October passed off positively for investors in the UK despite hurricane force winds and the 30th anniversary of the Black Monday Stock Market crash in 1987. The positive total return of 1.9% for the FTSE All Share on the month & slightly higher returns for the Mid and Small cap indices has left them all still 4 to 5% above their 10 month moving averages. This plus the fact that the economic indicators are still sending out positive signals, although it will interesting to see today if the US Non Farm Payrolls can bounce back from their hurricane driven decline last month. This all suggests that one should continue to ride this extended bull market despite its age and the stretched valuations in some cases, especially with the usual seasonally strong period to come too.
It was also another excellent month for the Compound income Scores Portfolio (CISP) which saw a total return of 4.8% on the month. This leaves the CISP up by 33.1% year to date and by 61.1% since inception in April 2015 compared to 9.8% & 22.5% from the FTSE All Share over the same time periods. This months performance was driven by 5 stocks which produced double digit gains with XL Media & XP Power both up over 20% on the month. At the other end of the scale there were fewer losers with just two stocks, Ferrexpro and Character Group down by double digits amounts. Somewhat surprisingly Character Group still scores well, despite the recent profits warning, as this years numbers were maintained and it was only next years numbers that were reduced, it therefore remains in the portfolio.
In light of the strong performance this year, some stocks had got rather large and meant a concentration risk in one sector, so breaking all the old adages about running winners, in addition to the regular sales based on a CIS score of less than 75, I also trimmed some of the winners like XP Power & XL Media on valuation grounds and sector concentration risk respectively. The proceeds of this re-balancing and the regular sales were then used to add five new holdings to take the total number up to 25 from 24 previously. You can see the full performance statistics and further details of the portfolio by clicking the highlighted link above.
Just a brief update on the Monthly timing indicators for the UK markets which I have been producing for a while now, plus a few other things. If you are a new reader or not familiar with these timing indicators and the background to them then please see the archive of articles by clicking here or in the list of categories on the right of the website or at the bottom of the page if you are on a mobile or tablet.
Now you may be worried about this as we saw negative returns from FTSE 100 & FTSE 350 in September, although Mid Cap and Smaller Companies continued to provide positive returns. This trend was probably helped by the continued recovery in the pound from its BREXIT induced collapse which at the time was a bigger benefit to the more international larger companies. These returns leave the various indexes 2.5% to 2.9% above their respective moving averages in the case of the larger focused indices like FTSE 100, 350 & All Share, while the Mid 250 & Small cap indices are 4.5% & 5% above respectively.
Meanwhile the other economic indicators that I follow to enhance the signal from the equity indices are still looking robust, although US Unemployment has ticked up recently and could soon threaten its moving average if that trend is maintained. So it will be important to watch this weeks non farm payrolls on Friday, although the forecasts are for reasonable numbers and an unchanged unemployment rate.
So overall noting too much to worry about on this front, aside from the continued high valuations on Wall Street, although this is not a good indicator for timing the market short term it does suggest that returns going forward from this point are likely to be low. Apart from that it is October, Donald Trump is President of the US & the Federal reserve and maybe one day the Bank of England are talking about raising rates & withdrawing QE. So this bull market could be on borrowed time as well as money so maybe we could even end up with another crash as the 30th Anniversary of the 1987 crash is coming up. If any of you are too young to remember that it is otherwise known as Black Monday.
Talking of crashes and market corrections there was a good interview over at PIWorld (who do some investing & corporate video aimed at Private investors) with my former colleague John Rosier talking about market corrections etc. if that is of interest and you haven't seen it already, then you can watch it below or at the PI World site via the link above.
Otherwise I hope you continue to enjoy the ride in this on going bull market which seems to have been especially kind to small investors in the last year or so. I know as I have seen quite a few fellow investors posting their year to date returns and talking about 20%+ and in some cases 30%+ returns in the year to date. Thus I guess it is not that unique that the Compound income Scores Portfolio was up again last month by 1% and has now produced a total return of 27% year to date too. So as everyone is probably feeling like an investing genius this year I'll not go into the detail as no one will be interested any way. Just don't forget pride comes before a fall and markets are no always this easy.
Finally, as you know I like my music, so I'll leave you with an updated Wall Street Shuffle, which seems appropriate music for markets in recent years. Plus I was saddened to hear about the untimely death of Tom Petty last night, so I also provide one of his classic tracks below which hopefully as investors we won't be doing any time soon - enjoy and happy safe investing.
Here's a brief belated update to the start of August rather than the end of July as I was away on a short break at the end of the month. It was another good month for the CIS Portfolio which was up by 4.9% versus the 1.8% for the FTSE All Share Total Return index. This leaves it up 24.2% YTD & 50.3% since inception or 19.2% per annum on an annualised basis. These figures are all ahead of the various UK indices as per the graph above, but then everyone is probably having a wonderful time swimming in the warm waters of this on going bull market aren't they? Mind you as dear old Warren Buffet says - we'll find out who has been swimming without trunks when the tide goes out. At least the CIS Portfolio still looks good value after this months trades as it sports a forecast PE of 13.7x with a 3.5% forecast yield based on expected dividend growth of 14% for the current year.
Talking of the total return indices above the latest Monthly timing indicators based on these remain about 5% above their averages in the case of the headline indices such as FTSE 100, while the Mid Cap and Smaller indices are further above their averages by about 7%. So these and the on going strength in US employment data and robust PMI indices suggest that the tide is still with investors so it should be safe to continue to go with the flow for now without protection and as the old saying goes the trend is your friend, so carry on enjoying it while it lasts.
So here we are half way through 2017 already and what an eventful year it has been so far. Having said that however, it has been quite a reasonable period for equity markets generally including the UK. As you can see from this table all the main UK indices have produced positive returns over the last quarter, half year and twelve months. Despite all the headlines about FTSE hitting new highs recently and outperforming due to sterling weakness, it is interesting to see it bringing up the rear over the year to date and indeed over most of the periods covered here. Indeed it seems that returns have generally improved as you go down the size scale.
The only negative returns have crept in during the last month, which given the political turmoil after May's unexpected massacre at the polls in June, it is probably not a great surprise to see some profit taking set in. In addition some signs of an economic slowdown on the back of the on going squeeze on real incomes from rising inflation and this political uncertainty has probably also not helped sentiment in the short term.
So that brings me on nicely to update you on the Monthly timing indicators that I follow for the UK Total Return Indices, which are based on comparing them to their moving averages and other economic statistics. Despite the falls last month these are all still in positive / stay invested territory. Given the returns over the last 12 months discussed above, it is no surprise to see the smaller indices furtherest above their averages by around 5 to 7% while the broader headline indices such as the All Share & FTSE 350 are around 4%
above as is the FTSE 100 as shown in the graph at the start of this post.
Economic statistics, despite the recent slow down in the UK, such as IMS indices and the US Unemployment rate all still supportive of a continuation of the bullish trend for now.
That's all for now as it is Saturday and the sun is out, but I'll try and do an update on the CIS Portfolio next week, although the graph and data table link are be up to date if your interested in those.
Just a quick update on these as they all remain in bullish territory. The FTSE 100 chart shown above, in common with the broader indices such as the All share and FTSE 350, remain around 4 to 5% above their moving averages. While the Mid 250 & Smaller Cap indices had a stronger April and therefore remain 9% ahead of their averages.
Meanwhile the Trump reflation trade still seems to just about be running, although it seems to me that he has U-turned on most of the things he said or promised and does not actually seem to have delivered much in his first 100 days apart from some unfunded tax proposals as far as I can see. Despite this the other economic indicators that I track along side these moving averages on the markets are all still in positive territory.
So for now the trend remains your friend and it looks like it won't be a year to sell in May and go away, although given the run we have had so far this year some sort of pause for breathe or a small correction in the short term wouldn't come as a great surprise to me, especially in the run up to the election in the UK. Having said that though I read some research recently suggesting that the outcome of elections does not have much bearing on subsequent market returns, so as an investor I won't be worrying too much about the outcome of the UK election.