Another month when the markets seem to be stuck within a fairly limited range, with some good company results balanced by sufficient bad macroeconomic news flow to keep things subdued, but nothing we didn't already know about. The GIPS train crash is still sliding down the track but it may be some time before it comes off the rails. FTSE valuations are relatively undemanding overall with the FTSE 100 P/E around 11. Any significant dip could be a chance to lock into long term value for the right company.
On the month, Sterling rose from €1.1250 to €1.1522, but fell from $1.6638 to $1.6421, suffering s little from the Euro malaise. UK 10 year gilt yields fell from 3.49% to 3.27%. Gold remains more or less unchanged at $1533 per ounce. Brent Crude future has pulled back from $124.98 to $115.03 per barrel and copper continued to fall from $9367.50 to $9197.50 per tonne. The FTSE100 fell from 6069.90 to 5938.87 and the FTSE250 just slightly from 12013.88 to 11958.80.
Equity Portfolio (+3.88% on year, FTSE all share -0.03%)
I've made one purchase this month, namely the construction and maintenance group Costain (COST) for £2.34. This complements my long standing holding of Balfour Beatty (BBY) in a very similar line of business. Unlike the latter, Costain operates predominantly in the UK and is much smaller by market capitalisation. The group has a good order book and a big pile of cash. Moreover, the dividend, yielding 3.95%, is covered nearly 4 times. However, the PE of 6.5 reflects the current market nerves over the construction sector which is unlikely to see any significant upturn for a couple of years and may experience further headwinds in the interim. Fundamentally, it seems a sound company but, like many, is facing difficult trading conditions.
Commercial property group Hansteen (HSTN) has been on my books since August last year. This month they issued an open offer at a niggardly 5% discount in order to raise £150 million for acquistions. I decided to participate, since the company fundamentals still seem good to me with most of their exposure in Germany and the Netherlands, although their gearing is (was) around 100%. They are up a third since I bought them and the current yield is 4%.
It's a different story with HMV (HMV), now languishing at 8p and scarcely worth one sixth of what I paid for it around the same time as buying Hansteen. It's embarrassing even to admit to purchasing this, which I did after seeing it tipped by market "historian" David Schwarz ("they can just sell something else"). The management has sold off the Waterstones bookshop chain and now intends to sell fewer media and more devices in the HMV branded stores. Seems like another Dixon's in the making. Great.
Hi SG
ReplyDeleteIn your monthly roundups you typically discuss the performance of your equity portfolio only. I'm guessing it's because you hold no bonds, commodities or property (excluding your lived in house of course) and there is not much you can say about 40% in cash. I know you mention P2P every now and then.
I'd be really interested (maybe a post) in why you choose not to hold any of the other typical asset classes as a "balanced" portfolio. For example Tim Hale in his book Smarter Investing shows that you actually can get a "free lunch" by holding a small amount of bonds. Commodities also over the long term appear to be relatively uncorrelated to equities, for example, which also may give a bit of a "free lunch".
Cheers
RIT
RIT, Thankyou for raising an important and interesting point. As you suggest, I shall attempt to lay out my thinking at length over the summer. For now, I'd put it as follows.
ReplyDeleteI do feel the need for a bit more balance in the portfolio, but over the past two years, I have concentrated on building up my equity holdings. I have some exposure to commodities and property through my shares and don't feel the need to go into these directly.
As you point out, gold and bonds are absent. Briefly, I feel the time is not right for either of these. Your own recent graphs suggest this for gold. As for bonds, I am wary of the inflation risk. It's something I am going to look at, but basically I need to spend more time doing the research.
Hi SG
ReplyDeleteI look forward to your thoughts once you have completed your research. As you know from my regular posts I too am very wary of inflation. It's a method that is just to easy for governments who won't say no to the "can I have it now" populace of the modern day and so is the route that will always be taken IMO.
That's why the "bonds" that I hold are:
1. 91% NS&I ILSC's. I know it's not really a bond but it protects the "low risk" portion of my portfolio from inflation.
2. 6% Index Linked Gilts. So inflation protected.
3. 3% Corporate Bonds. So not inflation protected.
So lots of inflation protection from my side.
Cheers
RIT