Summary +19.13% Year to date, +32.6% 1 Year & +44.2% over 2 years or 19.4% annualized.
Regular readers may recall that I am referring to the Compound Income Scores and the associated portfolio which has now been running for just over two years. For those newer readers who are perhaps unfamiliar with the Scores - these are designed as a way of quickly identifying UK listed equities which are:
Good value, with robust operating characteristics and a yield that is well covered, which has been growing consistently and is forecast to grow in the current year with those forecasts ideally supported by positive estimate revisions. If you want more details about them then please either click the highlighted link above or use the Scores tab in the navigation section at the top of the site.
Now while two years is not a long enough track record to draw firm conclusions, it does at least so far seem to suggest that they have been working well in identifying attractive shares that have characteristics that can lead to good returns, as shown in the graph above. This shows the total return on the CIS Portfolio which has been selected from top decile ranking stocks on the scores. During the first year from April 2015 it followed a quarterly screening process & we also ran an unchanged portfolio for a year by way of comparison, which in the end delivered similar results in the first year. In the second year just finished it moved to a monthly screening process and over the second year this monthly screened portfolio pulled well ahead of the annually re-balanced version. This was probably because the monthly screening enabled it to benefit from opportunities thrown up by the BREXIT vote and it has therefore seen a strong recovery from the BREXIT induced sell off in June 2016.
In 2017 the portfolio has been on a very strong winning streak outperforming the broader market by more than 2% each month in the first quarter. Q2 has got off to an even stronger start with the portfolio being up by 5.78% in a market that was down by 0.37% for an outperformance of 6.15% on the month. This was led by 9 holdings that soared by 9% or more in the month as seems to have been the patterns across the market more generally. Against that there were only 6 stocks which fell by 1% or more. This leaves the portfolio up +19.13% in 2017 to date which compares with +3.64% for the FTSE All Share for an outperformance of 15.5%.
Since inception just over two years ago the CIS Portfolio is now up by 44.2% versus 15.7% for the FTSE All Share index for outperformance of 28.5% in total in just over two years. This performance equates to an annualized return of 19.39% which is towards the upper end of what I have seen on my own portfolios over the years. So while it is good that the performance from the CIS Portfolio has got off to a strong start, I would add the usual caveats about past performance being no guarantee about the future etc. as pride comes before a fall and all that.
However, in addition to comparing the performance of the CIS Portfolio to the broader UK indices I thought it might be interesting to see how this 44.2% gain over two years compares with those produced by the Income guru screens on Stockopedia as shown in the screen shots below. While the 32.6% gain over one year can be compared with the second image, both of which can be clicked to enlarge. If you can't be bothered or can't read the
figures for some reason then the top performing Guru screens on Stockopedia by comparison have done +34.5% over two years and +31.3% over one year. So it seems that the CIS Portfolio has managed to beat all these Guru screens over the both one and two years since it was set up. It is also worth noting that this has been achieved with a full portfolio of 20 to 24 stocks over this period, whereas some of the Stockopedia Guru screens sometimes only have a few qualifiers with some of those being overseas based. So may not be an ideal comparison, but interesting nevertheless.
While comparing this performance to the UK Equity Income Sector in the UK on Trustnet.
I see that the top performers were: +27% over two years, 31.4% over one year, and 14.7% year to date. So it is pleasing to know that by taking an independent, unconstrained approach the CIS Portfolio has been able to achieve better results than both the Guru screens on Stockopedia & all the available UK Equity Income funds too.
Thanks for reading & don't forget if you would like to harness the power of the Compound Income Scores in constructing your own portfolio then click here to read more about them and how you could gain access to them.
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.
We had interim results from Character Group (CCT) yesterday, which I last wrote up here back in September last year. Then I suggested it could provide 20%+ returns if it managed to make it back to the top of its trading range at 550p. It managed this in March so you would have been able to lock in a decent return if you managed to sell them up there. Since then they had OK final results & a slightly disappointing trading update in January when they flagged that their H1 numbers would be down due to US$ cost effects. Despite this they said they were confident of meeting full year numbers.
The interims yesterday confirmed this fall in profits in H1 as expected and they reiterated their confidence in meeting full year estimates despite this and backed this up with a 28.6% increase in the interim dividend from 7p to 9p. Looking at the pattern of their recent dividends these have gone sequentially 5, 6, 7, 8, & now 9p so with a bit of straight line forecasting I think they might do a 10p final given their progressive policy, cash balances and high cover levels. This would give 19p for the full year versus current forecasts of 16.8p for this year and 19.5p for next year. This would give a yield of around 4% at current prices.
I also note in the chart below that the management have been fairly active buyers of the stock on dips and they were buying again recently and after yesterdays interims, suggesting they have some confidence in their forecasts / prospects as they seem to be able to forecast the swings in their business quite well.
Summary & Conclusion - This appears to be a well managed company which has developed quite a good record of delivering decent profits, earnings, cash flow and dividends in recent years, although longer term it has had its ups and downs. Consequently the market seems reluctant to afford it a decent rating and therefore a dramatic re-rating (outside of a bid) does not seem to be on the immediate horizon. They have however achieved a rating of between 10 & 12x in recent years, so if they do manage to hit forecasts for this year then this would suggest the price could get up into a 520p to 620p range, so a return at least to the top of its range / resistance at 550p / 560p does not seem too much of a stretch.
On the downside it could drift off further to the bottom of its range around 430p in the short term in response to these numbers, but I think that would be an even better buying opportunity if it happens. Of course they may be over optimistic and miss the full year numbers, in which case it would probably break down out of its range.