Wednesday, 1 April 2020

Portfolio Review to end March 2020


I don't usually review my portfolio at this point however, given the dramatic start to the year, it seems worthwhile taking stock and seeing how the dust has settled.

We are clearly now in the midst of a crisis - pubs, cafes, theatres and gyms ordered to close; all sporting events on ice with the Olympic Games postponed for a year; the chancellor borrowing hundreds of billions to support businesses and pay 80% of everyone's wages; the Bank of England base rate reduced to the lowest ever 0.1%; the death toll rising exponentially - currently up 381 563 in the past 24 hrs to a total of 1,800 2,352...these are extremely worrying times.

Before the outbreak, the OBR were forecasting government borrowing for the coming year 20/21 at £55bn. The scale of increased borrowing is currently unclear as we don't know how long before business as usual resumes but the estimates are that borrowing could easily exceed £200bn next year. As with the financial crisis of 2008, the long term effects of this current crisis could be just as long-lasting.

Naturally there has been extensive volatility on the markets these past few weeks - possibly the worst I have seen. I must admit that I underestimated the impact this would have when the outbreak started in January. In early March the FTSE saw its largest one day fall -10.8% since 1987 with a similar pull-back in the US where the Dow Jones recorded its biggest one day points fall of over 3,000. Then, a week later, the FTSE records its biggest one-day points jump of 452 and the Dow Jones climbs a record 2,100 points and the biggest gain for 90 years...remarkable...the global markets don't get any more dramatic than this

The price of Brent Crude crashed from a high of $60 in February to under $25 in the space of just a couple of weeks. The oil stocks have been particularly hard hit with the likes of Shell and BP down around 60% at one point... all in just the past month. So, I am very pleased I decided to make my portfolio fossil-free last year. These oil majors make up a large part of the FTSE 100 and the index is down around 25% since the start of the year whereas the S&P 500 has retreated just 18%.
  
Portfolio Additions

Of course, these dramatic market drops provide an opportunity to pick up a few bargains...be greedy when others are fearful! Unfortunately I am not so good at timing these acquisitions, jumping in far too quickly - I added SSE in late Feb at £16...a couple of weeks later it was down to £12, Ceres Power at 427p...dropped to 250p and then a week later added Unilever at £43.40, National Grid at 875p, repurchased Legal & General at 168p and then Smart Metering for 558p.

I have also topped up various existing holdings as the market tanked including TRIG, UKW, INRG and TR Property.

Bargains exist in this market. Opportunity seekers waiting for the “right” time to buy will never find it. At some point, just do it. You’re practically guaranteed to be wrong in the short term, but right in the long term. It just takes courage. (Novel Investor)

So, quite a few additions to my portfolio over recent weeks, all of which stemmed from the market falls. For the time being, my spending spree has come to an end as all the spare cash has now been deployed but of course the new ISA allowance starts next week.
  
Portfolio Returns

The FTSE 100 started the year at 7,542 and following the sell-off during just a single month, dropped 1,870 points to 5,672 if we add back in say a further 1.0% for dividends paid, this will give a ballpark total return loss of 23.9% for the past 3 months.
  
Although no longer a part of my portfolio due to fossil fuel holdings, the Vanguard Lifestrategy 60 fund is a diverse mix of global equities and bonds and provides a good benchmark for a balanced global portfolio. The fund is down 11.1% over the year to date (the VLS 80 down 15%).
  
Green Funds

These holdings now make up 90% of the total portfolio and appear to be holding up reasonable well compared to the wider market.

The better returns have come from ITM Power up 69%, largest share holding Orsted up 5% and Proton Power 15%. My largest renewable energy trust TRIG has fared reasonably well and is down just 4% including the quarterly dividend paid today. Recent addition Smart Metering is up 15% and Legal & General up 16% however these have been offset by SSE down 14% and Ceres Power down 16%.

The total return including dividends for my green allocation is -1.5%.

The Complete Basket

My only other holdings are TR Property -25% and Mid Wynd IT -8%.

I have just updated my spreadsheet with the returns including dividends of my actual investment portfolios - sipp flexi drawdown and ISAs - for the 3 months to end March.

As a whole, the portfolio has delivered a total return of -3.2% over the past 3 months.

Conclusion

It is getting on for 18 months since I started to move my portfolio towards more climate-friendly investments and it is reassuring to see they have held up reasonably well during this market storm. I certainly feel much better investing in the likes of Orsted, a global leader in offshore wind, rather index funds with their fossil fuel companies and the big banks that finance their operations.

I imagine there will be volatility in the markets for some weeks or even months as this pandemic unfolds but at some time, hopefully sooner rather than later, optimism will return, the restrictions will be removed and we get back to something like normality.

What we are left with is the experience of a sudden market crash and the feelings it brings. Fortunately, storms like this don't come around very often - maybe once a decade or so but when they strike it's often very sudden and there is no time to react. As usual it takes courage to invest during such a dramatic downturn, patience to ride out the storm and humility to accept that the markets will often make our decisions to buy or sell appear foolish.

"Survival as an investor over that famous long course depends from the very first on recognition that we do not know what is going to happen. We can speculate or calculate or estimate, but we can never be certain". (Peter Bernstein)

For me there are a few positives from all this:

1. The pandemic has shown that it is possible to change global-scale patterns of human behaviour very quickly when threats appear. I am therefore hopeful that a similar response can be made in relation to the climate emergency. I suppose the acid test will be whether governments and enough people appreciate the scale of the climate threat in the same way as Covid-19.

2. The crisis is bringing out the very best in us - 2,000 former doctors and nurses return to the front line whilst 750,000 volunteers sign up online within a couple of days - and I believe it will help to unite the country after the division of recent years due to Brexit.

3. The traffic is much lighter, air quality has improved and it's so much quieter everywhere - something I really appreciate and such a contrast to normal times.

But investments aside, what I think I take away from the crisis is the increased sense of valuing the things that really matter - the health and well being of family and friends, a roof over your head, a warm comfortable bed at night, clean safe drinking water, food in our shops and supermarkets (despite some shortages at times), a first class national health service, a walk in the fresh air and just hearing the birds sing and see the green leaves of the hawthorn and the wildflowers. It's good to keep a sense of appreciation of these simple things we all often take for granted and retain a sense of perspective.

"All of humanity's problems stem from our inability to sit quietly in a room alone" Pascal.
(Click to enlarge)

Stay safe, stay at home wherever possible and help to take the pressure off the NHS which will be tested to the limits these next few weeks.

Feel free to share your thoughts on the crisis...and if you keep track of portfolio returns, feel free to leave a comment and share with others how your investments have fared over recent weeks.

Tuesday, 24 March 2020

iShares Global Clean Energy ETF - Update

This exchange traded fund gives investors an opportunity to invest in a wide range of globally diverse companies involved in renewable energy.

It is an index fund and tracks the S&P Global Clean Energy Index which is made up of 30 of the worlds leading companies in the clean energy sector.

The fund was added to my green portfolio last March, shortly after I put my index funds under the spotlight and decided to move my portfolio away from fossil fuels. My initial purchase price was 433p and later in the year I topped up my holding at 490p and topped up a third time last week at 435p. The shares are held in my SIPP drawdown and also my ISA with AJ Bell Youinvest.

The ETF fund holdings include :

Enphase (6.6%) a global energy technology company and the worlds leading supplier of solar microinverters. These connect solar generation, storage and management on one intelligent platform. The shares are listed on the US Nasdaq exchange and have grown quickly over the past year from $9 to currently $32.

Solaredge Technologies (5.5%) another Nasdaq-listed US company providing inverter solutions across all segments of the solar PV market. Over the past year the stock has risen from $38 to currently $79.

Vestas Wind (6.5%) one I also hold as a stand-alone in my portfolio

Siemens Gamesa (7.4%) a Spanish-based renewable engineering company involved in the manufacturing of wind turbines and related servicing. Their products have been installed in over 90 countries all around the world with a current combined capacity of 100GW.

Returns

The fund had a good run over the past year reaching a high point of 620p in mid February but was obviously affected by the global sell-off and the share price dropped back around 30%. At the current price of 439p my total return has been  -5.0% for the year including dividends of 8.2p which is a yield of just below 2.0% and subject to exchange fluctuations.

The global renewable energy sector is likely to see continued growth over the coming decade as the world attempts to address the climate crisis and move to curb carbon emissions. We are weaning our economies off fossil fuels and the transition to clean energy such as wind, solar and wave power is well underway and likely to accelerate. As can be seen from the chart, the global renewables represented by INRG has performed much better than the oil sector represented by RDSB.
 
One Year Share Price  INRG v RDSB
(click to enlarge)

I have taken a punt on a few individual companies such as Orsted, Ceres Power and Vestas Wind for example but a diversified approach with the likes of this ETF probably makes more sense so I am happy to continue holding these shares. They currently make up around 9% of my green portfolio.

Once we get past the coronavirus panic, I am hoping this ETF will bounce back but for the time being I think it's just a case of sit tight and try not to panic!

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation - always DYOR!

Thursday, 19 March 2020

Smart Metering Systems - Portfolio Addition


SMS is an AIM-listed small company with HQ in Glasgow. Current market cap. is around £650 million. It employs over 1,200 people throughout the UK and its core business as the name suggests is the roll out of smart meters and carbon reduction assets to facilitate the transition to a low carbon future.

They offer a comprehensive service to the energy suppliers including the operation of metering databases as well as connection services directly to large energy consumers and multi-site operations. No other UK organisation offers the same in-house service.

Their mission is simply to deliver the future of smart energy. Customers include the large utility companies as well as smaller independent providers and new market participants; large UK housebuilders and also property developers; large supermarkets, retail chains, banks as well as rail and telecoms companies


Smart Meters

If the UK is to reach its target of net zero emissions by 2050, it will be crucial to look at new ways of how energy is created, stored and used. Smart meters will be an essential key to the creation of a more flexible, decentralised low carbon energy system and the government are already committed to the widespread roll out of smart meters by 2024. So far, around 16 million homes have been converted which leaves a further 36 million homes to have a smart meter fitted over the next four years.

Many energy providers will no longer allow customers to switch supply unless they have a smart meter so this should help to speed up the roll out.

Smart meters connect the user with their energy supplier and the wider energy network. When enough customers are connected, it will be possible to more accurately predict how much energy is required around the country at any particular time of day and should help to match supply and demand and balance the entire grid. Another feature is the possibility that relatives could be alerted if elderly people showed signs of dementia due to unusual energy usage or dangerously underheated homes in Winter for example.



It should be possible to create a local neighbourhood network and trade energy with other groups or communities as well as sell surplus energy from combined solar energy panels to the highest bidder. Another aspect is using smart time-of-use tariffs to charge the electric car at the cheapest rates and also use the combined resources of energy stored in car batteries to move both ways.

Results

The company recently announced results for the full year of 2019 (link via Investegate). Pre tax profits grew by 2.1% to £5.5m on revenues of £114.3m (2018 £98.5m). The full year dividend was lifted by 15% to 6.88p and a final dividend of 4.58p will be paid 4th June with XD date of 23rd April.

There was a 20% increase in recurring revenues to £90.1m and assets under management increased from 3.1 million to 3.7m over the year.

They also announced a new partnership with Columbia Threadneedle Sustainable Infrastructure Fund to develop its pipeline of carbon reduction asset opportunities.

Earlier this month the company agreed a sale of a minority of their meter assets for £291m. This will enable the implementation of an enhanced long-term sustainable dividend policy.

Commenting on the results, Alan Foy, Chief Executive Officer:

"A 20% increase in our key financial metric - ILARR - and a 14% increase in EBITDA in extremely challenging markets, is a testimony to our market position and operational capabilities.

Last week's transaction will not only realise considerable cash returns and demonstrates the substantial value of our smart meter portfolio but also will enable us to enhance greatly shareholder value with a significant and sustainable increase in dividends.
The UK is the first major economy to adopt net zero emissions by 2050, mainly by electrification strategies. This will need the establishment of a decentralised and decarbonised energy system as well as substantial capital to meet that target.
A combination of our strengthened balance sheet to support our smart meter rollout programme, today's partnership announcement with ESIF and our energy management division's track record, positions us extremely well to accelerate and rapid expand our CaRe assets in the current and emerging electricity generation, storage, lighting, heating and transportation markets."  
12m share price comparison v AIM 100

The markets responded positively to the results and sale of assets, the share price briefly topped the £6.00 level but has retreated due to the COVID-19 fears. The shares joined my portfolio this week at the price of 558p. I am keeping fingers crossed this is not another acquisition that would have been better made a week or two later!

However as Novel Investor reminded me yesterday:

Bargains exist in this market. Opportunity seekers waiting for the “right” time to buy will never find it. At some point, just do it. You’re practically guaranteed to be wrong in the short term, but right in the long term. It just takes courage.

Stay safe, avoid the crowds and keep washing those hands.


As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation... investing in smaller companies can be rewarding but is higher risk - always DYOR!

Tuesday, 17 March 2020

Legal & General - Back On Board!


Readers may recall that this shareholding was added to my portfolio last August however it seems to have been edged out a few months later when I needed additional funds to purchase my AFC Energy shares. I continue to follow sold investments and what sparked my renewed interest was the announcement that they were launching a new fossil-free pension fund later this year - something I have been pushing for over the past year or so.

Although far from perfect, LGIM have a decent record on climate-related issues and try to hold companies to account at their AGM and push directors of the large oil companies to comply with their obligations under the Paris Agreement on climate change. In a recent survey, Shareaction examined the record of 75 of the world's most influential asset managers on issues of responsible investments, climate change and human rights. L&G and Aviva were two of only five managers to be awarded an A grade. However 50% of managers had a very limited or substandard approach to ESG issues - in fact the six largest global operators including BackRock (D) and Vanguard (E) were all in the bottom two catagories and all based in the US which suggests the Americans fund managers under the Trump administration are far less progressive on ESG issues.

Obviously when investors can choose where to invest their long-term pension savings, many will be attracted to a fund that excludes the sort of companies like Exxon, Shell and BP that continue to compromise the very future those savers will be looking forward to in retirement.

50% fall in Shell and BP 2020 Year to Date
(click to enlarge)

During the recent market turmoil, these fossil fuel multinationals have been hammered with the share price falling by over 50% since the start of this year. Personally I don't really see them recovering any time soon without a fundamental shift in strategy to embrace renewable energy and phase out oil and gas to meet their obligations to the wider global community.

Of course LGEN has been caught up in the market turmoil and its share price has fallen by over 40% since January so I was able to pick up the shares for my portfolio at 168p on Monday. That was a considerable discount - 39% - to the 275p when I sold them last November.

The company released results for the full year 2019 (link via Investegate). Profits increased by 12% to £2.1bn with earning per share of 28.6p which supported a 7% uplift in the dividend to 17.57p which makes a nice dividend yield of over 10% at my purchase price. The final dividend of 12.64p will be paid 4th June and the shares will go XD 23rd April.

I must admit to having underestimated the seriousness of this outbreak and its impact on the global markets. In February, I was thinking it would not be so dramatic and possibly we would all be over the worst by Easter. As a result I have jumped in too early with some of my recent additions. Of course, this outbreak poses threats but it is also an opportunity to gain experience and to understand more about ourselves. These are the most testing of times and the markets are understandably jittery so it would not surprise me at all to see further weakness in the coming couple of months. 

Coronavirus takes down the global economy...

However, this pandemic will start to blow over, the pressure will ease and we will all resume our normal routines and the markets will bounce back...they always do. So it's just a question of patience, trying to keep calm and maintaining a sense of perspective - of course, easier said than done!

Stay safe.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation - always DYOR!