Performance
Review.
December turned out to be a less
positive month for markets as the recent bear market / Santa rally ran
out of steam.The FTSE All Share index which I use as
a benchmark for the
Compound
Income Scores Portfolio (CISP) delivered
a -1.4% total return for the
month, which leaves it with a positive
total return of +0.34% for the year.
Against this the CISP had a marginally less bad month producing a total
return
of -1.2%. Thus for the year the
CISP produced a -10.3% total return. While this is not a great
performance
against the broader market, dominated as
it is by large oils, miners and
pharmaceutical stocks, I don't think it
is too bad against the Mid 250 (-17.4%),
Small
Cap (-13.56%) and FTSE Aim down around
-30% in capital terms. As you can see the portfolio
has significant exposure to Mid Cap and
Smaller Companies (including AIM stocks) suggesting that the Scores and
the monthly screening process have added some relative value this year
against those parts of the market, if not the FTSE
100 which manged a +4.7% total return this year. Please see
the table at the top & Graphs in the
Scores & Portfolio sections linked above and at the top of this
post for a more detailed history of
this, although it is worth noting that
the portfolio did benefit from its above average exposure to Mid &
Small Cap names in the past. I would expect it too in the future too at
some point when better economic and market condiitons arrive.
In a difficult year for investors I find it amusing that FTSE 100 has
finally had its year in the sun after being generally be-rated as being a
useless index and it being suggested that all you needed was a mix of
NASDAQ, FANG tech stocks, US large cap generally and Bitcoin perhaps.
All of which saw heavy falls as valuations finally
started to matter again as interest rates and bond yield finally climbed
off of what had been assumed to be a permanent floor. Going forwards it
remains to be seen if the recent trend of value outperformance will
continue. Or if growth stocks will reassert themeselves as and when
interest rates and bond yields stop rising and maybe even start heading
down again if inflation shows signs of coming under control.
Portfolio Review
As shown in the fact sheet for December
below top contributors were
Sylvania Platinum
(SLP) on no real news, recent purchase
Renew Holdings (RNWH) which advanced after their good results towards the end of last month. While
BA Systems (BA.)
(which I have retained despite its lower Score as it looks technically
strong with good momentum) took third place as the war in Ukraine
rumbles on & as it bounced back from a weak performance in November.
On the downside there
were less significant moves but the
worst came from
Airtel Africa (AAF), MP Evans (MPE) & Robert Walters (RWA).
Transactions in December saw the sale of
S&U (SUS) based
on its low score, although it still
seems like a well managed company to me ,
so I wouldn't put you off holding it for the long term. A more
marginal sales
based on their score were top slices of
Airtel Africa
(AAF) (good as it turned out as it was a top 3 negative contributor this month) &
Appreciate (APP)
as they had grown to be large holdings so I reduced them as a source of
funds to help fund this months purchase at an average weight. In addition, somewhat unusually, I also completed
a mid month sale of the rest of
Appreciate to put the proceeds to work
in the bidder
Paypoint (PAY) as their shares had fallen back
despite the likely sizeable upgrades to come assuming the bid completes.
Maybe I should have been more patient as arbitragers seems to be
shorting Paypoint to take advatage of the dicount in the Appreciate
price to the bid. I could have then topped it up assuming the bid completed, but
I just felt it was a good entry point in Paypoint down towards 500p, as ever time will tell on that.
Otherwise against these sales & top slicing the new purchase
was perhaps controversially in
TBC Bank(TBCG)
the large Georgian bank which looks
incredibly cheap given the concerns about the Ukraine war in the region
rumbling on, although given how it is going for Putin I don't see him
invading Georgia any timne soon. Against that it has strong market
positon in banking, a
number of digital portals, is growing
strongly domestically and is expanding geographically too. See their
capital markets day here for more details if you are interested. As such it
seemed a good value replacement for S&U albeit probably not one for
widow and orphans or the faint hearted. Other than that and the switch
into Paypoint from Appreciate I also topped up
Morgan Sindall (MGNS) which continues to look unloved and therefore good value despite robust trading and a big order backlog.
For the year as a whole while being down 10% or so in absolute terms and
against the market is not great, I don't think it was a bad outcome in
the circumstances. Having said that it is pretty terrible in terms of
trying to maintain or grow your assets when inflation (the real villain
this year) is running at around 10%. On the income side of things the
portfolio delivered income that was just ahead of that forecast at the
start of the
year, although the stocks that delivered it changed along the way. Thus
the total income was down slightly on 2021 bumper haul which had more
than doubled from 2020's Covid induced cuts. Nevertheless looking back
over the last four years since I started recording the income this has
grown by 11.6% per annum which is well ahead of inflation over that time
period, thus achieving the goal of growing the income in real terms
over time. It is worth noting that this income has been lumpy and not in
a
straight line reflecting portfolio changes and my not targetting a
particular yield plus the Covid disruptions to dividend payments.
Summary & Conclusion
A poor end to the year for what was a
difficult year for markets and investors as various worries from
inflation, rising rates, recession, war and resultant cost of lving
squeeze. Despite this the UK market was up slightly thanks to its
heavy weighting in beneficiaries of this years conditons such as miners
and oil majors. While the
portfolio down by just over 10%,
which is not too bad in the context of
the damage done in Mid Cap & Smaller
Companies Indices. Indeed Mid Cap
stocks have now underperformed over the
whole 7 year+ period. This may well
reflect all the Brexit shenanigans,
Covid and the current recession but
probably means that it may be a good
hunting ground for bargains before or
once the economic outlook starts to
appear less clouded.
Talking of outlook it seems hard to
believe that we are truly out of the
woods in market terms given we still
have what has been the most widely
anticipated / forecast recession to
"look forward to". We have yet to see
the effects of that on corporate
earnings and I suspect when we do we
might see more downside again. I could
of course be wrong as the market
does look ahead and discount things
ahead of time, but it just seem to me
that it is a bit too early to be
sanguine about
things at the moment. Indeed I have read
suggestions that the market does not bottom out until after the first
rate cut from the US Fed not just them stopping raising rates and that
still seems some way off. Having said that I'm fairly relaxed
about being close to fully invested in
the CISP as it continues to deliver a decent the
level of dividend income, even
if the capital value is down a little.
Obviously not great in real terms in the
context of double digit inflation, but
at least there is plenty of value around
now as demonstrated by the average P/E
of 9.6x & dividend yield of 4.8% from
the portfolio. Please see the fact sheet above for more details. Or if you would
like to see the full portfolio with
comments on news flow and see
transactions as they happen and
gain access to the Scores that it is
based on then please see
here
for subscription details.
On a personal note my own returns overall were also around the -10% mark.
Within that though it was notable that an account run in line with the
Scores continues to do better than one where I trust my own judgement
more. Thus seeming to prove the research findings that models often
outperform experts and represent a cap rather than a floor for
performance. Thanks for reading if you got this far
and may I take this opportunity to wish
you and yours and your portfolio a good
year ahead whatever you are doing and however you choose to
invest.
Final admin note on the site & with the model outperformance noted
above. Having changed hosts I am struggling a bit with maintianing the
site and I get the impression there isn't much interest in the ouput
here any way. So I may look at automating more of the site and let the
numbers, graphs and fact sheets etc. speak for themselves and have less if
any commnetary like this on the site. I will however look at doing more
commentary for subscribers via their files etc. As a result the Blog
Archive & comments are no longer available or working, but I'm
not sure they got used much anyway. If you should wish to get in touch
then please use the updated details on the Contact page or follow me
& message me via
Twitter if you still use that. Happy New Year.