Quarter 3 Portfolio Review

Following on from my half year review at the end of June, I have just reviewed my portfolios - sipp drawdown and ISA - for the 9 months to the end of September.

The FTSE 100 is up 4% for the quarter at 6,462. However, since the start of 2013, the FTSE 100 is up 9.5%  - if we add on another 2.5% for dividends paid, this will give a ballpark figure of 12% total return for the 9 months to date.

My total return, including income, is up 9.8% so far.

My portfolio is allocated between fixed interest (40%) and equities (60%), which in turn are divided between individual shares and investment trusts.

Shares

Individual shares have been a little mixed, providing a total return of 10.9% over the 9 month period. The better performers were again Reckitt & Benckiser (20.0%),  Sainsbury (22.2%), Abbey Protection (20.6%) and also GlaxoSmithKline (20.6%). BHP Billiton has recovered a little in recent months but remains well down over the 9 months(-11.1%). Others that have had a good quarter are BSkyB up 12% and Carillion up 11%.

Total income on shares so far is 3.4%.

Investment Trusts

Most of the trusts have recovered the ground lost in the previous quarter. The total return for the 9 months was 11.6% - the best return came from smaller companies specialist Aberforth with 44.5%. Others continuing to provide solid returns are Law Debenture (20.4%), Temple Bar (20.6%), Bankers (24.2%), Edinburgh (20.7%) and City of London (17.6%). The only trust that is struggling for me this year has been recently added Aberdeen Asian Income (-12%).

Income from the trusts portfolio has been steady at 3.0%.


Fixed Interest

Following the problems with the Co-op Bank in May which affected capital values over the 2nd quarter, I am pleased to report that my PIBS and preference shares have seen a strong bounce-back this third quarter. Total return for the 3 months was 7% including income of  1.2%.

Over the 9 months of 2013, total return is 6.4% and includes income of 3.7%


As a whole, the portfolio has advanced 9.8% over the first 9 months of this year including the payment of 3.4% income. Bearing in mind that 40% of the portfolio is represented by PIBS and fixed income securities, I am reasonably happy with this.

As an income investor, the steady flow of dividends and interest has been predictably reassuring and is on track to yield around 4.7% for the year.

As ever, I would be interested to hear how others have done over recent months - leave a comment if you keep track of your portfolio.

Nichols - New Purchase

I did a write-up on this one back in March following the final results (here’s the link). I really had intended to purchase at the time but for one reason or another I was distracted and the share price advanced quite rapidly.

I have been patiently waiting for a pull back but to no avail. I have therefore taken the plunge with my customary ‘half’ now at 1230p and will top up at a later date.

Since the first post, Nichols have issued interim results in July for the 6 months to end June 2013.

Here’s the highlights:

• Profit before tax up 9% to £9.0m
• Basic earnings per share up 11% to 18.76p
• Strong net cash position of £31.2m (H1 2012: £23.6m)
• Exclusive licence to add Extreme Sports and Energy to brand portfolio
• Interim dividend up 13% to 6.32p

I am looking for around 20p dividend for the full year which would put it on a forward yield of 1.6%.

The company are currently planning further growth for 2014 and beyond including the introduction of further new products, entering new international markets as well as continuing to invest in existing core brands.

Nichols is listed on AIM and has a market cap of around £450m. As the rules have recently changed, I have been able to purchase this in my ISA.

More on this in the new year.

Dunedin Income Trust - Interim Results

In March, I commented on DIG after the full year results were issued (here’s the link). At the time I was a little concerned regarding the dip in revenue reserves and also the meagre CAGR for dividend growth rates over recent years.

They have today issued interim results for the half year to 31st July (link via Investegate). Share price total return (incl. dividends) increased 13.7% compared to the benchmark FTSE All Share Index increase of 8.9%.

Income from dividends has increased by 10%, boosted by a one-off special from Sage. Nearly 25% of dividends were provided by overseas listed holdings. Revenue reserves have been boosted from £19.9m to £23.2m (+16.5%) which should help with future dividend growth.

The chairman‘s statement concluded “We are comfortable that our existing holdings, are in good shape operationally, possess sound balance sheets and strong management teams and are well placed to weather difficult conditions. Recent crises have certainly taught us that uncertainty is the friend of the long term investor and we will continue to look closely for any potential opportunities that may be thrown up by events. In the meantime your Company is well placed to continue to grow its distributions to shareholders.”

The trust has recently moved to quarterly payments and expects the full year payment to be 3% ahead of the previous year. I have 11.1p pencilled in for the full year which would provide a current yield of around 4.1%.

Top ten holdings are all from the FTSE 100

GlaxoSmithKline 5.2%
Vodafone Group 5.1
Centrica                      5.0
Royal Dutch Shell 4.8
HSBC Holdings 4.5
Br. American Tobacco 4.1
Prudential Corporation 3.5
Unilever                      3.4
Pearson                     3.3
Tesco 3.3

Total                     42.2%

More on this following full year results next March.

City of London Trust - Full Year Results

City of London, like Murray Income, is another of my steady, predictable, middle-of-the-road income trusts. It is one of the older investment trusts incorporated in 1891. For the past 22 years it has been managed by Job Curtis. He is a value investor who counts Warren Buffett as his investment hero.

City have just announced full year results for the year to 30th June 2013. Net assets total return has increased by 23.8% over the year compared to the FTSE All Share benchmark of 17.9%. Dividends have increased by 4.1% from 13.74p to currently 14.3p giving a yield of 3.9%. Companies in City of London's portfolio on average increased their dividends by 6.2% (excluding special dividends).  The dividend has been increased for the 47th consecutive year. 

3 yr comparison -v- FTSE All Share

Ongoing charge remains, at 0.44%, the lowest in the sector. The Board has reviewed the Company's management fee arrangements with a view to simplifying these and making the Company more attractive to a wider audience of retail investors. With effect from 1 July 2013 the performance fee element of the management fee arrangements has been removed.  The management fee will henceforth be 0.365% per annum of net assets, reducing to 0.35% on the balance of net assets above £1 billion. (City of London previously levied a performance fee if it outperformed its benchmark by 15% or more over a rolling three year period, capped to a maximum management fee of 0.65% of net assets.)

As a result, CTY will continue to have one of the lowest ongoing charges in the UK Growth and Income sector and is extremely competitive against other equity investment alternatives.

The portfolio performance benefited from underweight positions in the oil and mining sectors, allied with overweight position in industrial engineering - notably IMI which returned 54%. Other significant contributors were housebuilder Persimmon and holiday firm Tui Travel which both returned over 100%, Standard Life 60% and betting firm William Hill with 73%. Share selection accounted for 4.1% of out-performance over the FTSE and gearing a further 2.1%.

Over the year there was a 4% reduction in the weighting in large companies with medium-sized companies increasing by 3% and overseas listed by 1%.  Large companies (FTSE 100) now account for 76% of the portfolio, medium companies 16% and overseas-listed companies, 8%.

I first purchased CTY for my personal equity plan (PEP) in 1995. I now hold in both my ISA and Sipp drawdown portfolios. It feels like a dependable, faithful old carthorse. Maybe that's where Slow & Steady Steps.. comes from!!

Dialight - Portfolio Sale

Dialight have today issued a further warning on profits for the year and say :

"Since the interim results, the Group has announced one contract for Obstruction Systems and has made good progress towards qualification and award of other significant Obstruction System business. However, the Group does not expect these contracts to be awarded in time to sufficiently impact the current financial year. This is likely to negatively affect the Group's expectations for overall financial performance in 2013."

They issued a similar caution at the time of announcing half year results in June (see update). A more reassuring statement followed last month (further update) so I am a little disturbed to see this warning on profits so soon after the August trading statement.

I have had a good run with Dialight over the past 3 years, and I may return to it again at a later time, but for now I am a little nervous there may be further bad news and corresponding share price weakness. 

I have decided to take profits - sale @ £11.74 (the proceeds may be needed in any event in connection with a pending house move). 

Murray Income Trust - Full Year Results

Murray Income Trust has been in my basket of income focused investments for several years.

In 2013 it will be celebrating its 90th year as an investment trust. It is currently managed by Charles Luke and his team at Aberdeen Asset Management. It is essentially a UK growth & income trust but like several others in this sector, the management have been gradually increasing their exposure to larger, high-quality overseas listed companies. These currently make up 15% of the portfolio and include Roche and Nestle.

Murray Income Trust has this week issued its  results for the full year to 30th June 2013 (link via Investegate).

Share price total return is up 21.5% over the year compared to the FTSE All Share Index of 18.9%. The board are proposing a final dividend of 9.75p making a total of 30.75p for the full year - an increase of 3.4% compared to 2012.  It has a record of increasing annual dividends in each of the past 30 years. At the current share price of around 782p, the yield is 3.9%.

12m share price (via Digital Look)

The trusts performance benefited from its underweight position in mining and oil. It also benefited from a modest exposure to smaller companies via holdings of Aberforth IT and Dunedin SC Trust - both have increased over 40%. Aberforth has become a top 20 holding in the portfolio.

The managers policy is to buy and hold for the longer term - portfolio turnover is reasonably low at under 10% and this helps to keep ongoing costs at 0.75%.

“Our aim is to ensure that the Company's capital is employed as effectively as possible and to that end we will always seek to improve the earnings and dividend generating capability of the Company's holdings if we feel that valuations remain attractive.

Our belief is that companies with strong competitive positions, robust balance sheets and experienced management teams will generate attractive earnings and dividend growth over the long term which should translate into healthy share price appreciation“  Charles Luke.

Its not an investment that is going to shoot the lights out but I regard it as a solid, middle-of-the-road steady performer.

As ever, please DYOR.

5 Years On from Armageddon

In 2008, I was starting to explore the possibility of early retirement and ways to take more income from investments. At the time, I was receiving around 6% interest on my cash deposits with the Coventry BS so there was no great impetus to switch into equities. The FTSE 100 was around 6,000 and the yield would have been around 3%.

By the end of the year, the financial landscape had seen a sizemic shift.

FTSE 100   2008/09

The dramatic market falls started in September with the demise of US investment bank Lehman Brothers, and by early October the situation had descended into utter panic. The first week saw the main market fall by 9% followed by a whopping 26% fall the following week to bring the FTSE to below 4,000. The main casualties were banks and miners - RBS was down a massive 60% in just one week.

In many ways, it felt a bit like Armageddon!

Shareholders were not the only casualties of the turmoil. Thousands of savers with Icelandic banks such as Kaupthing and Icesave were left wondering about their savings when the banks suddenly went into administration.


The Government and Bank of England had to step in with a support package of £500bn to prop up RBS, HBOS and later Lloyds in an attempt to halt the wildfire financial panic. The chancellor at the time, Alastair Darling later said Britain was two hours away from total social collapse  -

"The risk I have always seen is that people forget just how close we came to a complete collapse and the thing about a collapse of the banks is that it wouldn’t just have been the banks in ruins, it would have been complete economic and therefore social collapse.

People without money can do nothing – you can’t buy your petrol, you can’t buy your food, anything".

A Buying Opportunity

In situations described above where fear runs equity markets, there is a disconnect between share prices and fundamental value which can offer great opportunities. Efficient market hypothesis goes out of the window temporarily and is replaced by a panic driven momentum.

Legendary investor John Templeton said famously "Invest at the point of maximum pessimism.”

During October/November I took a punt on several shares which seemed to have entered bargain basement territory - some were top ups of existing holdings - Petrofac (339p), Weir (320p), RPS Group (126p) and BHP Billiton (1054p), others were new additions - Wood Group (195p), Lamprell (74p), Vodafone (119p) and Prudential (250p).

In retrospect, I obviously regret not being a bit braver and buying more - within the next couple of years, the markets had witnessed quite a recovery and it would have been possible to secure a return of double, or possibly treble the sum invested - hey ho! During 2009, after an initial drop back, the FTSE finished the year up around 27% on a total return basis.

Some 5 years on and, for one reason or another, all the shares apart from Billiton have been gradually sold and the proceeds recycled into a far more diversified basket of investment trusts, other shares and fixed interest securities.

As an investor, this period of volatility was quite a scary ride but also a big learning curve.

The main lessons I picked up were that if you can become more relaxed about share price volatility, it will be possible to secure a better income (and better total return) by exploiting a shares negative reaction to poor market sentiment or short term bad news. Secondly, don’t get too panicky when markets are falling and keep on falling because an eventual recovery is inevitable. Finally, it sometimes pays to take a chance!

Having said that, I really do not wish to re-visit the market meltdown of late 2008 for a good many years!

If you were investing during this time, leave a comment with your memories.

Keeping Track of Dividends

As an income investor who depends on dividends to pay the bills and buy the food, it is important for me to have a good idea what income I can expect from each investment and when it will be due for payment.

Many of my investment trusts pay dividends quarterly which is very useful. With shares and fixed income, the income is usually paid half yearly.

If you have only two or three holdings, it may be simple to keep track of receipts in a notebook. However with several shares and/or investment trusts, I find it much easier to keep track using a sreadsheet on my computer.

When I make a new purchase, the first thing to record on my income spreadsheet will be the dates for expected payments, the amount expected and some way to indicate that the payment has been received.

I use a simple Microsoft Works S/S package that was installed on my old computer when purchased. The modern day version would be Microsoft Excel. Here’s how it  looks using the sipp portfolio from this recent portfolio review  -

click to enlarge

As information comes in from annual reports and Investegate news, the spreadsheet will be updated. For example, I recently received this announcement regarding the next quarterly dividend from City of London Trust to be paid in November. As each announcement comes in, it will be updated and the entry marked in bold font. Similarly, when a payment is received in my brokers account it is marked in bold.

Spreadsheet Formulas

Formulas are a quick way of automatically adding up lengthy columns of figures or multiplying a constant number (e.g. shares held) by a changing number (e.g. dividend amount). I use a few simple formulas in my spreadsheet -

Column G ‘Amount Received’ is a formula to multiply the number of shares held in column D x the current dividend per share in column F. The formula for the first line - Murray Income - is =D4*F4/100

This formula can then be simply copied and pasted for each line.

The next column is the full year dividend as a percentage of initial cost. The formula is =SUM(E4+F4)*D4/C4

The total dividends received for the year =SUM(G4:G41)

In a future article, I will cover how to keep track of capital.

As ever, slow & steady steps….

Abbey Protection - Interim Results

Abbey is a small AIM listed company and is the leading supplier of specialist legal and professional fees insurance to small and medium UK companies. One of their divisions supplies specialist policies to cover the cost of professional fees involved in tax investigations.

Abbey is the smallest holding in my portfolio with a market cap of around £115m, it is conservatively managed and has net cash on the balance sheet. Since my first post on Abbey in March, it is now possible to hold AIM-listed shares in an ISA so as I intend holding this for the longer term, I will probably look to move it over from my trading a/c at some stage.

Abbey have recently issued their half year results to end June 2013 ( link via Abbey website).

Profits after tax are up 7.7% at £4.2m (£3.9m last year) and the company are lifting the interim dividend 14% to 2.4p (2.1p 2012). If the final is increased by a similar percentage, the total for the full year will be 5.6p giving a forward yield of 4.8%. Last year Abbey paid out £5m to shareholders by way of a 5p per share special dividend - as a result, net shareholder funds have reduced by £2m to £28.4m.

The share price has had a good run this past year - up around 30% compared to a rise of around 13% for the AIM 100 index - there is little movement following the results and I would guess the current price is just about up with events for the time being at 115p.

12m chart Abbey v AIM 100
(click to enlarge)

Commenting on the results, CEO Colin Davison concluded:

"We remain cautious for the remainder of 2013, with the opportunities afforded by the potential development of our legal and tax services products off-setting the expected headwinds in the restructuring of certain divisions, the reduction in ATE revenues and Ibex results. 

Overall, we look to the future with optimism, in the knowledge that our core insurance and services business remains secure and supported by an excellent team of dedicated professionals". 

As ever please DYOR