Diary of a Private Investor

Portfolio Update – First Quarter to 4 July 2016

Tuesday marks the end of the first quarter of my 2016/17 portfolios (I prefer to work in tax years rather than calendar years) and the results so far make some stark reading:

ISA01 – Down 6.42% (excluding dividends)
Focused Income – Down 15.44% (excluding dividends)
Compound Growth – Down 22.94% (excluding dividends)
Special Situations – Up 66.8% (no dividends)

Overall portfolio performance – Up 14.74%
FTSE All Share – Up 6.12% (excluding dividends)

While I’m sure many investors would be pleased with a 14% quarterly gain versus a FTSE All Share index gain of 6%, it is clear that both my Compound Growth and Focused Income strategies have not been working out too well. As I’ve written on these pages during the course of the quarter, it has been a very strange market, not least of which because of the Brexit vote. Readers will recall that I went into that referendum holding 58% in cash, with overweight positions in three special situations (IOF, GVC, SRT), core positions in two quality growth shares (BVXP and ZYT), punts in two illiquid microcaps (NWT and PEG) and only nominal holdings in the remainder of the portfolio (excluding NXR and ALU which I hold sold out of completely) while I watched the Brexit vote from the sidelines.

There was an excellent post by Paul Scott in his 1 July SCVR that summarised how the make-up of the FTSE 100 index has been restructured in an incredibly short space of time. I suspect there is still a lot of unraveling to do as the markets try to make sense of which companies will thrive, survive or struggle amidst a rapidly changing and uncertain macro environment. There are just so many variables that I do not yet feel comfortable to be 100% invested, especially in relation to my core income and growth portfolios and nor do I feel comfortable managing a portfolio of 25 stocks during a period of high volatility and structural changes in the market. I have a busy day job that involves much international travel and I simply don’t have the time or capacity to be active in the markets on a daily basis – which I believe is what you need to be sufficiently agile in periods of high market turbulence.

Therefore, I will be conducting a major restructuring of my portfolios once markets open tomorrow. I will be culling all the nominal holdings and focusing on building stakes in a smaller number of core, quality holdings over the next six months. This means that for much of the next quarter, I will be largely in cash as I wait for suitable buying opportunities in a handful of quality growth shares (buy on the dips) and rebuild my income portfolio if/when there is a market correction. I have already added a fourth special situation (AAZ) and will retain my positions in the existing three (IOF, GVC, SRT). With cash as my safety net, I am comfortable being overweight in these four shares, for reasons I have written about previously on these pages.

It remains to be seen whether this proves to be the right strategy over the summer months. However, I am comfortable with my decision making in relation to my circumstances and feel that I will sleep well at night and hopefully, on several long haul flights.

I will update the portfolio holdings here tomorrow, once the trades have been executed.

 

Disclosure – At the time of writing, I own shares in IOF, GVC, SRT, AAZ, ZYT and BVXP

 

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