Portfolio update at end of July 2021 – start of a transformation

Since the last portfolio update in May there has been quite a bit of change in my stock market investments. This has also been the first update since I made my first subscription as an investor. I paid up to access Stockopedia, which I’ve thoroughly enjoyed so far. It’s especially helpful as I make a move into smaller cap shares to try and boost the total return of my investments.

While the FTSE 100 has struggled over the last month or so, in July my investments have risen 3.1%. Nothing sensational, but in a soggy summer (both weather wise and in the markets), I’ll take it. Hopefully August will see further progress as the dynamics of my portfolio change.   

Changes to the portfolio

The high cash figure provides a clue that there has been a lot of change in the portfolio. It mainly reflects the fact I’ve sold a number of long-standing holdings over the summer, rather than any concern I have about the economic recovery, inflation or anything else macro like that.

Over the next few months, I expect cash will become a smaller percentage of the total of my portfolio. At over a third currently, the amount is higher than it has been in a long time.

The portfolio has shifted away from the big FTSE 100 dividend paying stocks – although some remain – and tilted towards higher quality and faster growth stocks. I plan for this trend to continue, albeit likely at a slower pace going forwards.

The portfolio has gone from 20 stock positions to 19. Although many of the position sizes are now more similar. The large amount of cash means no equity holding accounts for more than 8% of the total value of the portfolio.

This is how the whole portfolio looks, at the time of writing, at the end of July 2021.

End of July 2021 portfolio holdings

The positions I sold out completely of, since May, are: AstraZeneca, National Grid, Persimmon, db X-trackers Russell 2000 ETF, HSBC S&P 500 ETF and Invesco Asia Trust.

I sold AstraZeneca as the share price recovered and for me the valuation still looks a little steep. It has also made a major acquisition, which always makes me a little nervous. It’s also not a high yielding share, or particularly fast growth. As such I felt it no longer needed to be in my portfolio.

National Grid I sold primarily on inflation concerns (it has a lot of debt, not unusual for a utility, and very little if any real pricing power). I was also a little unnerved after reading that it could lose its electricity system operator role under new BEIS and Ofgem plans. National Grid is undergoing a bit of a transformation to focus on electricity and I’m not sure how this will turn out. Ofgem doesn’t seem particularly supportive of the company. Also, capex is only likely to increase as electric vehicle sales pick up momentum. So, I no longer see it as the safe dividend payer it was when I bought many years ago.

Persimmon had always done pretty well for me, and I sold simply to bank profits as the share price rose. If housebuilders fall, I’ll very likely buy back in.

db X-trackers Russell 2000 ETF was sold because it was underperforming in my view and the HSBC S&P 500 ETF left the portfolio as I already have a global tracker and there was a lot of overlap in the top positions – the US tech stocks.  

Invesco Asia Trust left as it was acting as a drag on performance and events in China mean it’s unlikely to recover anytime soon. I’ll probably buy back in when there’s more optimistic sentiment again towards emerging markets. When I bought, I compared to other emerging market trusts and at the time it seemed to me the top pick.

I also reduced the size of my position in Legal & General as it became a very large position. I still like this big dividend payer but I’m not keen on it being more than 10% of my portfolio.

The shares that have come into the portfolio are: Gamma Communications, Vertu Motors, Ferrexpo, Sylvania Platinum, Kape Technologies, I’ve also added in the last two months to my holding in Polar Capital on the back of a strong update. I also added 20 more Diageo shares at a price of 3,484p on the 24th June.

Some updates from top holdings

Diageo – Full year net sales rose 16% to £12.7bn, on an organic basis. That reflected growth in all regions, and effect of easier comparisons from last year’s disruption. Underlying operating profit rose faster than sales, increasing 18% to £3.7bn. The group intends to pay a final dividend of 44.59p per share, an increase of 5% on last year, and takes the full year payment to 72.55p.

Reckitt – First half like-for-like (LFL) revenue came in at £6.3bn, excluding the Chinese Infant Nutrition business. That’s a 3.7% annual increase. Changes in pricing and sales mix were behind revenue growth, though volumes also rose slightly. Operating profits declined 5% to £1.4bn, reflecting increased investment and cost inflation.

Polar Capital – reported that as at 30 June, its assets under management totaled £22.8bn, compared to £20.9bn at the end of March. In the period, the assets under management increase came through net inflows of £0.5bn, with £1.4bn related to market movements and fund performance.

Vertu Motors – upgraded its full-year outlook on the back of continued strong trading year-to-date. Now anticipates that adjusted pre-tax profits for the six months ending 31 August will be no less than £40.0m, driven by “exceptional UK used car market conditions”.

Sylvania Platinum – the market did not like an update revealing a fall in fourth-quarter profit owing to lower output and prices.Net profit for the three months through June dropped to $14.7 million, down from $41.3 million in the third quarter, the company said. Sylvania’s dump operations delivered 16,289 ounces, down from 17,420 ounces in the third quarter, achieving an annual production of 70,043 ounces.

Thoughts on my current portfolio

Likely to add to Vertu on the basis of it seems undervalued. Longer term will look to slowly build my position in Gamma Communications, so it becomes a more meaningful part of the portfolio.

A few shares are cyclical and not likely to stay in the portfolio that long, especially if they make significant gains, or the share price moves the wrong way with no obvious route to rerating. Examples are the two miners Ferrexpo and Sylvania Platinum. Both look great on the fundamentals – which is why I invested – but ultimately, I’m not a confident mining investor; even in ones that seem to display a lot of signs of quality and stability.

Brunner Investment Trust is also doing well now and if the discount narrows considerably, I’ll consider selling up.

The following shares are long-term holds for me (famous last words) – Legal & General, IXICO, Polar Capital, Diageo, Reckitt and Murray International Trust. All I think are long term compounders, not facing significant disruption or existential business model threats. Of these the one that causes the most worry is Reckitt, but I think there will be a turnaround here and I just about still prefer it to FTSE 100 peer, Unilever. Although, that said, the latter could do better in the Covid recovery given its larger share of beauty, which should bounce back strongly as everyone starts going out.

Likely next steps

The transformation of the portfolio, tilting it further towards UK small caps, is likely to continue. I don’t have any concrete next steps planned, but I do have a number of mostly smaller cap shares that I will research further.

It’s also likely that some of the more cyclical stocks if they do well, or fall heavily, will leave the portfolio. I’ll want to free up further cash when investing and don’t want to hold volatile stocks that I’m not completely confident in for a long time.

I’ll also keen to add some more specialised ETFs to my portfolio. For example to give me greater exposure to growing themes, for example: cybersecurity, robotics and artificial intelligence.

Shares on my needing further research

I’m keen to research these shares over the coming weeks and maybe even months. Note these are in no particular order.

  • Property Franchise
  • Judges Scientific
  • Venture Life
  • Somero
  • Quixant
  • National World
  • Synthomer
  • Smiths News
  • Made.com
  • K3 Capital
  • Sureserve
  • Tandem
  • Quarto
  • Character
  • 4D Pharma
  • RenalytixAI
  • Northamber
  • Calnex
  • tinyBuild
  • LoopUp
  • SourceBio Int’l
  • Ramsdens
  • Sanderson Design
  • Gattaca
  • ThinkSmart
  • Flutter Entertainment
  • Just
  • RenalytixAI

So far, I’ve looked at a few of these. I think Property Franchise is really good on the fundamentals, much like Belvoir which seems to be very similar. There’s not that much I can see between them except management skin in the game. For me that tips the scales towards Property Franchise. The main concern is just if the property industry can continue to do as well in the future as it has in the past.

Judges Scientific looks like a really high quality company and scores very highly on a scoring system I did on a few growth-focused shares. Has lot of potential but just seem too expensive for the industry it’s in.

ThinkSmart was covered by Simon Thompson previously in Investors Chronicle. It seems undervalued based on its stake in Clearpay, which could make it another value opportunity similar to Vertu Motors in that regard. Different industries, different propositions but both seem undervalued.

What I’ve seen so far of newly listed National World also looks promising. Since Richard Leonard covered the stock on a PI World webinar, the shares have done well. Like him I think the management have great experience. If it can be anywhere near as successful as Reach plc now is, it could be a very profitable investment. So, it’s one of the shares I think I’ll be prioritising looking further into, but just hard to value at the moment as a new company.

National World share price chart

Many of the others I know what they do but don’t have an in-depth knowledge of their markets, growth opportunities, valuation and so forth, so I’ll be digging into that and will update if any are added to the investment portfolio.

Thanks very much for reading and if you have any thoughts on any of these shares, or on my portfolio, please do get in touch.

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