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.
XL Media (XLM) - the Israeli, Aim Listed on line performance marketing company has announced interim results today. These look pretty strong with revenues up by 33% driven by a similar level of organic growth in their highly profitable publishing division which makes up 44% of their business. This helped to make up for slower organic growth and lower margins in their media business & a fall of 25% in turnover from their partner networks operations which make up the remaining 56% (50% & 6% respectively) of the business. They also completed some acquisitions in financial & cyber security verticals in the US and in the mobile gaming area which helped to boost revenues in the media business.
The dividend was increased by 5%, which is a bit better than the marginal growth that is reflected in current consensus forecasts, so these could be upgraded if analysts bother to note that. More interestingly in the Outlook and headlines where they said: "The Board is therefore confident of comfortably meeting profit expectations for the full year..." which I take to mean they think they will probably easily beat current forecasts of 14c per share. This looks likely as even if the 2nd half was flat, then by my calculations, they would still come close to 14c. Thus there may be scope for some upgrades here if analysts share my opinion, but maybe the Company will steer them to keeping unchanged numbers so they can beat them later in the year? There will be a webcast of the results presentation which will be available on their website later today at: http://www.xlmedia.com/media/.
So overall a decent looking set of numbers which leaves the potential for some upgrades or a beat of full year numbers if upgrades don't come through in the short term. Of course being an Israeli company listed on AIM with a somewhat opaque business model, this is not one for everyone and indeed maybe one that the market loves to hate. Despite that it does have good financial metrics and has delivered growth of over 20% per annum in eps since 2011, although this may not be sustainable at this rate as they seem to be needing to make acquisitions now to keep the growth going which is potentially more risky. This new phase may well have been highlighted by big holders selling down in the last year or so, although I note the CEO still has a decent stake in the business. Given all that the quantitative scoring systems such as Stockopedia & our own Compound Income Scores continue to rate it highly at 97 & 98 respectively. So on about 12x with a 4.5% growing yield it will remain the CIS Portfolio and might be worthy of further investigation if you are not put off by the nature of it or think that the market will continue to love to hate it.
Summer is over as we roll into September and the weather certainly seems to think so too. Any way the normally quiet August passed off in its usual fashion with low volumes and only a modest positive return of 0.77% for the FTSE All Share Index. The Compound income Scores (CIS) portfolio continued its strong run of outperformance in August with a total return of 1.25%.
For the year to date this makes 7 out of 8 months so far in which it has outperformed the broader FTSE All share index and leaves it with a total return of 25.71% year to date & 52.18% or 19.81% annualised since inception at the end of March 2015. You can see a full table of the performance history by clicking here if that is of interest to you. There is also a chart of the portfolio performance against the other FTSE UK indices such as the Mid 250 and Small Cap available on the website and this is reproduced at the top of this post. The only thing missing from this chart, which is worth pointing out, is that I don't have data for the total return of the All AIM index which as shown in the following chart has been the best performing UK index this year.
Now this is worth bearing in mind as the CIS Portfolio currently has 40% in AIM stocks and is also skewed towards Mid 250 Stocks & Small Caps with 35% and 12% respectively and only has 12% in FTSE 100 Stocks which have brought up the rear this year. So this has been beneficial to the portfolio and will help to explain a large part of the outperformance this year, although obviously selecting the right stocks within in that, thanks to the Compound Income Scores, will also have been necessary. No doubt if we see a return to FTSE 100 stocks leading the way then some of the recent performance could reverse.
With that background I wanted to highlight to readers the broader benefits of the Scores as they are not just for dull income stocks but cover the breadth of the market with over 600 stocks drawn from FTSE 100 down to small caps and 200 under researched AIM stocks too. Now you may not be that interested in income stocks in particular, but it is worth bearing in mind that given the focus of the Scores on quality and growth metrics as well as yield, value and financial security, they can and do also flag up attractive quality growth stocks such as ARM before it was taken over and more recently the likes of Fevertree. These do however tend to be on expensive looking valuations, which given my value bias and limits, tends to mean that they get excluded from the CIS Portfolio. If you are that way inclined or more willing to tolerate highly rated quality growth stocks for capital compounding then the Scores can also help you to identify these type of stocks too, although they do exclude those that do not pay a dividend so you would have to look elsewhere for guidance on those. Hmm, makes me think perhaps we should launch an unconstrained Scores portfolio.
The other feature of the Scores is that hitherto they have up to now only been delivered via Google Drive. We understand that not everybody has or wants one of these or even know how to use it and it may therefore not be their cup of tea. So talking of tea - for around the cost of a cup of tea each week (£1) we would like to offer access to more people on a more user friendly basis. Therefore we are delighted to be able to announce that henceforth the Scores will now available via the following services:
So if the Google Drive access has put you off in the past and you would like to gain access to the Scores by subscribing in one of the other ways, or indeed via Google Drive if you are a new reader who uses that, then please click on your preferred method of receiving the Scores listed above to be taken to our payment partner to subscribe.
When you subscribe you'll be provided with a free e-book explaining the background to the Scores.
Further to the update on the Scores Portfolio, we have had a few contacts recently with people looking to sign up. We have replied to all those queries individually but are aware that there may be problems with spam filters and our replies may have gone to the recipients junk mail folders. So if you have been in touch and are still awaiting a reply from us then please could we ask you to check your junk mail folder.
Just to reiterate if you want to gain access to the Scores it should be relatively simple to do via this link or those given on the Scores page here or via the menu at the top of the site. But please note that this product is currently delivered via Google Drive so if you wish to subscribe you will need an e-mail address and access to a Google drive associated with that e-mail address. As it it quite a large sheet it is probably best viewed on a PC or larger tablet rather than a phone, but if you want to be able to access them on your phone then check out details of these Google Apps for - Android and I Pad or I Phone, in the Play and I-Tunes stores. If you are unfamiliar with Google Drive and want to learn more and set one up then see this link for more information.