Diary of a Private Investor

Portfolio Restructuring

As stated in recent posts, I believe we are entering a period of high uncertainty and volatility, not just in the UK stock market but also the EU, US and currency markets. Frankly, I am not smart enough and neither do I have sufficient time to trade this volatility successfully. Therefore, I have decided to reduce the number of my portfolio holdings, focusing on a smaller number of shares that I believe will succeed because of or in spite of current events. Also, I am currently 42% in cash and have the intention of drip feeding funds back into the market as certainty returns and volatility subsides.

As things stand, it is my intention not to tinker with these holdings throughout the summer months, although I would never say never.

Special Situations
I am overweight these four positions because I am confident there is strong upside potential with low downside risk (others might disagree with my assessment, particularly in the two resource stocks).

Anglo Asian Mining (AAZ) – with currency uncertainty across the globe, gold and silver offer something of a safe haven. This minnow producer with assets in Azerbaijan is reducing operational costs and increasing production at a time when the price of its resources is likely to rise. Holding AAZ also provides a hedge for my overall portfolio.

GVC Holdings (GVC) – as I have written previously on these pages, GVC will be entering the FTSE 250 in September (now confirmed by a company RNS) and this will mean an influx of institutional buying, especially by funds that track the index. Added to this, I am confident we will see a successful integration of the bwin.pty acquisition, debt refinancing early in 2017 and a return to dividends during 2017.

Iofina (IOF) – earnings are in dollars which is a benefit given current weakness in sterling. Unlike gold and silver which are already rising, the iodine price is dependent on machinations in Chile, although I believe it is currently artificially low and while I have no idea when it will rise, I believe that is the natural trajectory. During this period of depressed iodine prices, IOF have reduced costs, restructured debt and are able to increase production relatively swiftly.

Software Radio Technology (SRT) – since March when a transformational $100m deal was announced, I believe SRT has been significantly undervalued by the market. I believe it is only a matter of time until a re-rating occurs. I don’t know whether the trigger will be additional deals or the current one showing up in reported earnings – either way, I am happy to wait this one out.

Compound Growth
One of the problems with being invested in smallcap growth shares at this time, is that profit warnings and therefore, reduced forecasts, tend to lag current events. I have focused on companies that I believe have a competitive moat and will be largely unaffected (or will even benefit from) current events. This said, my intended holding period for these companies is 3-5 years, so I am happy to ride out short-term volatility and use that opportunity to drip feed additional funds back into the market, especially into these five holdings:

Avesco (AVS)
Bioventix (BVXP)
Brainjuicer (BJU)
Victrex (VCT)
Zytronic (ZYT)

Focused Income
It is difficult to assess which companies will maintain profits and dividends through these changing times. However, I do want to maintain an income stream, even during uncertain times. This said, I have a chunk of cash on the sidelines and I intend to increase weightings and buy additional shares in this category if the market throws up significant value, for example, if there is a major correction (which I believe there will be).

Berkeley Group (BKG)
Braemar Shipping Services (BMS)
Cape (CIU)
City of London Investment Group (CLIG)
Primary Health Properties (PHP)

The 10 shares in the combined Compound Growth and Focused Income portfolios have a forecast yield of 4.82% which gives me short-term comfort, especially with the cushion of additional cash on the sidelines. My intention is to “buy the dips” into these core holdings and move back into the market more fully should there be a major correction – i.e. when there is “blood on the streets”. As ever, history will be my judge.

 

Disclosure – At the time of writing, I hold long positions in AAZ, GVC, IOF, SRT, AVS, BVXP, BJU, VCT, ZYT, BKG, BMS, CIU, CLIG and PHP

 

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