In brief we have had a trading update from Rank Group (RNK) which features in the CIS Portfolio. This was of the in line variety so therefore should be reassuring. The market seems to agree and has marked them up in a better market today. While I note that Edison are suggesting a small earnings upgrade on the back of this. So it seems fine, despite the re-rating it has enjoyed and with a CIS of 87 looks like it will remain in the portfolio for now.

Finally a stock that was previously held A.G.Barr (BAG) before they suffered on a weather related profits setback in the summer has reported a better end to the year. So seems like this quality business may be back on track. It does however still look quite expensive on 17 to 18x and has a CIS of 68 which is OK but not outstanding.

Any way that's all for now as off to finish preparing for the podcast I mentioned yesterday. Will try and put something up about it if I get time later today, otherwise have a great weekend and look out for the month end updates.

Further to the September / quarter end performance update here are the changes as a result of the latest quarterly screening. First up though a quick reminder of the screening criteria and a small tweak to these that I have been hinting at in recent weeks.

Firstly the normal criteria remain in place for new purchases which are:
1) Selecting new stocks from top scoring stocks
2) Maximum PE of 20x, minimum dividend yield of 2% and an earning yield in excess of 5%.
3) Minimum market cap. of £50m

Now for the tweak which I have decided to add which is to also look at price momentum and exclude from the purchase list any candidates which have negative 12 month price momentum. There are several reasons why I have decided to do this as follows. While I have momentum in the Scores to a certain extent with earnings momentum, which does correlate with price momentum, I have generally fought shy of using price momentum that much myself although I pay some attention to it. However as per this graphic from one of my recent posts:

 I am also adapting my mode having implemented it and assessing the evidence. The thing that struck me, although this may have been a coincidence and I could be making a false connection, is that the two troublesome stocks in the portfolio in the first six months had negative 12 month price momentum when they were selected. The stocks concerned were Plus500 (PLUS) and Utilitywise (UTW) and on reflection both seemed to have had some background concerns and therefore despite the apparently attractive financial metrics they had both underperformed suggesting the the market was wary of them. It is also noticeable that most top scoring stock tend to also have strong price momentum so when a high scoring stock has underperformed I'm now going to let the mechanical process use it as a red flag and skip that stock. Plus the fact that price momentum itself seems to be a powerful factor despite my own reservations about using it, so it is good force the model to use it in this way as I'm trying to use the model to counter my own human biases.

That's it for the tweaks on the purchase side but I guess it does raise the question as to whether I should use price momentum on the sale side too to cut losers even if they still score well, but I have not applied that this time around to Utilitywise as there were already 4 natural sales using an 80 cut off point on the Scores. So it will be "interesting" to see how it goes from here to see if I should perhaps have applied this rule to sales as well.

Any way enough already what about the changes I can hear you thinking. Well on the sale front the natural sales using the 80 Score as a threshold were Alliance Pharma (APH) - which had been re-rated and didn't get any upgrades after results so I'm relaxed about that as I had sold my own holding any way. A.G.Barr (BAG) - had a poor update and big weather related downgrades so as a result it has to go, although personally as it was not an operational problem and the quality and dividend growth remain, I would probably have given it the benefit of the doubt if I held it. Finsbury Foods (FIF) was the next stock to go as it's score had collapsed like a soufflé to 28 on the back of the share price rise, big downgrades post their results and on going low scores in quality and financial security. So I'm sure Paul Hollywood & Mary Berry might have thought it over baked too, that's a British bake off reference in case you don't know who they are. I heard on the news today that sales of baking equipment are booming on the back of it so trying to think of a way to play that. Any way I digress, finally PLUS500 (PLUS) was still coming up as a sell and I only kept it last time because the cash bid was supposed to have completed by now. So since that has dragged on and been delayed by regulatory clearance taking longer than expected, I have decided to eject it this time given it did its job as a cash proxy in the market sell off this quarter any way and I guess the bid could still fail if clearance is not received.

That gave me around £6500 to reinvest which I split equally between four top scoring candidates after applying the criteria mentioned above and adding the 12 month performance filter which excluded Elementis (ELM). So the new stocks were the top scoring Sprue Aegis (SPRP) the fire alarm producer which has a strong following in the private investor community so I'm sure that will be a popular choice. Less popular maybe 32Red (TTR), an on line gaming company, which seems like a natural replacement for PLUS500 if you know what I mean. The portfolio has a retailer already and quite a lot of exposure to consumer cyclicals, but nevertheless I let it buy Next (NXT) as the weighting in FTSE stocks is quite low and the alternative would have been Computacener (CCC). I left this because the other purchase was RM Group (RM.) which adds another technology related stock to the portfolio, although this exposure is mostly software rather than hardware.

I must admit personally I'm a bit uneasy about buying 32Red but that is the point of this exercise. I'm also probably prejudiced against RM as it doesn't seem to have gone any where for years, although on closer inspection it does seem to be turning around under new management, so it might be one that is worth investigating further. Finally I mentioned the exposure to consumer cyclical earlier so I thought I'd include the charts below to add a bit more colour to this. While it was not surprising to see it tagged as small cap exposed I am a bit surprised to see it identified as growth, but since I'm targeting quality growing income maybe this shouldn't come as such a surprise.

So there you go, just remember that if you are attracted to any of the names I have mentioned, don't forget to do your own research as there are no guarantees although I'd say it has been good so far. Cheers good luck with your investing in these difficult times, have a great weekend whatever you are up to, enjoy the weather while it lasts and come on England in the Rugby!

 Indices
With September having come and gone I'm sure investors will be glad to see the back of it as nearly all UK indices fell on the month. FTSE 100 again led the way down with its heavy weightings in commodity related stocks and produced a -2.86% total return while the All Share produce -2.73%. This reflected modest outperformance by mid and small cap names, but most of those also produced negative returns, with only the FTSE Fledgling index producing a positive return on the month with a total return of +0.12%.

For the Quarter it was a similar pattern with FTSE leading the way down with a -6.13% total return down to the Fledgling Index being the best performer again but that was still a -1.65% total return.

Market Timing Indicators
When I last looked at these at the end of August there were mixed signals from these moving average based indicators, with large cap indices indicating sell / cash, while mid and small cap indices were still above their 10 month moving averages and therefore in buy / invested territory.

After September's fall across the board all the indicators have now turned negative to suggest sell / cash although the small cap and Mid cap indices are only 1.1% and 1.6% below their moving averages. So a rally in October could turn those positive again whereas another fall would obviously leave them more in bearish territory. In contrast the large cap indices seem to be firmly into a bear trend as they are 6.3% to 7.4% below their moving averages, so it will take a big rally in October to turn these around in the short term.

So these trend following indicators are now suggesting a cautious approach may be best for now as the trend in the market may have turned negative now. I say may as these have given a number of negative signals which have then been rapidly reversed as the market traded sideways, but the recent sell off has been more decisive and may therefore mark a turn. However as we have passed St Ledgers day and we are approaching a seasonally stronger period I guess time will tell.

Mechanical Compound Income Scores Portfolio
Regular readers will know that this is a portfolio that I set up back in April this year based on top decile stocks in the Compound Income Scores. The portfolio which is skewed towards mid and small cap / AIM stocks has benefited from this in previous months and September saw a continuation of this trend. As a result the portfolio delivered a positive total return of +1.78% compared to the -2.73% for the FTSE All Share mentioned earlier, representing another 4.51% of outperformance this month.

This reflect the markedly different make up of the portfolio compared to the index and leaves it with a total return of 
+8.24% since inception in April 2015, which compares with -8.05% from the All Share for outperformance of 16.28%.
Interestingly the annually re-balanced portfolio which has remained untouched since the start has produced +8.63% in the six months or so since inception reflecting the large commonality in stocks so far and slightly less in the way of frictional transaction costs.

However I'm not getting carried away with the success so far as, given the different make up of the portfolio, performance is likely to be volatile in both directions and it just so happens it has been in a positive direction so far. At least it is encouraging that the Scores have so far been able to identify attractive stocks even in a difficult market.

Talking of attractive stocks 14 of the 20 holdings were up this month despite the market falls and the big winners were Utilitywise (UTW) which bounced back by 24% from the previous months sell off. While the illiquid Maintel (MAI) rose by 13% from the bottom of its recent trading range to the top on the back of some decent results. Others that also benefited from good results were EMIS the healthcare software group (+11.3%) and IG Group (IGG) the spread betting / stock broking firm (+5.4%). While the big winners in the quarter were Alliance Pharma (APH), Finsbury Foods (FIF) and Rank (RANK)

On the downside Diploma (DPLM) -8.3% and A.G. Barr (BAG) -6.8% fell on the back of lack lustre updates in September. While Renishaw (RSW) -7.8% continued to drift off from an expensive rating post results earlier in the quarter. These names were also the biggest fallers over the quarter too.

Summary & Conclusion
So a tricky September has left markets and headline indices looking damaged with trends potentially broken to the downside for now with the often difficult month of October still to come. It will be interesting to see if investors regain some confidence and come back in for so bargains to produce a traditional year end rally or if the markets are sending an early warning sign of economic trouble on the horizon - China slow down, US rate rise etc.

However as ever it remains a market of stocks and it is always possible to find some attractive stocks and make some money, but like King Canute this may not be possible if the tide has really changed. Any way that's all I have time for now, good luck with your investing in these difficult times. I'll do the quarterly re-screen of the portfolio today as planned and report back later with the changes.

In particular after a day when there were revelation about VW fiddling their emission tests in the US it is perhaps worth starting with bumper interim results from S & U (SUS). This saw a continued strong performance from their Advantage car finance business which saw profits up by 32% on the back of a strong car market in the UK. The other significant feature of these results was their disposal of the home collected credit business in the period with the proceeds of £82.5m being used to fund a special dividend of £1.25 which equates to 5% at the current share price of 2500p. The first interim dividend (they unusually pay three dividends per year) was also increased by 18% from 17p to 20p. Current forecast are for only 11.7% underlying dividend growth to 73.8p, so if the current rate of increase is replicated in the rest of the year then a total of 78p looks possible which would leave them on a reasonable 3% or so yield at 2500p.

I estimate this will leave them with no debt and may be a small cash position versus the £65m or so debt that they had previously. The management say the disposal is transformational as it allows for further investment in the rapidly growing and profitable consumer motor finance business and by taking it into the SME market. In addition to this theyare also talking of investing into what they describe as other specialist finance businesses with growth potential. Of course it remains to be seen what other areas they choose to invest in which does introduce an element of uncertainty and risk but also opportunity for earnings enhancement as cash / debt facilities are utilised.

As you can see from the chart below the shares, which are up 5% or so this morning to around 2500p, has been something of a ceiling on the share price in recent months. So it will be interesting to see if this will continue to be the case before any further details of how they are investing the cash emerges or if there is enough in these numbers to prompt a break out. I guess time will tell but on around a mid teens PE maybe it too early for a break out just yet especially 

once it goes ex the special dividend.

Meanwhile we have had updates from two more stocks which feature in the Mechanical Compound Income Scores Portfolio. First was a positive Q1 update from IG Group (IGG) who benefited from a strong August against a weak comparative as nervous financial markets gave clients much more reason and opportunity to trade. Perhaps the poor weather in August also encouraged domestic customers to trade more rather than being distracted by nice weather and out door pursuits.

The shares like markets have been trading sideways this year as their earnings were down slightly and the dividend was flat at their last year end in May and they were looking fairly fully valued as a result on a 20x+ PE. However with this good start to the year and a resumption of growth forecast as their new broking business gains clients then they may be more interesting again now with a prospective rating is closer to a mid teens PE and with a dividend forecast to grow again to give a yield of just over 4%. Looking at the chart though it looks as though 740p to 800p or so may be the trading range for now until we see how the rest of their financial year develops, but so far so good and it has a Compound Income Score (CIS) of 84 before any changes on the back of today's update.

I mentioned the weather above because the other announcement of interims today from AG Barr (BAG), the Scottish drinks producer, included a weather related profits warning and as a result they now expect their full year results to be broadly flat, which probably means slightly down. So this could take earning from the current forecast of 30p back by around 7% to last years 28p. The dividend was however raised by 8% in line with current forecasts suggesting that they will still deliver the expected 13.1p dividend. The share have fallen by 5% or so to 532p this morning to reflect this set back which will leave them on a fullish looking 19x with a lowish 2.5% yield. So not a lot to get excited about on the rating front although this is a quality business so it may be worth watching to see if they drift off more as this is not really a fundamental problem with the business as such and they will have weak comparatives next year as opposed to tough comparatives this year.

It still has a CIS of 87 reflecting the quality and growth, but after today's results and growth set back this may slip a little once the down grades are reflected in the data although dividend growth still seems likely. Technically it has just broken below its 200 day moving average and 500p looks like the next medium term support level so probably no rush but worth watching and revisiting perhaps if it should get down there or even into the 450 to 500p range.