Compound Income Scores Portfolio Performance
So more blue in evidence on investors screens this month as UK equities continued to rise and thereby provided total returns of +1.1% as measured by the FTSE All Share which I use as a benchmark for the Compound Income Scores Portfolio (CISP). This did better than the market again this month with a +2.6% total return and thereby continued its winning streak against the index this year and over all periods since inception.
That actually makes it six month in a row since November last year, although I should probably point out that this is more clawing back a sharp underperformance that the portfolio saw in November 2020 on the back of the vaccine inspired rally when many financially challenged and low quality names led the way. Nevertheless it is good to see the portfolio now pulling further ahead having made up the underperformance seen in November as the market has perhaps focused more on fundamentals again and maybe started to question how great the re-opening benefits will be in some cases. If it is of interest you can see the full performance history here.
With practically a years worth of outperformance in the year to date, I decide to do some portfolio tidying in addition to the regular sells that were suggested by the Scores. This involved trimming back a couple of big winners that have been run successfully.
The first of these Sylvannia Platinum (SLP) has gone up 3.6 times since purchase in October 2019 and as such it has grown to become the largest holding in the portfolio and has been flirting with a 10% weighting in recent months. Thus I decided to reduce it on risk control grounds. Now call me a wimp, as I know some people like to run with massively concentrated portfolios, which is fine if you are comfortable with that, but that's not how I roll as I like to run with a broadly equally weighted portfolio of around 20 to 30 positions. As this one still looks cheap and continues to Score very well it has been maintained as the largest holding, just not 9 to 10% any more.
The second reduction of a still high Scoring stock was done on valuation grounds and involved Dot Digital (DOTD) which was bought in April 2020 based on its Score and as a SaaS business with 90% recurring revenue I felt it would be resilient to the Covid crisis & could even be a beneficiary. Since then it has gone up 1.5x and re-rated and I feel that the rating has got a bit rich for my tastes with a PE of > 50x seeming expensive for the single digit growth that is currently forecast. The yield is also now < 0.5% and the EBIT/EV yield is also looking rich too at 2%. On that basis and given the current trend for switching away from expensive tech / growth stocks and towards more cyclical recovery / growth plays I feel OK with going against the old adage of running your winners, although in this case I have retained a position as despite the valuation it still Scores in the top decile.
Aside from these there were two sales based on their Scores with Avast (AVST) also confirmed by the new treble momentum trends that I mentioned in my last post. The other one Mondi (MNDI) was suggested as a hold on those trends so I wouldn't put you off holding it if you do. It has however been coming up as a potential sale for a few months now and having given it the benefit of the doubt a couple of times I decided to let it go as part of this month more active trading round as it Scores pretty averagely across the piece.
The proceeds from all these sales gave sufficient fire power for three new positions which takes the number of holding up to 30 which is the upper end of my preferred range. The new positions did however all bring something different to the portfolio and help with the diversification which after all is the whole point of a more broadly based portfolio, but as I say each to their own if you want to do it differently.
Summary & Conclusion
Another positive month for UK equities and the CISP as the recovery rally which has continued to gather pace since the vaccine news in November last year shows no sign of flagging despite some concerns about inflationary pressures.
Given the out performance by the portfolio this year and the extent to which some winning holdings had moved I took the opportunity for some portfolio house keeping in terms of risk reduction and profit taking on valuation grounds in addition to the normal sales thrown up by the monthly screening process (see above for more details). This leaves the portfolio with decent exposure to the factors underpinning the Compound Income Scores and it still looks to be offering a decent mix of value and growth with the overall PE being 16x with a 3.6% yield for the current year based on forecast dividend growth of 11% which excluding any rating change tends to suggest that the portfolio could still deliver close to its compound return since inception of around 15% per annum. So I'm happy with that and the progress shown by the portfolio in the year to date and indeed since inception.
Subscribers will be able to see details of all the new purchases and the resultant make up of the portfolio on their sheets, together with the new triple momentum trend suggestions for Buys, Holds, Avoids and Sells for every stock in the Scores. I hope this might help you with your decision making process when using the scores by tapping into the power of momentum too.
Aside from that on a personal & musical note it was a welcome change to see some blue sky outside in addition to the blue on the portfolio. Hopefully we are through the worst of the Covid crisis now and can look forward to finally enjoying some fun in the Summertime. While I probably won't be enjoying a Dreadlock Holiday any time soon it is good to see some cricket back on TV as I don't like cricket, I love it. Whatever you are up to this summer, assuming we are allowed out, take care and may the sun continue to shine on you and your portfolio.