Other noteworthy announcements came from:
- General Electric where GE Capital has been given the go-ahead to resume paying dividends to its parent.
- BP which took an -11.26% hit in the month as oil prices deflated along with global growth forecasts and a perceived glut in US reserves. 
The company, ever surrounded by controversy these days, also seems to have encountered further turbulence in its TNK/BP joint venture with the resignation of the venture's CEO. 
In turn the company has announced that, having received overtures, it is seeking a buyer for its 50% share which is valued in the region of $30bn. 
This announcement coming on Friday 1 June actually saw a small rise in the shares against the market.
- Aviva which took a -15.12% walloping in the month and now seems to be the portfolio's riskiest holding. 
The resignation of CEO, Andrew Moss, following the failed AGM vote on executive pay has seen the incoming Chairman, John Mcfarlane, taking on the company's executive role until a new CEO is appointed. 
But following this interruption to the strategy, the interim executive's coded statement on accelerating the restoration of capital strength has been taken as a signal that the dividend could be cut, although rumours persist around the future of the company's US investment given the capital requirements.

Looking to the usual performance table I have made some adjustments with the addition of a 17 month gain column which has a 1 December 2010 starting base.

Merchant Adventurer's Index
Forecast1 monthYTD17 mth
Price% holdingDiv. yield% gain% gain% gain
National Grid650.00p17.65%6.28%-2.33%4.00%17.54%
Apple **$577.505.90%0.29%4.19%43.79%77.08%
William Hill270.50p3.11%3.95%-3.87%33.38%58.47%
IG Group433.10p2.83%4.99%-6.46%-9.18%-15.08%
BG Group1242.50p2.24%1.30%-14.34%-9.73%-4.13%
Microsoft **$29.192.41%2.27%-3.92%13.38%5.82%
General Electric **$19.082.49%2.95%2.78%7.42%26.61%
BAE Systems272.80p1.68%7.14%-7.59%-4.31%-17.33%
1 MonthYTD17 mth
Virtual Portfolio gain (incl. Dividends)
- 1 month gain   1525.79 - 1483.64-2.76%
- YTD gain         1409.55 - 1483.645.26%
- 17 month gain 1264.20 - 1483.6417.36%
- 29 month gain 1000.00 - 1483.6448.36%
FTSE gain (excl. Dividends)
- 1 month gain   5742.03 - 5306.95-7.51%
- YTD gain         5572.28 - 5306.95-4.76%
- 17 month gain 5971.01 - 5306.95-11.12%
- 29 month gain 5412.88 - 5306.95-1.96%
17/05/2012DivAviva @ 16p per share
25/05/2012DivBG Group @ 8.19p per share
*     US Dividends are adjusted for exchange rate and 15% withholding tax
**   Sterling : Dollar exchange rate = £1: $1.5408 as at 31/05/12

This change, and re-basing to 31 December 2010, has also been carried through into the chart to better show any correlation between my portfolio and the FTSE 100, which I believe is still there but with the FTSE carrying much more volatility on the downside even allowing for the FTSE's performance excluding dividends.
I think I've mentioned before that this volatility could also be a symptom of heavy index exposure to the mining and financial sectors.

I've also added an index of the Invesco Perpetual High Income Fund (Accumulation units), to the chart that were sold out of the Portfolio in March.

Click to enlarge, close to return.
Invesco Perpetual High Income Fund Accumulation units:
- starting base of 1264.2 (equal to portfolio index start point for comparison purposes), equates to starting price of 473.44p as at 31 Dec 10.
- May close of 1376.14 equates to closing price of 515.36p as at 31 May 12.

So following May's -2.76% fall, my portfolio is still up 5.26% on the year to date whereas the FTSE has fallen -7.51% in the month and -4.76% on the year to date.
But I am feeling less than secure given the current abundance of negative newsflow and lots of potential pitfalls in June with  Greek elections one of the most prominent.
As mentioned earlier my riskiest holding appears to be Aviva which is undergoing a bit of a push me - pull you effect on the share price with regards to the turnover in leadership/strategy and its "declared" £0.9 bn direct exposure to Greek, Spanish, and Portuguese debt (Aviva Interim update; solid start to 2012 (but still sinking on Euro concerns).)
My biggest concern being any perceived threat to the dividend.

But talking of dividends, I see that quite a few of the portfolio's holdings are now trading ex dividend so I at least have some visibility of portfolio inflows to come:

01 Jun - BAE @ 11.3p per share
08 Jun - William Hill @ 6.7p per share
13 Jun - Centrica @ 11.11p per share
20 Jun - Morrison (Wm) Supermarkets @ 7.53p per share
27 Jun - BP @ 8c per share
04 July - Rolls-Royce @ 10.6p per share
06 July - Tesco @ 10.13p per share
15 Aug - National Grid @ 25.5p per share

Relative to the 31 May closing valuation these dividend entitlements could add 1.53% to the portfolio's overall valuation.

Looking ahead, June looks like being a big month now with various European and global summits interspersed between an ECB rate decision and of course, the Greek election. 
Turning point and significant are terms that have been used in the same sentence as EC and Euro crisis many, many times over the last couple of years so it would be a surprise if something was to change leading to a tangible solution from that arena. 
Seems more likely that Greece will let slip its poker face and find itself on the outside of the Euro somehow or, as has been suggested more recently, Spain decides to pull out creating a rush to exit the Euro.
I don't believe that the politicians can do too much with regards to growth other than put in place suitable tools and create the environment for confidence to return which co-incidentally goes hand in hand with averting disaster. 
At the moment they seem incapable of doing either.

Either way this painfully drawn out saga looks set to continue through this year as well and it could yet end in tears if, as suspected, financial institutions have continued to suck on the marrow without taking the opportunity to restore their capital positions since the depths of the credit crunch.
I'm actually really not sure any of them have long enough memories to remember what happened in 2008.

Painful difficult times to come then but I will continue to look to add to the portfolio if markets decline further and, hopefully, reveal compelling opportunities.

Previous updates and article links:
Portfolio Updates.
- April 2012: Portfolio Update. 
March 2012: Portfolio Update. 
February 2012: Portfolio Update. 
January 2012: Portfolio Update. 

Aviva Interim update; solid start to 2012 (but still sinking on Euro concerns).

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