If you think you do then you might be interested in a presentation by JP Morgan from a couple of years ago which I came across recently called the Agony and the Ecstasy of a concentrated portfolio. This reminded me why I like to run a diversified portfolio.
Now it is US based data, but as that is the largest and probably most liquid equity market in the world, then I'm sure similar lessons would probably still apply to the UK and elsewhere and maybe the results might be distorted by greater index concentration in larger names perhaps?
Rather than trying to summarise it all myself, I'll present one of the graphics from the presentation below. If that whets you appetite to read more then you can download the file at the end of this piece which also includes its own Executive Summary if you don't want to plough through the whole 54 pages, but it does also provide some useful pointers to the more volatile and vulnerable sectors and those that seem more resilient.
If you are running or thinking of running a concentrated portfolio then it is well worth a read and thinking about the issues and I think the video at the end might also be (in)appropriate?
Yes it's the BREXIT debate which fortunately, only has just over a month to go now, as there has been so much rubbish talked about it so far in a very low quality debate which mostly seems designed to scare people into voting one way or the other.
What with David Cameron talking about the threat of war if we leave, Boris comparing the EU leaders to Hitler, George Osborne making incredibly precise forecasts about house prices going down by 18% if we leave, plus some how reckoning that inflation will go up, employment go down, interest rates will go up before a plague of locust descends on all our crops and we won't be allowed to import any food from Europe (OK I made that last bit up).
Meanwhile somewhat outrageously the governor of the supposedly independent Bank of England also weighed in with apocalyptic warnings about the dangers of Brexit.
I have to confess that I have always been a Euro-sceptic ever since the Maastricht treaty days
as I saw it as a grand European scheme to create a European super state with the ultimate aim of a political union which would be the only way the single currency could work. Unfortunately they decided to put the Euro in place and use that as a Trojan horse to achieve their political union ambitions down the line. Thus I was mightily relieved when we did not join the Euro as it is clear that one size cannot possibly fit all in terms of the currency and interest rates, without fiscal transfer, which is what we have ended up seeing in Greece in a roundabout and painful fashion. I also dislike the fact that even when electorates (Denmark and Ireland I seem to remember) voted down various treaty changes along the way, they were then just told to vote again until the EU got the answer they wanted so they could carry on with their grand scheme. Meanwhile more recently the Greek rejection of the EU bail out terms lasted about two weeks before the government was replaced, so much for democracy in the birth place of democracy!
Thus I find myself somewhat conflicted as I am for freedom actually, even though this may well lead to my investments being crucified in the short term, if Brexit should come about, although I'm sure we could prosper just as well, if not better outside of the EU (see the example of Switzerland in Brexit the movie, now that' s what I call a democracy). However, according to the polls, Brexit seems unlikely at the moment. Thus I suspect any volatility and weakness ahead of the vote, could be a good opportunity if ultimately the vote goes the way of the remain / project fear. Having said that though as ever the market continues to climb a wall of worry what with plenty to worry about from a global slow down, China crisis, US rate rises, Central Banks out of ideas etc. etc.
Any way in case you missed it there was a good balanced documentary on the BBC (as you would expect) the other day called - Jeremy Paxman in Brussels - Who really rules us? While in my biased way I would recommend the following film to you - enjoy and don't forget to vote for freedom / leave on June 23rd, but given the EU's track record I do wonder, even if we did vote leave, would we actually be allowed to, or would the EU come up with some excuses or new proposals so we don't, as they have done with previous referendum results.
S&U (SUS), which is now a mono line car finance Company after disposing of its home collected credit business, announced a trading update with their AGM statement today. Despite recent concerns about economic growth and consumer spending this actually reads quite well as they said:
"Trading is very good. In fact, despite a generally more restrained recent economic outlook in the UK, Advantage Finance has recently seen an acceleration in its already impressive motor finance transactions growth rate."
They also said that customer numbers and net receivables were both up by about 10% since the year end with collections and margins all in line with their budgets. This continues a long run of positive growth from this business and is obviously helped by the now buoyant car market, which is also evidenced by strong Q1 trading update from Lookers (LOOK) today.
Strong demand in this area has probably also been driven by the increasing use of personal contract purchases (PCP's) which have been behind much of the growth in consumer debt in recent years and also gives a regular supply of three year old cars to the second hand market. The contrary view might be that this is as good as it gets for the car market in the UK as evidenced by the decision of Motor point to float this year, I guess time will tell on that.
On S&U given the growth in the first few months of their financial year they seem on track to at least hit strong forecast growth at this stage and if they do, at a price of 2189p this would leave them on a reasonable looking 13x or so with a 4%+ yield. They are towards the bottom end of their recent trading range (see chart at the end) and as such seem like a strong hold to me unless you are worried about a potential reversal in the UK car market.
Easyjet (EZJ) reported in line interim results today & they make most of their profits in the second half, so I won't dwell too much on the detail which you can read for yourself. In this they did however say the following:
"We are confident that over the full year we will again grow passenger numbers, revenue and profit. As a result of easyJet balance sheet and the Boards confidence in the future success of the business, the annual dividend payout ratio will increase by a quarter to 50% subject to AGM approval."
This is something the founder has been arguing for and probably reflects the maturing of the business. Since they say they are trading in line it should be safe to assume that current forecasts of around 145p should be OK for now. With the new payout policy detailed above this would however suggest a full year dividend (which is paid in one payment in the first quarter of the year) could be more like 72.5p rather than the current 65.1p forecast. On this basis at the current price of around 1480p this would leave this well managed group looking good value on just 10.2x this years earnings with a dividend yield of 4.9%.
On the technical front in the chart below you can see that they are also cruising at a low altitude compared to their highs around 1800p last year. Thus if they were able to return to those kind of levels it could offer potential returns of 20%+ returns from here, although in current markets obviously nothing guaranteed. While looking at the 3 year chart, given the recent downtrend, a longer term support area appears to be in the 1200p to 1250p region.