Monthly Archives: March 2019

Aviva trade

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This post aims to explain the reasoning behind my recent Aviva Purchase (my first large purchase/rebalance in 2019) compared with other shares on the “Targets” list. I already had Legal and General and Aviva in the targets list and had been monitoring both for a few months with a view as to which to choose.

To start however I needed to identify other potential targets for an insurer were any insurer with Life exposure which gave a list of insurers from FTSE 350 – doing a FTSE sector search recorded similar to the below:

Sharepad example of full market search of all companys in the Life insurance sector.
Example of Sharepad.co.uk/Sharescope “Life Insurers ftse350 with some minor fields added to show PE, price to NAV, Yield and cover”

From here it’s reasonably clear, the yield from Aviva is higher than the rest, with the 2nd highest Dividend cover, and lowest PE earnings of the insurers in this sector, also using this I can dig in and the PE is at a several year low. The “analyst” price expectation was nearer 500p per share, however analysts are frequently wrong. Next stage was to analyse director dealings, I see that a couple of the board were also buying shares at a higher price than the shares currently are trading at in the recent history.

There was a recent CEO change this month with Maurice Tulloch taking over – this doesn’t concern me as an internal candidate who will know the business and it’s weaknesses, where an external candidate may not move to remediate any problems as fast. Given Aviva returned under 25% compared with the overall market at 65% in recent years, this change may actually improve the return on investment going forward (or that is my hope). This is understandably a risky change, but he is invested in the business himself, as is the previous chairman.

So in not strictly analysis of performance, the other piece I was personally familiar with was that Aviva seemed to be advertising a lot more heavily in past few months in the UK. Where I had not seen legal and general advertisements, I could recall many from Aviva across print, transport, and other media which again gave confidence this was correct call.

The combination of these factors gave me a degree of confidence the market has this priced incorrectly at present. As the true “true” value of this share should be higher – which along with the 7% dividend will likely give me my desired > 10% annual return from this share pick. I’m sneakily hoping this will be a 15% return in 12 months however.

I aim to hold this for several years given the compounding potentially possible here. I also don’t see this as a Brexit risk share given majority of revenue is from the UK. I may add to this holding if this was to drop further, as I can’t see any financial reason for this to be trading at a PE of 7.1.

The next class of share I need to add to the ISA is Oil – as banking, insurance sectors now covered. I’ve been leaving technology picks to the funds I hold for moment despite actually working in a technology field, and it is arguable Oil is a technology stock in any case due to the fast adoption of technology in the Oil field.

ISA Update – March 2019

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I am to cover all my investments in current portfolio in a future post, but my aims on my ISA are quite different to my SIPP. The aim here is to keep 50% of shares in regular funds or ETF – with the remaining 50% split between personal single share investments and shares I have analysed myself – a higher risk profile is acceptable within the latter 50% pool. At start of March 2019 there were 11 investments in the ~ £14,000 total at that time, so less diversified than the SIPP and with less overall concentration. The theory is as I start to outperform passive investments and “good” active investments, I should move to managing more of my own money.

At end of tax year, ie last week I added a non-scheduled £2000 to my ISA. As I usually add £250 a month, this allowed me to take a position in another “investment”, bringing the total number of investments in this ISA to 12 from the previous 11.

How I invest is an entire future blog post, but I have a table of “Investable Universe Targets” I have identified previously on my dashboard on the http://www.sharepad.co.uk website, which gave me at the time a choice of several investments to pick to invest this funding. I decided to pick an Insurer, as my ISA at present only has an individual Bank share, not any insurer – and is overall quite weak on individual shares as it is 80% funds at present.

My primary reasoning on a life insurer was the relatively recent news on life expectancy for Annuities reducing, ie, people living less long, giving the Insurers the ability to return cash to investors. Despite this being “old” news, and this being case, I spotted a few insurers had actually been trading at quite low prices to their expected and historic PE despite this “bonanza” of upcoming returns. This along with the knowledge that the money from annuities will be returned over several years would hopefully set the insurers up for buy-backs and improved dividends going forward. As this has potential to increase both share price and dividend over next 5 years, it was a risk I was willing to take.

I decided to not invest the full amount available as I know the market will have some degree of Brexit turmoil, which should allow me to spend the remaining money on topping up under performing investments post Brexit (of which this could be one). As many great investors know turmoil is a great time to be in the markets sometimes – it’s worth holding some extra funds in cash for this. I usually use Capital Gearing Trust for this “cash equivalent” pot, and don’t hold in Cash at all, but given I already have > 10% of the ISA in CGT to allow for “future” quick trade plays, I will not increase this given the trading fees, and fact I’m pretty certain I’ll want the cash reserve in next 2 months to rebalance the portfolio.

So onto my first tracked large (ie, outside the £250 a month) trade of 2019 on Friday 22/04/19 – where I purchased 300 shares of Aviva for a total of £1256.31. This has since lost around 2% since purchase, but I’m still reasonably happy with the value. A blog tomorrow post will discuss more of the reasoning for the decision.

End of month totals (this was recorded as a timed post early this week – sorry, as I am out Friday so values are likely “out”):

  • ISA Portfolio current value Total: £15995.60
  • Current investments Value: £15,221.27
  • Current cash Value: £772.43

Mears Group Plc

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As mentioned yesterday this was an investment added as a monthly short-mid term “feeder” investment for my SIPP last month, and will likely remain whilst the price remains attractive and below my max buy price, which would be circa 350p at present (Today this trades at 250p.

So why Mears, and not one of the other companies in sector (social housing repair/maintenance)? The shareprice has fallen heavily since the results & they have now hit the magical Yield figure to make me interested. The recent graph doesn’t look good though:

Graph courtesy of Sharepad.co.uk/Sharescope with their permission

The yield is a pleasant 4.8% with 2.3X cover, and the PE hasn’t been this low since ~1999. Also the annual report makes for reasonable reading and does explain the dip a little. Large shareholders (Primestone) have added funding only in November at £3.31 price, making my purchase at 260p seem very cheap – which has reassured I was not the only person seeing value here. Mears were on my target list prior to their results at this higher price level due to the previous years results being “acceptable”, . This dip probably did make me add them to the portfolio a few months ahead of planning. (I also had XP Power on the list to add this month, but they were near 20% up from when I had marked to purchase, so did not seem appropriate to add at this time from the 2 potential targets).

What I can’t dispute however, is the likely fact that caused this is the operating cash flow is at an all time low (lowest since 2014) – so I consider this given this a little bit of a punt over 12 months, however, this is a company that looks to have better figures than in 2012, but is currently trading at the same book valuation (despite the fact there is clearly a better forward order book (from the annual report). With the long procurement times in this sector, they fit my target list as a long-term likely gaining share with decent dividend prospects.

My prediction is for a recovery over the coming years, but I could be wrong, hence why I am funding this with 10% of net new “income” to the SIPP over the likely the next year, which will represent under a 4% net holding by end of year.

SIPP Portfolio March 2019

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Future blogs will improve the style of this data “dump”, but attached below is the current full portfolio for March, along with cost/values in GBP. I have not included percentages, but my aim is for “fund” to eventually make up 50% of the below, with 50% being self selected shares. We are currently far higher percentage wise on “funds” however at current market values. 25% of the fund should remain as a passive investment with Vanguard Lifestrategy 60 as the bedrock, and “target” to beat for the rest of the SIPP.

Every month £1000 is added to the portfolio, with it being split in last month into the shares marked in italics below with £100 going to each option – which shares get added to do change monthly to rebalance – typically the “less” profitable shares get the topups. I am using interactive investors “regular” trade option to pound cost average down the trades, so trading fees are £1, and stamp duty where effective is 50p. This compares identically to a real time trade of £10 of £1000.

Share/FundOriginal CostCurrent P&L
Vanguard LifeStrategy 60% ACC5249.95311.58
BP3545.53416.60
Capital Gearing Trust2228.251.95
Direct Line952.47-5.42
Fidelity China Special Situations39621.36
Funding Circle SME Income299.14-47.09
Fundsmith Equity T Acc574.9939.80
Milton European Opportunities B ACC900.0116.10
Lindsell Train Japanese Equity B Sterling Hedged2002.55
Mears Group98.07-3.39
Merian UK Smaller Companies Fund R ACC60020.11
Scottish Mortgage Investment Trust Plc985.88-40.91
Smithson Investment Trust Plc365.8613.24
SSE Plc1299.7720.72
Threadneedle European High Yield Bond 3G550-11.19
Woodford Patient Capital Trust Plc
1147.86-42.52
Baillie Gifford Japanese Smaller Co B ACC899.75-14.15
BT843.847.07

Total Profit over last 12 months: ~707.91 GBP (above was from real-time data so may be slightly out!). Not bad for what was a bad year overall for the markets and given ~ 10k of the funding was drip fed over the year it is no wonder that the returns are lower than the top 3 investments, which were bulk purchased at the start.

The return to beat is the Vanguard LifeStrategy piece is the 60% – which returned ~5.9% the previous year as a whole. Given the total portfolio was funded initially mostly on this – as a whole the portfolio has under performed this. However, this excludes for most part any Dividend in past 12 months, making the BP Figures in particular very out. BP comfortably outperformed LifeStrategy, and generated double the return from a smaller investment overall when this is taken into account. As this was my largest “pick” of all the shares outside of the Fund list, this firms up my strategy of picking under priced shares, and holding, and reinvesting Dividends.

The “new” share added this month to the Portfolio is Mears group, following what the market saw as disappointing results. I however found this to be a company that has a high potential for recovery in future, with a potential upside of 30-40% + dividend over next 2 years. I will do a seperate post on the indicators that lead to this conclusion. But I will be adding to this holding over next few months unless the market does recover by 30-40%. This was in my Targets list previously from a search, so I know the fundamentals looked reasonable for this option.

Next month I plan do not plan to add any new share, and likely will not change the distribution in the short term, unless market conditions change. I appreciate I will need to keep re-adding funds back to Vanguard in a few months, as this is dropping below my 25% target for this holding. Changes from last month include re-adding Woodford Patient Capital to monthly top ups following the Woodford Equity reshuffle at a premium (they paid 95p). Given this currently is a 15% discount to NAV, thats month I’m (hopefully) locking in for later. Also have put BT back to the “purchase” list, as both have had recent falls in value – similar reasons.

Overall there are likely too many funds/shares in the portfolio right now, however, it is being 20% weighted with new funds to Japan ahead of Brexit, as I suspect Japan will benefit greatly if the UK economy takes a nosedive. Lindsell Train Japan is also mainly because of their 10% Nintendo holding – I sense this will be a winner, and I can’t easily “drip” feed into the Japanese markets without using a fund. As a gamer don’t bet against Mario, Nintendo and Zelda, as I see Mario and Zelda as a moat that other gaming firms dream of holding.

As a whole the portfolio is also considerably underweight ref: Asian equities, and I need to find a fund for Asia/Australian assets as soon as reasonably possible.

After I have filled that gap – I suspect the next decision are on other “shares” to rebalance to 50% directly held shares. At moment that percentage is ~40% so I have a way to go on that. I also will be too highly weighted to WPCT soon, so will need to switch to another option – however I still feel that I should invest when the fund is trading below my “value” figure.

I’m still unsure about SSE as a longer term holding – but thats a blog for another day.

Targets / Performance

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A lot is said about investment performance targets – the goal of this investor is simply to outperform a Passive all-market global mixed fund. This should be possible, as Terry Smiths Fundsmith fund has proved for a few years now (he has comfortably beat this with his fund year on year). Can I do this? This is yet to be proven “consistently” nor in bad times.

This means in turn all non-Fund investments ideally need to return a average minimum of 8% a year. This is growth and dividends. However, this is on average so I do expect some investments to comfortably beat this, and some to not. I expect to measure this on at the earliest 2nd year of holding, unless the business fundamentals change (ie a profit warning).

Unlike Terry Smiths fund however, I do not intend to artificially limit myself to not investing in certain categories of the market, nor to copy “his” holdings – however I may duplicate a few when I agree. I would put Energy, Insurance, and Finance in the “investable” universe, as many times, you can tell when an asset is distressed and under-valued, and why shouldn’t you take “value” when it is offered. However for these classes of investment “buy and hold” may be unwise, this is a buy and exit when appropriate share-class in my book – as a personal investor costs of trading are quite low, so near irrelevant as a private investor. For example I see banking shares as having particular “value” at present (March 2019), as I suspect they are massively undervalued due to Brexit at present.

Fundsmith versus Vanguard 60 ACC fund 2010 to date… Source: Sharescope/Sharepad.co.uk

Disclosure: I do own the Terry Smith Fundsmith fund in both my ISA and SIPP as I regard him as the “active” fund to beat. If I manage this I have earned my %. Given Fundsmith charges are 1%, I have immediately saved that if I succeed. I am however more than happy to pay these charges for the investment performance to date (which is near triple the benchmark on average).

The fund chosen for “this” investor as the main “Target” benchmark however is the Vanguard 60% ACC fund – which in last 12 months has returned circa 5% – based on my own investment performance keeping this at ~ 25% of my primary SIPP fund. This is because it has a low management fee, is owned by the holders of the fund, and is therefore in “our” best interests to keep these fees low.

The Beginning

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So, to explain this blogs humble beginnings – I think I should explain where this started:

In October 2008, having never touched the stock market before, I signed up for a trading account, with the conviction that the market dips that were occurring to the banks at that time were something that would be corrected in the years ahead. It became a rush against time to open a brokerage nominee account to allow the trades that year to take place. I choose interactive investor, because at the time they had no fees for holding funds, just a trading fee of £10 per buy or sell. Things have changed massively since then, however looking back at my trade history from that time, I purchased Barclays at 65p a share, and sold at 90p from within an ISA trading account

I rubbed my hands with a tidy profit (which at the time was tiny!) – however this was the start of my trading journey. Since that year, I have kept the same ISA trading vehicle open, and the funds within have been growing steadily since.

I will ignore many of the in-between years, suffice to say I have made profit in most years, however I did under-perform the market massively for a couple of years due to bad performance. In 2018, I had to expand this investment due to personal circumstances – when I opened a SIPP which I aimed to trade similarly to the aforementioned ISA.

Where this blog starts is March 2019, where as of today, 24/03/19 I have a ISA with total value of £16,010 and a SIPP with £21,500 at “current” values. The two “pots” are traded very differently today, with the SIPP aiming to be more of a stable “income”/”growth” fund, and the ISA focusing more on growth alone. However these are not hard/fast rules – as in reality I won’t switch a mistaken INC fund purchase for a ACC fund due to fact trading fees would likely have a major impact on the profitability of such a move.

These are being funded at a rate of ISA at £250 a month, with SIPP at £1000 a month respectively, which I will aim to increase over time. This blog will aim to cover the monthly trades made.

As my “about” text reads, this is on the premise of being if I am able to outperform both “money managers” as well as passive trackers with just myself performing research in the evenings after my day job.