Diary of a Private Investor

Brexit, Averaging Down and Stop Losses

It has felt like a strange year in UK markets so far, not least thanks to the distraction and uncertainty of the upcoming Brexit vote. Jeremy Warner’s article in The Telegraph Business sums up what the vote will come down to; the economy or migration. While many people might want to leave the EU in order to regain more control over our borders, I believe that when it comes to the crunch, the attraction of business-as-usual in the economy will sway the majority. There are no guarantees of course but it seems to me there will be a market bounce once a vote to remain in the EU is confirmed. In the unlikely event of a vote to leave, all bets are off of course.

On this site, I am less concerned with the politics of Brexit and more concerned with the risks and opportunities it presents to my investments. Of the 24 holdings in my overall portfolio, 15 are down and 9 are up year-to-date. It is perhaps a little more insightful to drill down into the three portfolio constructs. All 4 Special Situations holdings are currently in profit with Iofina (IOF.L) leading the way with 123% gain, albeit from a low base, whereas 6 of 7 Focused Income holdings have loss ground, the most dramatic faller being Berkeley Group (BKG.L) which is 9% down. It is slightly more of a mixed bag among the Compound Growth holdings with 4 risers and 9 fallers; the highest winner being Lighthouse (LGT.L) with a 10% gain and the biggest loser being Alumasc (ALU.L) with a 13% loss. I have not included dividends in these headline figures, although they have been feeding through nicely and as planned.

This then throws up some questions about what actions to take; buy, sell or hold? I am generally cautious about averaging down, preferring instead to average up as a general principle, on the basis that the trend is my friend. However, I do believe that there is good value in some of the income shares that have fallen and as things stand, I intend to buy more of several holdings in that portfolio, although I will wait until the Brexit vote draws a little nearer before pressing the buy button. Berkeley Group (BKG.L) in particular looks to be a cracking buy with a forecast yield of 6.8% and I would also consider adding to my Braemar Shipping Services (BMS.L), Cape (CIU.L) and Primary Health Properties (PHP.L) holdings as funds become available. While I think Alumasc (ALU.L) will benefit from a vote to remain in the EU, they are close to breaching my stop loss and I do not have sufficient conviction to hold for much longer, especially given the drag on earnings that is created by their pension fund deficit – readers should not be surprised if I have exited this position by the time of my next update. Holdings where I am looking for opportunities to average up include Zytronic (ZYT.L), Air Partner (AIR.L), GVC Holdings (GVC.L) and Software Radio Technology (SRT.L), all of which offer decent upside potential vis-à-vis both market and share specific risk.

By and large, I remain happy with the diversification and value across my overall portfolio and feel confident that more holdings will move into positive territory as the year unfolds, even more so if the Brexit vote favours remaining in the EU.

 

Disclosure – At the time of writing, I hold long positions in all of the shares mentioned in this article, namely; BKG, IOF, ALU, LGT, BMS, CIU, ZYT, AIR, GVC and SRT.

 

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