Portfolio review

It’s the end of the tax year, so I thought I would do a little portfolio review. It’s generally more convenient for me to do my accounting based on the tax year, as opposed to calendar years.

My personally-selected portfolio returned around 28% for the year, which compares favourably with the ASX (FTSE All-Share) of 9%. That sounds great, but when you consider that the MCX (FTSE 250) returned around 22%, and I am heavily invested in mid- small- caps, there is nothing to be impressed about. The portfolio is net of all transaction costs, but ignores dividends, special dividends, and any CGT liability. Some of that portfolio will be protected within ISAs. My dividend receipts were way down on last year, due to the high churn in my portfolio. I should learn to leave alone!

My OEICs did OK, gaining about 16%,which will include a distribution element. Again, that’s ahead of the ASX, but behind the MCX. I have held my OEICs for YEARS, some of them stretching back over at least 15 years. It is certainly not always the case that my personally-selected portfolio beats my OEICs. My favourite holdings are AXA Framlington UK Select Opps, and FSS (Fidelity Special Situations). FSS has come under a lot of fire on account of the stewardship of Sanjeev Shah. I have seen some YouTube videos with Sanjeev in them, and it appears to me that he knows what he’s doing. Personally, I am willing to give him the benefit of the doubt, and say that his style of investing just didn’t work in the environment of the time. Alex Wright now heads FSS, and he has shown an impressive performance with other funds.

I am actually thinking of selling down some of my OEICs, maybe getting rid of a few stragglers, either due to their relatively small size, or their persistent underperformance. This has been prompted by the new fee structures for discount brokers that has come into effect. I need to be careful, though, and try to balance my expectations for the kinds of returns I am likely to generate. I find that I tend to do very well after the market has had a period in the doldrums. The market has been going gangbusters since 2009, so I just need to be conscious of the fact that I could be making a switch at precisely the wrong time.

Stock valuations look pretty consistent across all market caps (http://is.gd/IyrsUS), so there might be a more level playing field between the top 100 companies and the rest of the market. It is interesting to see a plot of the ASX (red line) and MCX (blue line) in the chart below. Note that although the MCX has beaten the ASX handily over the last decade, both indices were neck-and-neck at the end of 2008. Really, the MCX looks like it is acting like a high-beta version of the ASX. Good on the way up, not so good on the way down. So there needs to be a note of caution there.

chart

My best performers include RGS (Regenersis), THT (Thorntons), TCG (Thomas Cook), and TLDH (Top Level Domain Holdings). They were either growth or recovery plays. The first three companies will be familiar to many people. I still hold THT, although I regret selling all of them.

TLDH is an internet company: “provide services in all facets of the domain name industry, from registry ownership and operations to consumer sales through its Internet Corporation for Assigned Names and Numbers (ICANN)-accredited registrar.” I had written about TLDH in the past, negatively. In October 2013, the company had a placing in which there was heavy director participation in order to commercialise their domains. The share price sank on the announcement. I changed my mind about the prospects on TLDH, figuring that the company would actually do good business and earn high returns on capital. I bought at 5.99p. I sold out in March at 15.0p when I realised that revenues were unlikely to come through as quickly as hoped. The company changed its ticker and name to MMX (Mind and Machines Group) in March. I intend to keep an eye on it. You never know, I could change my mind and decide to buy some again.

Now is as good a time as any to build up a “watch list” of hi-tech companies. It’s impossible to know, of course, exactly how far along the hi-tech bull market we are. With companies like ASC (ASOS) coming off the boil, and internet companies comping to market at very stretched valuations, we may have already reached the peak. But that’s only MAYBE. For all I know, these companies are merely pausing for breath in a bull market that could run for a few more years. I think it’s sensible to stay on the sidelines for now, and wait for the enthusiasm to be drained from the sector.

In terms of my worst performer, that would be OFF (Office2Office), which does office supplies, and suchlike. I bought in at around 46.1p, and sold on 2 January at 29.0p, for a 37% loss. Ouch. Their trading update on 13 January was downbeat, sending the shares down around 14%. I had neglected to write down my reasons for selling, which is an oversight on my part. I clearly thought I made a mistake.

My golden rule for turnarounds is: if you think you’ve made a mistake about its turnaround potential, then sell, even if you have to take a hit. If you had seen the RNS, and took that 14% hit, you would have sold out at 24.5p. The share price is now 20.75p. Turnarounds are risky, and you need to be able to take decisive action.

So, overall, my investing performance for the year probably rates a C, maybe C-. Still, I guess 28% is not to be sniffed at – I could imagine a lot worse results! But it could really only be that it was all down to luck. The bull market has been humming along nicely for a few years now, so it’s not certain that small and mid caps will outperform the blue chips. It’s simply too difficult to say whether the Footsie will be up or down in a year’s time.

It’s also worth noting that relative performance can depend critically on whereabout you choose endpoints. The start of the 2013/4 tax year coincided with a low point in the indices. A few days either way, and my outperformance might well have been in double-digits. I also find that I tend to have phases where my performance is quite contrary to the indices, with frustrating declines when the indices are advancing, but then with healthy advances even in the face of poor overall market performance. It happens like that sometimes.

Anyway, that’s enough rambling from me. Happy and prosperous investing to you all.

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About mcturra2000

Computer programmer living in Scotland.
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