July 2011: Portfolio Update.

Slightly academic exercise given the subsequent market moves following the weekend and the US debt ceiling vote.
However, in July the portfolio did manage an increase of 0.06% (5.08% year to date), versus the FTSE 100 which fell 2.2% (-2.61% year to date).
But, subsequent to that as I look today the portfolio has pulled back from July's close by 2.41% (giving just 2.55% year to date) and the FTSE has retreated by 4.37% (giving -6.86% year to date.

On the plus side it looks like the virtual portfolio is performing better than the FTSE up or down as the sectors most closely geared to current events (debts, growth and recovery), swing wildly. As it stands, mining and banking do not have a presence in the portfolio. 
It could be that the benefit of dividends are also coming through in the portfolio with its forecast 3.41% yield (to be re-invested of course).

Looking back at July, dividends came through from Rolls-Royce and Tesco in the month but were countered by share price retreats in Aviva and National Grid.
Apple, Microsoft, National Grid, Scottish and Southern, Centrica, IG and Rolls-Royce all reported in the month with mixed receptions initially but overall market fears over sovereign debt and global recovery won out.
As anticipated, Apple did briefly record a 100%+ capital gain for the investment which was the first such milestone in the 19 months of the portfolio.
Scottish and Southern Energy also went ex. dividend in the month. 
Cisco remains the biggest concern (or work in progress), but I think I am resigned to giving it longer on the basis that it is still growing and retains significant market share and, it could well be trawling the bottom of this particular underperformance with a forecast PE ratio of  just 9.7.

Virtual Portfolio - Merchant Adventurer's Index
		Forecast	1 month	YTD	19 Months
	% holding	Div. yield	% gain	% gain	% gain
R-R	29.73%	2.64%	1.16%	4.74%	34.95%
National Grid	18.11%	6.56%	-2.53%	7.96%	10.00%
Inv. Perp. High Inc. ***	7.06%	0.00%	0.16%	5.95%	18.72%
Aviva	4.67%	6.77%	-9.16%	1.48%	6.21%
BP	4.65%	3.80%	0.51%	-0.98%	5.91%
Apple **	4.18%	0.00%	13.53%	14.89%	96.08%
IG Group	3.23%	4.81%	1.42%	-13.22%	47.11%
William Hill	2.97%	3.97%	1.09%	35.27%	35.04%
BG Group	2.91%	1.02%	2.12%	11.42%	32.47%
Centrica	2.65%	4.98%	-5.17%	-7.54%	-2.92%
Morrisons	2.53%	3.70%	-2.28%	8.71%	14.97%
Scottish and Southern	2.49%	6.20%	-6.24%	6.69%	13.56%
Microsoft **	2.36%	1.94%	2.85%	-6.86%	8.03%
Tesco	2.11%	4.07%	-4.61%	-3.88%	-3.87%
BAE Systems	2.09%	6.07%	-4.55%	-7.88%	-4.78%
Cisco **	1.61%	0.29%	-0.15%	-25.08%	-26.48%
Cash	6.65%	0.00%	8.00%	20.66%
	100.00%	3.41%
			1 Month	YTD	19 Months
Virtual Portfolio gain (incl. Div.)			0.06%	5.08%	32.85%
FTSE gain (excl. Div.)			-2.20%	-2.61%	7.43%
- 1 month gain   5945.71 - 5815.19
- YTD gain         5971.01 - 5815.19
- 19 month gain 5412.88 - 5815.19
Transactions:
05/07/2011	Dividends	Rolls-Royce @ 9.6p per share
08/07/2011	Dividends	Tesco @ 10.09p per share
Notes:
*     US Dividends are adjusted for exchange rate and 15% withholding tax)
**   Sterling : Dollar exchange rate = £1: $1.6433 as at 29/07/11
*** Invesco Perpetual Accumulation units (i.e. Dividends re-invested)

Coming to the chart it looks like the end of April was a significant milestone in the current year as that looks to be the point where the portfolio's performance (and positive trend) has started to diverge from that of the FTSE100. 
In the 19 months since its inception the index is up by 32.8% and, as the chart shows, the FTSE100 is up just 7.43% over the same period.

Click to enlarge, back button to return.

Overall then, the portfolio feels healthy with Cisco the biggest concern along with Apple's ability to maintain its performance. There is another chunky dividend due this month from National Grid so the pattern of the portfolio's performance looks to be maintaining itself.
But, it still feels like a long way to go before the portfolio becomes self sustaining and able to potentially generate an income.

I am starting to think about gaps in the portfolio though, which would be from a strategic and diversification perspective, but need to weigh up the potential benefits of further investments against the manageable number of holdings which is now 16. There is also the consideration of whether there is a threshold on diversification which when crossed results in underperformance.

Gap wise, I am probably also looking to consumer products, industrials, and pharmaceuticals, and ideally, these will have exposure to fast growing economies like China and India (as opposed to direct investment).
Hopefully, this will be ahead of the next stage of growth or recovery (now there's an idea).

Links to previous Portfolio updates: 

- June 2011: Mid year Portfolio Update 

- May 2011: Portfolio Update
- April 2011: Portfolio Update

- March 2011: Portfolio update.

- Feb 2011: Virtual Portfolio update.

- Jan 2011: Virtual Portfolio Update

- 2010 Virtual Porfolio Performance!

One Crisis averted, what next.

Well that's one pantomime crisis temporarily averted in Washington. Now lets look for some ashes to rake over so that we can start another wildfire blaze! Or at least that looks to be the way of markets currently.
There are always periods when the bears rule the markets and at these times what little good news is around is often swamped and overwhelmed by the negative or in most cases just the fear of the negative.
And, lets face it, having stared into the abyss over the last few years the fears still have a tangible substance that can be quickly recalled along with still open wounds or painful scars.

So the markets weren't strangely apathetic to the drama in Washington, they were just waiting to dump on us once the situation had been resolved.
This is one of those periods where the macro economic news is overwhelming anything positive that might be happening on an individual investment basis.
The word contagion is everywhere and appears to be the new "buzz" word following the credit crunch. I guess that at the end of the day very few, if any, of us know what contagion risk is present.  
I wouldn't necessarily say that ignorance is bliss but I think that there are too many spouting an opinion from within the shadow of a more informed expert in a sort of sheep mentality. 

In the past there have always been sovereign defaults and even Gordon Brown's attempts to cement his place on the world stage was through an agreement for the worlds banks to stage a controlled default of African debt.
Before the credit crunch defaults were normally isolated to a group of banks rather than every single bank and government on the planet which is what is often spouted today. You could even argue that the repackaging and selling on of debt is the ultimate misselling scandal.

Going forward, if these were my companies then I would be actively planning and unwinding as much of these risky compexities as possible. I would be looking for credibility and firm foundations from which to grow. It might be slower but over time a significant momentum can be found in steady predictable growth whilst avoiding the all or nothing risks that have become custom and practice in the last decade or more.

I am a firm believer that there is a light on at the end of the tunnel though and even that each country is having its own light bulb moment after the desperation of printing more paper and throwing it on the bonfire of the cheap credit bubble.
Of course that also means that many of the excesses are still there but the changing, or at least moderating, of behaviours gives some of the inflationary excess a chance to return to more normal levels in line with GDP growth.
If this is taking place then, although there will still be breakout fires to put out, it is just a case of time to help the healing process and bring budgets and cashflows back into equilibrium.
In time there will also be a next generation with little connection to the credit crunch other than its place in history. 
True cultural change can take years but lets hope that we can instil some acknowledgement of consequences in them as the current generation had no such inhibitions.
And, with no organisation (or its legal stewards) penalised (other than Lehmans being allowed to fall), it is worrying that banks and governments will probably not deliver the protection that we need. In a way they have already detached themselves from the consequences of the credit crunch and believe it won't happen again on their "watch".
I hope I am wrong but it feels like it is the "stewardship" element that Directors seem to have forgotten. Directors are "stewards" of companies on behalf of shareholders and this is their ultimate accountability. I guess the same is true for MP's and Governments.

Greed always seems to win out over good corporate governance I guess, which is worrying!


Be lucky!