Apple: The Morning After a Night on the Cider!

Well its the morning after the night before and despite being a bit punch drunk (Apple reports record numbers and tanks another 10% in after hours!), I can vaguely see my portfolio is at an all time high (December 2012: Portfolio Update (2012 Year-end).)...except that..... Apple is still showing at its publicly traded closing price of $514 when I know full well that in "after hours" trading the stock closed at $463.78, -$50.225 (-9.77%).

Which basically means that I am due a drop at 3pm gmt once US markets open and given the speculation over Apple weightings on US indices, where Apple represents more than 3% of the S&P 500 and more than 10% of the NASDAQ 100, there could be a wider impact on local and global indices.

Valuation wise Apple's share price is now rated at under 10 times (Apple shares: For a Few Dollars More!), based on its 2013 forecast earnings and that's before cash balances are discounted. 

And, although any further cuts to analysts forecasts could push this back above 10, the shares continue to look abnormally cheap given the "absolute" profits being made.

But thats just my opinion and obviously not the consensus given the stocks falls.

It does seem to have got into the psyche though as I stumbled upon a preview of Apple earnings on Uswitch of all sites, as well as hearing Steve Wright in the afternoon mention recent falls on his Radio 2 show.

Its totally thrown my investment compass off though as I thought that satisfying customers and making profits was the order of the day. A few percentage points of growth/margin are surely secondary to making $13bn of profits quarter on quarter.

If Google or Samsung sell just 1 tablet/smartphone then this is going to eat into so called market share! 

But it is a growing market so increasing sales but losing market share seems an obvious fall out from such rapidly expanding markets.

It wouldn't be healthy for a single company to have 100% market share even if it was possible to maintain 100% production capacity to meet that demand.

Seems certain that it is "currently" in someone's interests for Apple shares to be falling so someone is making money and  its probably in much the same way that pressure was applied to the European sovereign states anticipated debt problems.

On top of that there also seems to be a lot of negativity to Apple in general with many commentators jumping on board to call time on Apple.

I was hoping that the consensus tide might start to turn with the results but it hasn't. 

But, I can only see that it will at some stage as the swell builds again but where the floor might be remains to be seen.

Fingers still in teeth!

Earlier related posts:

- December 2012: Portfolio Update (2012 Year-end).

- Apple reports record numbers and tanks another 10% in after hours!

- Apple shares: For a Few Dollars More!

Apple reports record numbers and tanks another 10% in after hours!

Apple closed at $514.01, +$9.24 (+1.83%).

In after hours trading the shares increase further to $527.97 ahead of the earning announcement.
Apple then reports record quarterly numbers (http://www.apple.com: Apple Reports Record Results), over and above last years Christmas quarter despite there being one less week this time around:
- $54.5bn revenue ($46.3bn)
- 47.8m iPhones sold
- 22.9m iPads
- $137bn cash

Net income was barely up though and rounds to the same $13.1bn as last time. 
But, as there were more shares in issue the eps is down slightly at $13.87 per share ($13.91).
Which also means that gross margins are also down at 38.6% (44.7%), following the launch of major new products.

With so much focus on the negatives as well as Q2 guidance of $41 - $43bn the shares proceeded to sink like a stone and, as I write, are now down more than 10.74% @ $458.78 (-$55.23).

Its just incredible watching this, and soul destroying.
And here's me thinking its about investment and fundamentals.

Feels more like manipulation than investment, or poker.

Related article links:
- http://www.apple.com: Apple Reports Record Results
- http://www.thestreet.com: Apple Earnings Live Blog
- http://www.marketwatch.com: Apple below $500 after hours on weak view

National Savings & Investments: Renewal Notification or eviction notice?

Really disappointed to receive a renewal notification for one of my National Savings Index Linked Certificates this week, which brings me to the conclusion that either the Government doesn't need to borrow anymore or is working on the basis that, for many savers, they are still the best option and are looking to exploit any savers needing money quickly.

What do I mean by this? Well, to begin with, its well documented that Index linked certificates are currently closed to new investment but for existing investors there is the option of renewing and rolling over existing certificates. 
However, the current renewal offer is now RPI +0.25% AER. 
Pretty measly even if the 0.25% does mean it beats the very "carefully" measured inflation figure.

More crucially though, if you do decide to cash in within the 3/5 year term, National Savings will now impose:
"a penalty equivalent to 90 days' interest on the amount you cash in...... and you won't earn any index linking on the whole certificate for the investment year in which you cash in, even if you only cash in part of it."

The second part of that statement seems particularly harsh raising the stakes to all or nothing.

So I can't really work out if National Savings are trying to empty the cash out or just looking to squeeze on the funds invested.
Feels like an eviction notice to me though.

Looks like the changes were made in September but only get posted out to savers once the 30 day countdown to an affecting anniversary is reached.

National Savings were originally set up as a further means for Government to borrow so I can only imagine that it is "currently" a more expensive option than the bond markets.

Given the current climate there is also a much wider responsibility for me though, and that is provide savers with a safe haven, and provide a competitive alternative to the abysmal rates offered by financial institutions. 
And let us not forget that, ultimately, it also means that savers are contributing to the UK Government's public sector borrowing requirement.

But then again it is the Bank of England that is creating this long term imbalance in markets that continues to encourage profligacy whilst allowing banks et al to run their own versions of pyramid schemes.
That being the case, is the Government also revealing to us in a not very subtle way that this abuse will continue for the foreseeable.

Seems neither subtle, clear or intelligent!

And, given recent talk of triple dip recessions and an increasing threat to the UK's credit rating, which might yet lead to higher borrowing costs on bond markets, it seems very short sighted to risk alienating savers even further via this avenue.
But, I can't think of any Government of recent times taken a view beyond the next election!

Beatings will continue until morale improves!

Article links:
- http://www.nsandi.com/savings-index-linked-savings-certificates

First dividends of 2013 (and 2012 dividends in profile).

Despite being the first month of the year, January has also been my second best month (on a 2 year trend anyway), for dividends received into my portfolio. 
Mind you its not really a surprise when it involves my 2 largest holdings, Rolls-Royce and National Grid, which together represent almost 50% of my portfolio.
The metaphorical thump of these dividends hitting my account is very satisfying.

As at the end of December 2012 the individual weightings were 32.15% and 17.22% respectively (December 2012: Portfolio Update (2012 Year-end).).
The fact that National Grid is one of my highest yielding holdings also helps. 

Anyway, so far this month the portfolio has had the following dividends: 
04 Jan Rolls-Royce @ 7.6p per share.
16 Jan National Grid @ 14.49p per share.

But, as dividends form such a significant part of my current portfolio strategy, I'm actually writing this post with a view to looking at the dividends received last year which gave me a final "actual" yield of 4.32% for 2012.
Put another way, as I currently retain and re-invest all dividend, dividends contributed 4.32% of my gains last year.

Some of you may recall my writing a similar post in January of last year where the 2011 yield, on a lower portfolio valuation, was 3.84% (My first dividend of 2012 (and 2011 dividends in profile).).

So a higher yield on a higher portfolio valuation suggests that my portfolio is making good progress.
At least on the dividend front anyway.

The following chart serves to show the cumulative rate and profile of dividends received up to the 4.32% total.

Click to enlarge, close to return.

And, month by month:

Click to enlarge, close to return.

And, the same month by month chart but this time showing individual blocks of dividends received which helps to highlight January (Rolls-Royce interim and National Grid interim), and August (National Grid final).

For reference, dividends from Rolls-Royce and National Grid delivered 0.7% of dividend yield (or portfolio gains), between them in January, and 1.88% of the total gain in 2012.

Click to enlarge, close to return.

Interestingly, you can also see that Rolls-Royce's final dividend is pushing July into the reckoning for 3rd best along with November whose biggest contribution is from Aviva.

Threats to dividends aside it will be interesting to see how May 2013 looks given that November benefitted from my adding to my holding in Aviva but this additional boost has yet to show through during May.

For the final 2 charts I have tried to compare 2012 with 2011 by using 2011 as the base in order to show the actual increase over and above 2011.

The result being that were I showing it in pound notes, the actual sum received in 2012 represents a 25.39% increase over and above 2011's yield i.e. 2012 is 125.39% of 2011's 100%.

The month by month chart:

Click to enlarge, close to return.

And the cumulative monthly profile chart:

Obviously portfolio holdings increasing their dividends in 2012 has helped provide a strong foundation for the full year. 
And this foundation has been built on as I have re-invested both the dividends received and the funds realised from the sale of my portfolio's holding in Invesco Perpetual (March 2012: Portfolio Update.). Hence the increase in yield over 2011.

Hopefully, I can look forward to the same happening again in 2013, in addition to full year contributions from my 2012 purchases.

There is always the threat that dividends might be cut of course!

Earlier related posts:
- December 2012: Portfolio Update (2012 Year-end).
- My first dividend of 2012 (and 2011 dividends in profile).
- March 2012: Portfolio Update.

Boeing 787 Dreamliner grounded by ANA/JAL.

Boeing @ $76.94, +$0.39 (0.51%).

It will be interesting to see what happens to Boeing shares when the markets opens this afternoon following the emergency landing of a 787 (www.bbc.co.uk: Boeing 787 Dreamliner in emergency landing in Japan), which compounds the recent technical glitches and bugs that have, seemingly all of a sudden, surfaced on this new aircraft.

As suggested, the incidents are probably not much more than could be expected from the introduction of a new, technically advanced aircraft.
But, in this age of instant information, media hype goes a long way to heightening the situation.

Japan's 2 major airlines, ANA and JAL, have now grounded their fleets following the spate of recent incidents (www.bbc.co.uk: Top Japan airlines ground Boeing 787s after emergency), which have subsequently put the aircraft onto the radar of the various regulatory bodies, some of whom have now ordered an investigation (www.bbc.co.uk: Boeing Dreamliner investigation ordered by Japan).

But putting heightened emotion (and anticipated defence spending cuts), to one side, and with Boeing potentially entering a new period of long cycle growth through the 787 and 737, the recent incidents might create an emotionally instigated window of opportunity.

Related article links: - www.bbc.co.uk: Top Japan airlines ground Boeing 787s after emergency
- www.bbc.co.uk: Boeing 787 Dreamliner in emergency landing in Japan
- www.guardian.co.uk: 787 emergency landing: Japan grounds entire Boeing Dreamliner fleet
- www.bbc.co.uk: Boeing Dreamliner investigation ordered by Japan

Sentiment weighing on my portfolio.

Rolls-Royce @ 890.50p
General Electric @ $21.13
Apple @ $520.30
National Grid @687p
Aviva @ 380.10p
BG @ 1053.50p
Vodafone @ 165.20p
Morrison's @ 252.50p

Disappointing week for my portfolio which doesn't look like changing particularly quickly
Brokers seem to be flooding the market with downgrades and doubts so it will be interesting to see where the year goes from here particularly if the same brokers are predicting a rise in markets for 2013.

Seems broker doubts, doubtful strategies and poor performance are affecting a chunk of my portfolio so it is a case of reaching for that tin hat and putting the ear muffs and blinds on.

- Rolls-Royce is entering its own scandal over "possible" payment irregularities to agents, and despite good production and deliveries of the Boeing 787, recent problems with the same aircraft, and the called or inspections, might well be affecting sentiment.
The same 787 issues might also impact the supplier of the alternative engine option, General Electric, which also sits in my portfolio
- Apple, where next for Apple? which seems to be under-fire from all sides. It does feel a little like everyone is queuing up to drag the company down but rumours over supply shortages aren't helping when reflected against Samsung's recent success. Its not even a case of arguing Android's success really, just Samsung's.
- National Grid also seems to be stuttering following broker doubts over utilities (Deutsche, I think), along with regulator recommendations that the Long Island network is brought under public ownership.
- Aviva is also stuttering after a relatively strong bounce in recent weeks. The company has made good progress with its divestment and refocus program but with various brokers now predicting a cut in the dividend, a retreat has started. 
Seems a little overdone depending on which view you take of the dividend. A 15% cut, as suggested by Barclays equates to 3.9p off the 26p dividend per share consensus but the shares have come back a lot more than that?
- BG continues to wallow after its Halloween trading statement which highlighted delays in production project.
- Vodafone continues to stutter as its European business stagnates and emerging markets have not yet shown sustained profit growth. 
Most recently i.e last week, news that a potential buy-out of its Verizon Wireless stake might be in the offing and that the Indian Government might yet be prepared to negotiate on retrospective tax liabilities has thrown a better light on the company.
- Morrisons, well much as expected the recent trading statement reflected a much worse performance than rivals with various analysts suggesting that Morrison's lack of online presence and minimal convenience store presence is affecting things. Not sure I agree on that as you wonder what cross section of Morrison's customers want an online offering enough to look elsewhere and whilst it can be argued that the convenience store format has higher margins it also has higher cost.
The economic environment is tougher but I have wider concerns over the strategy as well!
It will be interesting to see how long recovery takes. After all it took Sainsbury's years to build up any momentum again with its outdated stock and replenishment systems. Tesco (given yesterday's trading update), might just be turning things around again after 12-15 months.
The supermarket sectors seems to be stuck with 2 measures: like for like sales excl. fuel; and margins, with LFL sales seeming to take priority and margins coming under scrutiny if analysts still feel down on a company after it has delivered on LFL sales. When you are down on a stock you are down on it. Sentiment again, eh.


So not much good news at present although, I should receive a dividend from National Grid next week (December 2012: Portfolio Update (2012 Year-end).). 
I'm also hoping that the forthcoming update from Apple can at least allow the shares to consolidate but might even open the door to some upside (Apple shares: For a Few Dollars More!).

Roll on better times.


Related posts:
- December 2012: Portfolio Update (2012 Year-end).
- (Apple shares: For a Few Dollars More!
- Information overload on Apple!

Information overload on Apple!

More an observation and warning sign than anything else but, following my trawl for information at the end of 2012, I subscribed (probably on New Years Eve), to an e-mail alert service specifically for news flow on Apple.
But, whilst the news flow is constant and seemingly from informed sources, it is already driving me nuts.

Working on the basis that most private investors are constantly battling the paranoia that someone else always knows more, and sooner than we do. It would also appear that the constant flow of information makes it all too easy to create a picture that either supports or undermines one's personal view.
Which raises the risk of a potentially hair triggered response to the next piece of speculation.

The easy, mechanical access to information, coupled with the near instant access from always online platforms, really does increase the potential for information overload that can supplant your own thoughts and undermine your confidence.
For me at least, I can see that it becomes very difficult to separate factual argument from speculative opinion which, with little time to consider and filter it all (before the next piece comes along), begins to garner a dependency to this instant fix of information (and perceived to be better knowledge), which leaves little room for your own thoughts.
But if we are unable to separate fact from speculation in this spoon fed environment, then it can prove a challenge not to doubt yourself and your own thoughts. 
Meanwhile, there is the swelling illusion that you are in a privileged position to react to what you begin to believe is time sensitive information even if it overrides your personal view i.e. sell before anybody else does.

This potentially unthinking dependency, and any immediate response, is the exact polar opposite approach to the one I have tried to take by investing on a longer term horizon. 

It also re-enforces my questioning of personal objectives and gains from the constant slew of speculative opinion, with each seeming to be more ground breaking than the last in an attempt to be heard.

So having worked hard to adopt this long term approach, this really is something that I need to keep an eye on in order to avoid it affecting my decisions by prompting a potentially damaging sell response to "Defcon 1".

It brings to mind the final scenes of the film Crimson Tide where the crew of a damaged nuclear submarine is cut-off from central command communications in the midst of a "situation". 
The crew ultimately splits into 2 led factions attempting to take control in order to enforce their view of the situation. 
One side wants to react to the last piece of information received (despite it being incomplete), by firing off a what it thinks to be a retaliatory nuclear response, but the second group wants to wait (for fear of it being pre-emptive and potentially self-destructive), whilst communication is restored in order to get a clearer picture of the situation.
Press the button or hold fire then.
I won't tell you how the film ends but, to my mind, the "chain of command" is very much the information dependency in this situation and the cut-off communication creates the paranoia (someone knows more), to the point where a worst case scenario picture is created by speculating on the gaps in the last partial piece of information.

In the context of this post, it also doesn't help that the information is very narrow and specific to one company so you are not being balanced, and re-energised, by opinions and views on other companies/sectors etc.
At the end of the day performance is also relative so it seems right to need diversification in information as well.

So after only a few days of this mental battering, I am already debating the merits of unsubscribing but will probably persevere now that I have recognized the issue and can turn things down a notch to Defcon 2.

New Portfolio highs as markets romp on

FTSE 100 @ 6089.84, +42.50 (+0.70%)
DJIA @ 13435.21, +43.85 (+0.33%)
NASDAQ100 @ 2724.49, -7.77 (-0.28%)

Wow, what a start to the New Year with the FTSE100 pushing beyond 6000, and my portfolio scaling new all time highs on each of the last 3 days.
It currently stands a healthy 3.6% up from my December 2012: Portfolio Update (2012 Year-end).
A dividend dropping in from Rolls-Royce (my first of 2013), also managed to sprinkle a bit more sparkle onto things.

Lots of encouraging momentum building for some of my holdings as well, with IG (broker notes), BP (Transocean settlement), Tesco (Xmas trading?), and Rolls-Royce (defence contracts), jumping in the last few days.

It would be nice if every day could be like this last 3, totally unrealistic of course, but I can at least enjoy it until reality bites again.

Apple @ $527.00, -$15.10 (-2.78%)

Unfortunately, my most recent purchase of Apple (Apple shares: For a Few Dollars More!), has not joined in the party, and is under pressure again today which in turn puts pressure on the NASDAQ.
The pressure is coming from analysts notes suggesting that going forward, Samsung's wider and deeper range of handsets might see it increase its share of the smartphone market at a faster rate than Apple, 35% v 33%. 

After first speculating about potential supply chain shortages affecting sales in the key run-up to Christmas, it now looks like the health and future prosperity of Apple is going to be an ongoing debate beyond this next quarterly update as analysts turn their attention to the new quarter now beginning and the possible reduction of orders onto the supply chain.


Earlier posts:
- December 2012: Portfolio Update (2012 Year-end).
- Apple shares: For a Few Dollars More!

Apple shares: For a Few Dollars More!

FTSE100 @ 6027.37, +129.56 (2.20%)
DJIA @ 13412.55, +308.41 (2.35%)
NASDAQ100 @ 2746.47, +85.54 (3.21%)

Apple @ 549.03, +$16.86 (3.17%)

Wow, what a difference a New Year and a little less uncertainty makes! 

And whilst it wasn't the great deal that Obama wanted (or so he says), and does little to address the growing deficit, the early signs are that the House of Congress agreement might just be enough to reduce the legacy threat of self imposed, time dated tax increases and budget cuts that were anticipated to jerk the US back into recession.

It also shows what might have been last year (just 48 hours earlier), had the US managed to steer clear of the fiscal cliff a little sooner.
As it is for my portfolio the "what might have been" 1 day gain of 2.4%, will now sit in 2013 (next crisis allowing, of course).

Prior to this poorly conceived spaghetti western, I was convinced that the US would put something in place, or at least postpone things, but became much less certain as events transpired and was ultimately disappointed that the stand-off lasted beyond even the last minute of 2012. 

Unfortunately, with uncertainty growing, I also allowed fear of the unknown to influence/dissuade me from investing which saw me miss a couple of earlier opportunities to top up on such as BP, IG, and Tesco, which is what fear and uncertainty can do to you. 
But, with fingers crossed and clenched to my security blanket, and right up to the last day of the year I had been eyeing up BP, and Apple. 
The combination of uncertainty and shortened trading sessions then left me with one, Apple, and even then I was anticipating it falling further on New Years Eve (bizarrely it seemed to be the only US share not falling), so I almost didn't deal at all.

But with Apple on a little over 10 times forecast earnings (at $509 prior to markets opening on New Year's Eve), I couldn't help but recall my post of last year: Apple: Cheap at 11.4 times 2012 earnings?, when the shares stood at $395.95.

And, despite the challenging comparable's, and better organised competition, Apple is still expecting to sell more iPhones, and iPads etc. than it ever has before.

There is speculation that margins are under some pressure though, particularly given the investment in, and introduction of, the raft of new products introduced over the last few months.
This slowing growth in profits and revenues, supported by a variety of comments from the competition seems to have been the banner under which the markets have enthusiastically discounted the share price from its peak of $705 back in September.

Add in various analyst's opinions that, in the run-up to Christmas, Apple has reduced orders into its supply chain, then the whole fearful picture starts to herd investors towards the exit as market commentators queue up to call time on Apple.
The problem with this is understanding the lead-time lag, Christmas requirements v. rest of year, and where initial new product stock/production line inventory is recognised e.g raw materials, work in progress, lost yield, finished stock, or goods sold. 

There is also a further un-quantifiable factor prompted by uncertainty over the fiscal cliff, where it has been suggested that a number of long time shareholders might well have realised profits in order to avoid the threatened increase in capital gains tax that would have come had the House of Congress not done its job.
Apple also chose not to pay a special dividend (return capital), as some companies did, to pre-empt a rise in dividend tax from 15% to 40% which might have served as a further prompt.

If this fiscal cliff sell-off has taken place, it wouldn't be unheard of for these shareholders, and funds, to start buying back in at these discounted level now that some of the uncertainty has passed.

So lots and lots of speculation and doubt over Apple with little actual detail to go on but the consensus seems to be that the company will deliver increased sales but that the year on year and quarter on quarter increase is slowing.
As should be expected of course. 

From analysts expectations, the consensus seems to be for an increase in pre-tax profits of 12.7% based upon net profits of $62.866bn from sales of $191.185bn (courtesy of Digitallook).
This translates into an incremental change of $7.1bn over last years base of $55.763bn. 
But, the numbers are still huge and it is surely unprecedented for any company to maintain this kind of exponential growth.

Putting it in perspective, and dividing the current forecast increase into the previous years base (2011), delivers an increase of 20.7% ($7.1bn / $34.205bn).
Dividing $7.1bn into the 2010 base of $18.504bn would be 38.3% and so on and so forth.

I guess what I am trying to convince myself of is that continuous exponential growth is impossible but that the actual $ increase in profits compares well to previous years and that it is the base that is the challenge to one's perceptions.
Any company in this position then needs to monitor and hopefully maintain costs/margins at the same incremental rate.
In this case, as the market matures and becomes more competitive, Apple is also experiencing a margin pressure but, has still given guidance in the region of 36% for gross profits. 
Unfortunately, this is noticeably less than the 44% reported for the 2012 full year although that did include a Q1 figure of 47.5%.

This could easily be a result of the new products though, whether that be from investment, inventory, and/or initial yields as manufacturing processes are proven. 
Ongoing costs may come down as productivity and yields increase.

On the other hand it might also be the case that this is a new lower base for the company with widespread speculation that, going forward, the time between new product introductions will shorten in line with greater competition. 
Unless Apple can come up with the next jump in technology and new market changing product of course.

The year on year gross margin figures look much flatter though having been maintained around/above a market leading 40% since 2009.
Traditionally, Apple guidance has also been notably conservative, which analysts have cottoned onto, so often use this as a base to inflate from.

But, at $549.03 per share and now on 11.2 times forecast earnings there seems to be little expectation for Apple to deliver such exponential rates of growth.

The company also has no debt, and cash balances that continue to grow ($121.4bn est.), despite the resumption of dividend payments. 
How many companies are valued at $121.4bn never mind have that level of cash on the balance sheet.

At $549.03 per share and with 940.69m shares in issue the company is currently valued at $516.468bn.
- $549.03 * 940.69m = $516.467bn

However, discounting $121.4bn of cash results in a valuation of the underlying business at $395.067bn.
- $516.467bn - $121.4bn = $395.067

$395.067bn divided by 940.69m shares suggests an underlying share price of $419.98 ie. $ for $, $129.05 of the current share price is covered by hard cash.
- $395.067bn / 940.69m = $419.98 per share as an ex. cash adjusted share price.

Taking the current earnings per share forecast of $49.1766 and dividing it into $419.98 results in a price to earnings ratio of just 8.54 times.
- $419.98 / $49.1766 = 8.54 times.

8.54 times!

Does that qualify it as cheap, or a bombed out value share with few prospects in the short term?

So with increasing sales over the Christmas quarter still being forecast, and holding an enviable market share in an ever expanding market, I have taken the plunge and bought more Apple shares with a view to them finding a way back to $700 which would put them on a forecast price/earnings of 14.24 times, or 11.77 times if that cash pile is taken out.

Not exactly a racy valuation is it?

The next earnings report is due on the 23 January so not long to wait then, and fingers crossed that the numbers and company rhetoric will give me a little confidence and take away some of my "uncertainty" that follows a new purchase!

Related article links:
- http://seekingalpha.com: Apple: Gross Margin Conundrum Explained
- http://appleinsider.com: Despite having $121B in cash, Apple not expected to issue special dividend

Earlier post:
- Apple: Cheap at 11.4 times 2012 earnings?
- December 2012: Portfolio Update (2012 Year-end).

December 2012: "following Woodford" update.

Well the 3 ways to follow Woodford experiment is starting to look a little sickly for the 3 picks choice which continues to lag the 2 Woodford managed options which have changed position again following a dividend being received into the Edinburgh Investment Trust which was enough to push its nose out in front with a total gain of 4.02%.
The High Income Fund is still running close though with a gain of 3.34%.
Unfortunately the "positive" news stops there though, as the 3 picks option is now showing a -4.35% loss to date.

			Shares	Price	£Value	%Gain
Inv. Perp. High Income			1110.14	5.59	6200.60	3.34%
	Residue				0.00
	Dividends
	Total		6000		6200.60	3.34%
Edinburgh Investment Trust			1182.00	5.11	6040.02	0.67%
	Residue				0.43
	Dividends				200.94
	Total		6000		6241.39	4.02%
3 Picks
BAT			61.00	31.21	1903.81	-4.81%
Glaxo			138.00	13.35	1842.30	-7.89%
Vodafone			1191.00	1.54	1839.50	-8.03%
	Residue				3.68
	Dividends				149.72
	Total		6000		5739.01	-4.35%

Click to enlarge, close to return.

Even though the 3 picks are a virtual portfolio (I do hold Vodafone), it is still disappointing to see the almost straight line deterioration since its peak in July at a level that has yet to be breached by any of the options.
Strange to suggest but looking at the chart and the individual performances since that July peak, the 3 picks are now looking like a contrarian option to both the Invesco Perpetual High Income Fund and the Edinburgh Investment Trust.
Which, given the original premise, and the fact that the 3 picks were taken from within the 3 largest weighted sectors in the High Income Fund's top 10, seems very strange indeed.

With the exception of Vodafone, where Neil Woodford appears to have reduced his stake, the global pressures on Pharmaceuticals (patent cliffs etc), and Tobacco (plain packaging, political will etc), should be felt at least proportionately by the Fund and Trust given their greater exposure to those sectors.
Which just leaves individual company performance as the possible defining factor whether that be another company from within the same sector exposure e.g Astrazeneca outperforming Glaxo, or a company from outside the top 10 which would have to go some given its lower weighted position.

Fair to say that the current disparity in performance is the exact opposite of what I was expecting, given management charges, and whilst I have reasonable confidence that future dividends will soon see the 3 picks turn positive, it does look like they will have some way to go to catch/overhaul the 2 Woodford managed options.
Particularly given that any out-performance in the 3 picks will also contribute to the 2 managed options.

The unexpected turnaround and apparent contrarian position does make the trial very interesting though.

Related article links:

- http://www.invescoperpetual.co.uk/portal/site/ip/products/productDetail?contentId=02cc27688e5ed210VgnVCM1000002e1ebf0aRCRD#related

Earlier related posts:

- November 2012: "following Woodford" update

- October 2012: "following Woodford" update.

- September 2012: "following Woodford" update.

- August 2012: "following Woodford" update.
- July 2012: Following Woodford update.
- June 2012: Portfolio Update.

- May 2012: "following Woodford" update.

- New Trial Investment Strategy: 3 ways to follow Neil Woodford!

- New proposed investment strategy based upon Neil Woodford's top 10.

Note: Unlike my Portfolio updates (Portfolio Updates.) which reflects an actual investment portfolio, following Woodford is an experimental strategy and a virtual portfolio.

However, I do hold an investment in Vodafone.

December 2012: Portfolio Update (2012 Year-end).

16.68%!.....is..... the final score on the door for 2012 gains in my portfolio which I should be pleased with but feel strangely cheated given the "manual" interference of the last month related to Rolls-Royce and, more significantly, the political posturing and line dancing on the cliff edge that has taken place in Washington.
No lessons learnt from Europe then!

And, despite the positive noises it will be interesting to see what kind of deal has been done, whether it gets through the House of Representatives in one pass, and how much has been rolled up and "kicked down the road".
One can't even describe it as last minute as, ultimately, they are managing to use more time than was allotted given that the House of Representatives had shut shop for New Years Eve whilst the Senate thrashed things out, thereby "technically" allowing the U.S. to go over the fiscal cliff.

It all does little to change my view that, when discussing politicians the world over, one must always ask the question as to whose interests they are primarily acting upon: their electorates or their own!

2012 is now history though and we seem to have come through relatively unscathed given the various expert predictions of: a Greek exit, the collapse of the Euro, a Chinese hard landing, and a fall over the fiscal cliff.
Any and all of which could yet happen in the coming months and years but serves to underline that nobody is 100% certain of what might happen and sentiment is often just sentiment and therefore subject to change.

Back to the task at hand though and, following a very small decline in December of -0.1%, my portfolio gained 16.68% for the year, which is still well shy of the 18.61% peak for the year seen on the 14 September.

As always drilling down and reviewing the portfolio's individual components reveals a mixed bag of performances with strong 12 month gains from William Hill, Aviva, R-R, Apple, Centrica, GE, and National Grid, but quite a few under-performers as well. 
More concerning, is that some of these under-performers have now performed equally badly over 2 years.

Its a huge shame that R-R and Apple couldn't hold onto their all time highs though, which in turn, could have comfortably pushed my portfolio to all time highs.

The under-performers include: BG Group (production delays), Vodafone (revenue, liabilities, and anticipated 4G costs), and the supermarkets: Tesco and Morrisons (price competition), which are all showing double digit 1 year falls which I see as short term, cyclical, and relative to the current economic environment.
And, putting BG to one side, the remainder "currently" pay healthy dividends which can only help to compensate me for my patience.

Fortunately, I also have BAE as a good example of a share which has flown a similarly turbulent course of under-performance over the last couple of years but is now starting to contribute to the portfolio's upside. 
I say fortunately because it gives me a first hand example of the fickle cycling of sentiment out of some shares and into others which feeds my view that many of the under-performers will recover as/when sentiment and perception changes.

Elsewhere, BP continues to climb its way out of the long deep well of its own making, IG Group still seems friendless, and Microsoft tries to shape its own Windows framed view of the future following the launch of Windows 8 across desktop, tablet, and smartphone platforms.

Dividends have also continued to roll in with December contributions from William Hill, Microsoft, BP, and Tesco.
Which reminds me that, of my portfolio's 16.68% gain, 4.32% came from dividends. 
So that's a 12.36% capital gain and 4.32% dividends.

Merchant Adventurer's Index
			Forecast	1 month	YTD	24 mth
	Price	% holding	Div. yield	% gain	% gain	% gain
R-R	875.50p	32.15%	2.24%	-1.91%	17.01%	40.21%
National Grid	703.00p	17.22%	5.82%	-0.21%	12.48%	27.12%
Aviva	373.00p	12.20%	6.97%	6.45%	23.42%	10.40%
Apple **	$533.03	6.44%	1.47%	-7.24%	18.04%	35.31%
BP	424.80p	5.17%	5.00%	-1.56%	-6.50%	-7.19%
IG Group	450.00p	4.51%	5.00%	6.31%	-1.69%	-5.70%
William Hill	348.10p	3.61%	3.22%	3.23%	71.65%	103.93%
General Electric **	$20.99	2.35%	2.77%	-1.64%	12.60%	32.71%
Centrica	333.60p	2.33%	4.90%	2.46%	15.31%	0.60%
SSE	1418.00p	2.18%	5.93%	-0.49%	9.84%	15.76%
Microsoft **	$26.73	1.89%	2.85%	-0.46%	-1.07%	-7.67%
BAE Systems	336.90p	1.87%	5.78%	2.93%	18.17%	2.09%
Morrisons	263.00p	1.85%	4.49%	-2.12%	-19.37%	-1.72%
Vodafone	154.45p	1.67%	6.96%	-4.16%	-13.67%	-4.15%
BG Group	1012.50p	1.65%	1.58%	-5.33%	-26.44%	-21.88%
Tesco	336.00p	1.49%	4.42%	3.37%	-16.72%	-15.77%
Cash		1.42%	0.00%
		100.00%	4.03%
				1 Month	YTD	24 mth
Virtual Portfolio gain (incl. Dividends)
- 1 month gain   1646.20 -	1644.62			-0.10%
- YTD gain         1409.55 -	1644.62				16.68%
- 24 month gain 1264.20 -	1644.62					30.09%
- 36 month gain 1000.00 -	1644.62					64.46%
FTSE gain (excl. Dividends)
- 1 month gain   5866.82 -	5897.81			0.53%
- YTD gain         5572.28 -	5897.81				5.84%
- 24 month gain 5971.01 -	5897.81					-1.23%
- 36 month gain 5412.88 -	5897.81					8.96%
Transactions:
08/12/2012	Div	William Hill @ 3.4p per share
20/12/2012	Div	Microsoft @ 12.12p per share
21/12/2012	Div	BP @ 4.47p per share
21/12/2012	Div	Tesco @ 4.63p per share
31/12/2012	Buy	Apple Inc @ $524
Notes:
*     US Dividends are adjusted for exchange rate and 15% withholding tax
**   Sterling : Dollar exchange rate = £1: $1.617151 as at 31/12/12

Looking at the performance chart gives me a little more satisfaction with my portfolio's 16.68% gain (dividends re-invested), given that the FTSE100 (excl. dividends), has advanced just 5.84% in 2012. 
Over 2 years the FTSE100 continues to be down -1.23%, on the 5971 it stood at on the 31 December 2010.
-1.23% compares even more unfavourably with the 30.09% dividend re-invested performance that my portfolio has recorded over the same 2 year period.

Over 3 years the comparable numbers are 8.96% v. 64.46%!

And, whilst the FTSE100's performance might re-enforce the argument of the "gone nowhere" brigade it has re-enforced my belief that dividends and their re-investment are a very significant contributor to compounding and year on year gains.
After all, the FTSE100 has also paid annual dividends in the region of 3.5-4% which could also have been re-invested.

Click to enlarge, close to return.

I would also suggest that the regular flow of dividends into my portfolio has helped to reduce the temptation for me to trade in/out of individual holdings to keep liquid/realise profits, as I can always see where my next investable tranche of funds are coming from.
A forward forecast yield of 4.03% (see above table), should give me a couple of tranches to invest.

On that score I can see that I made just 6 trades this year: 1 sell and 5 buys, with the last surprising buy coming inside the last 2 market trading hours of 2012 which I will pick up later.
This 6 trades compares to the 5 trades: 1 sell and 4 buys, I made in 2011

As mentioned earlier, dividends also help to provide a partial return for my patience as well.

I've also mentioned the under-performance of some investments and the recovery that can occur, and it is more recovery that I am hoping for as I look ahead to 2013. 
In particular, I am looking for Aviva, BP and IG to contribute to this coming year's performance.

Fingers crossed that dividend cuts will be rare and have minimal impact, and that the portfolio's yield increases but, it seems fair to say that recent sentiment is influencing widespread downgrades in analysts' forecasts.
I'll also be interested to see if the U.S deal includes an extension on the current rates of tax on dividends, and capital gains, and if/when any proposed increases are anticipated.

If the so called fiscal cliff has been postponed then, in the short term at least, I can start to look forward to January given the dividends due from Rolls-Royce and National Grid.

Ex Div.	Company and payout	Due date
24-Oct 21-Nov 28-Nov 20-Dec	R-R @ 7.6p per share Vodafone @ 3.27p per share Nat. Grid @ 14.49p per share GE @ 19c per share	04-Jan 06-Feb 16-Jan 25-Jan

It all starts again tomorrow though so I will take my leave now and wish you all a Happy and Prosperous New Year!

Links to Portfolio updates:
- November 2012: Portfolio Update
- October 2012: Portfolio Update (The Long Haul).

- September 2012: Portfolio Update.

- August 2012: Portfolio update.

- July 2012: Portfolio update.

- June 2012: Portfolio Update.

- May 2012: Portfolio Update.

- April 2012: Portfolio Update.

- March 2012: Portfolio Update.

- February 2012: Portfolio Update.

- January 2012: Portfolio Update.

- December 2011: Portfolio Update.