March was another positive month for equity markets generally including the UK. As a result the FTSE All Share Index, which I use as a benchmark for the Compound Income Scores Portfolio (CISP), produced a total return of +4%. By comparison the CISP had another good month and delivered a third straight month of out performance in Q1 with a total return of +4.9%. This leaves it with a total return for the year to date of +9.9% which is 4.7% ahead of the +5.2% return from the FTSE All Share.

Over the 12 months since the Corona Virus hit the CISP has returned +48.3% versus +26.7% for the Index as the market recovered from its lows. So it is pleasing to be able to report that the Scores and the associated portfolio seem to have weathered the Covid storm and subsequent recovery successfully. This continues the decent run it has had over the last 5 years where it has practically doubled as it has managed to compound at around 14 to 15% per annum over the nearly six years since inception which compares to 4.4% per annum from the FTSE All Share over the same time frame, so about 10% per annum out performance.

This suggests that they are not a bad way for identifying attractive quality stocks with the potential to grow their dividends and your income and capital over time. You can see full details of the performance history in the Table of Returns drop down menu on the Portfolio tab in the site menu or just click the Table of returns link above if that is of interest to you. While if you would like to find out more about the Scores and how you can get access to them you can click the highlighted Scores link above or on the main menu and view a brief presentation about them here too if that is of interest. 
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Monthly Screening
This month there were five potential sale candidates based on where their Scores were. Of these two were repeat offenders with Scores well below my normal sale threshold (75% or top quartile CI Score) and the other three were more marginal being closer to the cut off line. So on balance and in the interests of avoiding costly / potentially unnecessary turnover I gave those the benefit of the doubt this month which subscribers will be able to read about in the Journal tab of their Scores sheets.
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As for the two that were sold, the first was Unilever (ULVR) which I held last month as it appeared to be oversold. That proved to be a reasonable call as it outperformed the index by about 2% this month. While I pointed out last month that personally I wouldn’t put you off holding it for it’s longer term compounding potential, this portfolio’s process is to follow the Scores and try to maintain exposure to stocks scoring in the top quartile in the main – so on that basis I let it be sold this month after the bounce, as the the score remained well below that threshold at the month end. At least this seems to be in tune with the market where the song remains same. That is stocks over bonds, cyclicals over defensive stocks, value over growth and Small-caps over large – for now as the reflation / inflation trade continues to play out and resonate with investors.

The other sale was Qinetiq (QQ.) which has done quite well for the portfolio and has therefore seen its score come down as it has re-rated to leave it looking rather average overall. The portfolio also held another stock operating in similar markets and while they are likely to be reasonably steady growers, it doesn’t seem like a strong enough theme that I want to double up on the exposure, so out it goes. Results are due in a month or so and their pre-close update was reasonable so they may be worth looking out for if you decide to hold on to it yourself.

Against those Computacenter (CCC) was added as their trading has continued to be positive leading to numerous upgrades as they continue to benefit from the trend for businesses to increase spending on IT hardware and services, which was in place prior to the Virus and which was accelerated by it and which they seem to think should continue this year too. Thus it would seem that their improved performance should be sustained rather than sagging back like some other Covid beneficiaries. It is also one I have held personally for some time which made me more comfortable with adding it up here, hopefully that's not confirmation bias!

The other purchase to replace Unilever was in the General Insurance Sector, so a suitably boring replacement, although this one is also well managed but does offer a much greater yield and therefore a higher value score than Unilever, so again playing into one of the current themes that I mentioned earlier. Again subscribers will be able to see full details of that one and all the other trades in their sheets.

Summary & Conclusion
Another positive month to round off a positive quarter and 12 months for the market and the CISP. Who would have thought that would have been possible 12 months ago when Covid first struck? Nevertheless it is pleasing that the Scores seem to have helped to navigate these strange times successfully. 

Meanwhile the current theme playing out in the market is to back the on going recovery / reflation and therefore potential inflation and higher bond yields / interest rates down the track. This has meant rotation from previous winners / beneficiaries of Covid / low rates and into losers from Covid plus value and recovery plays funded by sales of more expensive growth stocks which may suffer in valuation terms as growth becomes more plentiful and bond yields rise. 

It remains to be seen how long this trend lasts, but for now both Central Banks and governments seem intent on pumping money out so it may well go on for longer than one might think and for now at least the trend is your friend as they say. The market does however seem to be getting a bit frothy with all these SPAC's in the US and quite a few IPO's being delivered to markets even if they were a bit cool on the Deliveroo offering in the UK. I note that the UK regulators are also trying to loosen the rules to allow more SPAC type listing over here so we don't miss out. I guess there is also a chance that the US Fed at some point may start with yield curve control to keep yields down and keep the recovery going, which would be bullish if it happens. Trying to call the top of the market is in any event a bit of a mugs game and as Keynes was quoted as saying: " Markets can remain irrational longer that you can stay solvent." 

Having said that though the UK market does still appear to offer some value and still trades some way below previous highs unlike the US where ratings are higher and indices there are hitting new highs. You would also think that the UK market's larger exposure to Miners and banks etc. should also help it with the current rotation into more value laggards that is going on, but we'd still no doubt suffer if there was a US led sell off. 

So for now for me the song remains the same and I'll carry on Compounding with attractive looking stocks identified by the Scores. I'll leave you to enjoy your Easter eggs or whatever outdoor excitement you might have planned for this Easter assuming it is not cancelled for you. Otherwise I hope that markets continue to be kind to you - rock on, ciao for now. 

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Introduction
February proved to be a positive month for the UK market as investors and residents of the UK generally gained some hope and expectation that the successful and rapid roll out of the vaccines might bring forward the day when our lives and the economy might get back to some sort of normality. This is shown in the table on the site which can be accessed here as is the out performance by the CI Portfolio for the second month running. This leaves it 3.6% ahead of the FTSE All Share in the year to date and builds on the excellent relative performance shown in the last three and five years and since inception back in April 2015, as shown in the Chart above, which are more meaningful periods of time to look at rather than one month or year to date figures. This also shows that the portfolio has now made it back to an all time high value.

The performance so far this year comes as a pleasant surprise as market moves have in the main been a bit discombobulating as many poor and struggling Companies have soared in price while some quality names have been under pressure. This however is explained in part by the rush of liquidity provided by central banks finding its way into markets, especially it seems in the US, with the likes of Gamestop soaring thanks to Reddit forums and Robin Hood traders buying up call options and creating a short squeeze. More broadly it can be rationalised as reflecting hopes for a return to normality being discounted as the vaccine roll out seems to be going well. Thus plays on reflation, re-opening and recovery from Covid effects are being bought as the natural winners of that process and the lock down winners and more defensive / quality / growth plays being sold off in return as part of this rotation.

Monthly Screening
This month there were four potential sale candidates that came up based on where their Scores were aside from a couple that I gave the benefit of the doubt to. One of these was Moneysupermarket (MONY) which had results and saw downgrades as a result which led to a decline in the Score as the shares rallied against this background. The outlook statement was quite cautious, but I guess maybe the market is giving them the benefit of the doubt and perhaps perceives them as a potential beneficiary of re-opening and a consequent pick up in Money & Travel comparisons which they flagged. As ever time will tell on this but in the end I decided to go with the Scores and sell it along with another stock which I had waited for results this month which also seemed underwhelming. Since that was a stock I didn't have a strong feel for and there was no improvement in the Score this month, I let that one go through too.

Two more sale candidates that I found more tricky were decent steady businesses which one would might want to hold for their longer term compounding attributes. One of these was Watkins Jones (WJG), which as it is a property developer, some may not view as a quality operation. It does however operate with a capital light model in the main in some growth areas like student accommodation and build to rent and has a decent pipeline of work. As a result it has some attractive looking operating characteristics and should be fairly steady. Again I had waited for results and a subsequent management presentation. These were well received and the price did well despite some subsequent downgrades. While the webinar I watched did highlight a bit of a potential dip in their development pipeline after they had put things on hold post the first lock down. Again I think the market might be prepared to look through this so I wouldn't put you off holding it for the long term. Despite that, given the price move and the effects of the downgrades on the Score I decided to let that one go as well.

The second quality long term compounder that came up as a sell was Unilever (ULVR) after their results were not that well received and they also saw some downgrades which leaves them with a fairly pedestrian growth outlook in the short term. It was also no doubt sold off aggressively as part of the reflation / re-opening trades of selling the winners and buying the low quality losers / recovery plays discussed earlier. This had however left the shares looking very over sold in the short term (as shown by the OB/OS indicator in the Scores sheet)  and I suspect might leave the possibility of some mean reversion in the short term if the recent market weakness should be extended or resume. Beyond that I guess it will remain fairly unloved in the short term so I'll review it again next month although personally I'd be more inclined to hold it for the long term as a classic quality compounder.

Against those sales three purchases were made for the portfolio this month. One of these was a specialist operational property REIT as a straight swap for the property type exposure forgone by selling Watkins Jones. A second one was a well run family lending business which operates in some specialist niches which should be a beneficiary of the re-opening and thus plays into that trend against the similar recovery prospects that Moneysupermarket may  offer. It did however have a better Score as it offered better value and momentum and it is a business that I know well and hold myself, so I was happy to add that one.

Finally somewhat more controversially perhaps Games Workshop (GAW) made a belated return to the portfolio having been sold early (and badly as it turned out) in the pandemic when the score had deteriorated on downgrades and I was worried about operational gearing to the downside as they had shut all their operations at that time. Now with the shares at more than twice the price when it was sold it feels very uncomfortable to be buying it back up here, especially as it could be seen as a beneficiary of lock down and therefore vulnerable to a reversal of sentiment and fortunes thereafter perhaps? Nevertheless I followed the Scores as it now looks more reasonable value having come back in price from peaks above £100 despite some chunky upgrades. I also believe there should be another trading update this month in which they may still produce some forecast beating results, so it will be interesting to see if the market is more enthusiastic about those this time around if that should come to pass or if they end up disappointing this time around.

Subscribers can see details of these trades and some journal comments too plus the rest of the portfolio. If you are not familiar with the Scores and would like to know more about them and how to gain access, I put up a presentation on the site recently to try and explain the background to them in as clear a way as possible & how you can access them - you can find that here if that is of any interest. 
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Summary & Conclusion
So a better month for markets and another month of out performance for the Compound Income portfolio despite a dash for trash and recovery plays and a move away from quality / growth and lock down winners. Despite some of the moves (like Gamestop in the US) seeming pretty confusing and inexplicable, in the main the broader moves seem more understandable in the context of hopes for a recovery on the back of central bank & government money supporting the economy and the vaccine roll out and a subsequent re-opening unleashing pent up demand etc. - hopefully!

This also meant something of a switch from growth to value names depending on how you define those, although it remains to be seen if that has run it course now or if it has further to run. Valuations in the US continue to lead to some concerns about these bubble like moves in some stocks and things like Bit coin and especially at a time when inflation fears and bond yields are rising which may impact on valuations if these rates go too far up. For now these moves don't seem to be getting out of hand just yet. So I'll sign off for now but leave you with a couple of tunes that seem to my mind to sum up recent market activity and those that might be getting involved at this stage. 

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I want my MTV (GYS, AMC) 
That ain't workin' that's the way you do it
Money for nothin' and chicks for free
Now that ain't workin' that's the way you do it
Lemme tell ya them guys ain't dumb
Dire Straits

Performance
I'll keep this brief as I'm not sure that people are terribly interested in this. January was a tricky month for the UK stock market and the World in general as Covid-19 reared its ugly head again. As a result the UK market as measured by the FTSE All Share Index, which I use as a benchmark for the CI Portfolio, returned - 0.81% for the month. 

Against this the CI Portfolio had a positive start to the year with a total return of +1.25% for a 2.06% out performance. As you can see in the chart above this took the total returns back towards the peak they achieved early last year with a doubling in value in the 5 3/4 years since inception. Rather than dwelling on that I'll provide a link here to the full performance table for that period if that is of any interest. 

Monthly Screening
There were a few names that came up this month for consideration for sale based on their Scores having deteriorated. In the end I decided to make no trades for a few specific reasons and in the interest of not over trading too. I've added a Journal tab to the Scores sheet to detail the background to these and provide more in the way of updates on stocks in the portfolio as we go through the year. Hopefully subscribers will find this useful as I have probably been remiss in not providing this sort of information in the past. Any feed back from subscribers welcomed via the contact form on the site here or via my e-mail if you still have it from when you signed up. 

Summary and Conclusion
So a mixed start to the year in terms of our lives and the stock market. While the markets in the US still seem to be riding high and Robin Hood traders and their band of merry men and women seem to be having fun regardless of valuations or earnings at the expense of Hedge funds. I'm sure you have seen plenty of commentary on that so I will not dwell on it other than to say it does all feel a bit like top of the market / bubble type activity. Indeed I have had a few people who don't normally invest or care about it, contact me and ask about it & one was even asking for a friend - normally a bad sign too.

Now while I'm fairly relaxed about this as the UK market seems pretty cheap against its history and in a global context. We are also looking forward to a recovery from the Covid misery as the vaccines roll out and all the positive benefits of BREXIT to come once the teething trouble are over on that too!?

​However, I can't help worrying about the valuations in the US and the bubble like indicators we are seeing currently as highlighted by Jeremy Grantham recently - see video at the end of this piece for more details. While John Hussman continues to make the case for valuations being at extremes in the US in his piece here and as shown in the extracts from that here (continues after charts).
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"Life is a roller coaster just got to ride it" Ronan Keeting

Introduction
Well that would have been good advice if only we had been able to live our lives last year, but as we all know we were stopped from doing that in the main by Covid-19. In terms of Stock Market investments it was certainly a roller coaster ride as a record breaking bull market, in terms of duration, finally came to an end. This was then followed by a seemingly record short bear market (certainly in the US) or does that mean it was just a correction? While in the UK we have continued to struggle on back below 7,000 on FTSE as our old economy type stocks and sectors and lack of technology champions in the main took their toll on the index. 

Meanwhile we finally managed to leave the EU and agree some sort of on going trading relationship at the last minute as is always the EU way, but as ever time will tell as to how good or bad that might turn out to be. Unbelievably I see that people are already calling for us to re-join even though we have only just left and finally agreed some sort of trade deal.

So early signs of a neverendum mentality taking hold already until remainers / EU get the answer they want I guess. Any way I'm sure you are all familiar with and fairly fed up with all these issues - so I'll move on. 

Compound Income Portfolio - Performance
If anyone is interested in this, it managed to outperform the FTSE All Share (which I use as a benchmark) again this year making it 5 years out of 6 now since inception in April 2015 or 4 out of 5 years if you count just full years. As this was set up to try and demonstrate if the Scores had any merit in picking outperforming stocks, I think an 80% or so success rate might be some evidence that they do, but as they say the past is not necessarily a guide to the future.

Having said that though the numbers this year are to be honest a little underwhelming in absolute terms as the CI Portfolio produced a total return of -1.26% versus the -9.8% from the FTSE All Share, although that is still  a decent 8.55% out performance. This came as the portfolio produced a 6.01% return in December versus the 3.86% from the FTSE All Share, thereby clawing back just over 2% or around 1/3 of the under performance it saw last month in the vaccine inspired rally.

Since inception the CI Portfolio has just about doubled with a 99.84% total return or 12.8% per annum which compares to the 22.79% or 3.64% total return from the FTSE All Share. See also the graph on the website under the portfolio menu or at the end of this piece for comparisons with the Mid 250 and Small Cap Indices as well as the All Share. I put these on there as the portfolio has tended to have an above average exposure to these out performing part of the market, which will have accounted for some of the performance differential. For example at the end of the year the portfolio was split roughly 50/50 between FTSE 100 stocks and Mid 250 + Small Cap stocks (including AIM). 

At the year end I also like to check how the CI Portfolio has done versus widely available pooled funds to see if I'd be better off putting more of my money into those type of vehicles. This year while the returns were not that great they still compared favourably with the UK Equity Income sector where its returns would have put it 5th out of 85 funds and 5th out of 26 in the UK Income Investment Trust sector. While over 3 and five years it has substantially outpaced all of the funds in both of these sectors. So even though the returns were a bit underwhelming in this unusual year I'm satisfied that the Scores are still doing a good job compared to pooled fund / index alternatives.

So I shall continue to use them in helping me to identify and select suitable Companies to help me achieve my investment objectives. The Scores will also continue to be available to subscribers' for a modest fee if they should like to use them to help them with their investing too.  A table showing the total returns from the CI Portfolio and the FTSE All Share over the last 1,3 & 5 years is presented below and you can see the full table of returns via the Portfolio menu on the site.

Out of interest I took a quick look at how the Portfolio would have performed if I had left it untouched from it's positions at the end of March & April and it appears that the returns were around 5 to 8% better as a result of the trades that I did subsequently. So not bad for a monthly screening process, although this year was one in which it probably paid to be even more aggressive with your portfolio as evidenced by some of the exceptional returns I've seen reported. Rightly or wrongly I tended to focus on those businesses that could survive and manage their way through all this as it seemed that vaccines might have taken a long time to arrive. As it happens they managed to come up with those in double quick time so recovery plays then came to the fore even more.

Monthly Screening
This threw up three potential sale candidates this month, based on how they score in the Compound Income Scores.  Of these I decided to hang onto Sage (SGE), a fairly recent addition to the portfolio, which has taken a bit of a hit as they are having to invest to stand still as it were as they transition to a software as a service model. Given it is a high return business you'd want them to reinvest if they can, but the wrinkle here is that they are having to invest to update / keep up with the competition. Nevertheless I felt that they still looked reasonable value on an EBIT/EV Yield basis & offer a well covered 3% Dividend yield, even if the PE doesn't look particularly cheap at around 24x. 

Another high quality business that looked more of a sell on valuation grounds was Auto Trader (AUTO) which as well as a high rating has seen some substantial downgrades and the car market in the short term still seems to be quite challenged. Thus I let it be sold as per the process but personally feel a bit mixed about it as the valuation certainly feels expensive but it is a high return moat type of business that one would probably want to hold for the longer term. Having said that though I felt the same back in October last year when the process had me sell Avon Rubber at £43.40 due to a poor score based on high valuation and poor earnings trend too. So it will be interesting to see if Auto Trader crashes too on any future disappointment given the valuation. As this post is already getting quite long and taking longer than I thought it would, I'll move on. Subscribers though can see the full details of this and the other sale plus the two new stocks that replaced them on their files as normal. 

Brief Economic / Market Outlook.
After such an exceptional year the consensus seems to be that we are through the worst and that some kind of economic recovery is at hand despite the fact that we seem to be entering another National lock down in effect in the short term. The roll out of the vaccines thus far is encouraging investors to look through that and anticipate a V-shaped recovery as all the pent up demand and cash that may have built up in some peoples bank accounts is released as and when we get back to some kind of normality. 

While the initial recovery might well be quite perky on the basis of pent up demand and the sod it factor as we hopefully eventually emerge from the grip of the virus, I do worry a bit about the medium / longer term. That's mostly due to the level of debt to GDP around the world, which while it may be manageable if central banks and governments engage in yield curve / financial repression, the conventional wisdom is that debt at these levels is likely to prove to be a drag on growth in the medium term (like Japan as I mentioned last month).
I guess governments might continue to print and spend to offset those effects but it is above my pay grade to forecast where that might all end, although quite a few are expecting a pick up in inflation as a result this time around, which might offer governments a way out from their debt traps, perhaps.

Dividend Outlook
In terms of dividends, as previously discussed and as I'm sure some readers are painfully aware of, these have been cut substantially this year with the UK dividend base expected to be down by around 40 to 50%. Having analysed the dividend flows on the Compound Income Portfolio is seems that the total income received this year was down by 30% year on year suggesting that some of the existing holdings and the changes that were made along the way have helped to lessen the effects of the cuts. So some evidence that they help one to select dividend paying stocks that might be more robust than the average.

That represents a yield of about 2.3% on the average portfolio value for the year which is somewhat lower than that of previous years but not that surprising in the circumstances and also as I have relaxed my value constraints somewhat this year and ran winners on higher valuation more. Based on forecasts the portfolio is expected to generate a yield of 4.2% with some strong dividend growth forecast. While in PE terms it is on 13.7x with an EBIT/EV Yield of 8%, so it looks to be offering decent value and growth on the basis of  current forecasts. Again subscribers can see the full details of the portfolio in their Scores file. 

​In terms of the UK market when Link asset service last provided an update in Q3 they suggested that they thought dividends in the UK could recover by between 6% and 15%. While the FTSE ended the year at 6460.2 and offered a yield of 3.65% to give a dividend base of 235.79 index points. So I thought I would update my FTSE Dividend ready reckoner and see what it looks like if we assume those dividends could remain unchanged or grow by up to 15%.  For the bulls I have also added a 3% yield column to see how far we could go if investors really get carried away and bid the market up and consequently down to a historically toppy level of a 3% dividend yield.

Outside of that I suspect that a 3.5% to 4% range is more likely to pertain this year suggesting a trading range for the FTSE of potentially between about 5900 - 7747 or say 6,000 to 7,500 if you wanted to tighten that up a little by looking at the chart from the beginning of this post and where likely support and resistance might come in. Indeed on that basis, while I wouldn't be surprised to see FTSE hitting or exceeding 7,000 again at some point this year, although technically it looks like there is a lot of over head resistance in the 7000 to 7700 range. It seems therefore that we might have to wait another year for the FTSE to surpass its 1999 high. At least it means if it should make it up into that range then we might be able to look forward to 10 to 15% returns this year to make up for last years disappointing returns from the UK market as a whole. 

Summary, Outlook, Conclusion & Personal Note.
​So very much a year to forget in terms of what happened to our lives and how the stock market performed in the UK at least. Obviously within that and globally there were many threats and opportunities thrown up so  congratulations if you manged to navigate that and make decent returns & hats off to you. Equally if you lost some money, don't get too down about it but put it down to experience and try and learn from it I guess.

In terms of economies and markets the consensus seems to be expecting economic recoveries on the back of the vaccine roll out, but that may be tempered by the on going 2nd or 3rd waves and associated lock down restrictions, but hopefully we might be out the other side of all that by the summer, perhaps. Heaven forbid that the new variant of the virus should turn out to be resistant to the vaccines or that they should turn out to have more serious side effects than expected. If either of those came to pass I suspect all bets would be off.

On the market side of things the US market is generally perceived to be expensive (hasn't that been the case for a few years now?) but seems to carry on regardless so far. The flip side of that is that some other developed markets like Japan and the UK in particular look cheap, while emerging markets are widely tipped  to do well along with commodities. 

Whatever or however you decide to approach things this year may I wish you good fortune in the markets and good health for you and your families and loved ones and my deepest sympathies if you or someone close to you have been hit by Covid in the last year.

Personal Note
Talking of Covid I'm pretty sure that both my wife and I had it back in March before the lock down started and before it was widely known about. Fortunately being fairly fit and healthy (touch wood) 50 somethings we managed to come through it pretty quickly after a few days 
of feeling unwell and fortunately did not need any medical intervention. Our planned trip to Berlin at Easter got cancelled and we didn't get to go away at all last year - what a drag. 

On the portfolio front across the piece with our overall more broadly diversified asset mix we did at least manage to increase our net worth by 1.5% so thereby just about maintaining the real value of our assets. I should probably say more about longer term compounding and rates of returns but that is probably the subject for a post in itself as this one is already rather long. 

For the income side of things my boring diversified stock investing approach together with the use of investment trusts helped to protect us from the worst of the dividend cuts this year. It was also helped by redeploying most of the cash buffer that we'd built up in 2019 during October and November after NS&I cut rates to zero and the market was having a second leg down before the vaccine news broke.

As a result our income was "only" down by about 9% year on year so not great, but not too bad in the circumstances and we can easily live with that. So while we didn't manage to increase or maintain that in real terms this year it does still leave it well up in absolute and real terms since we started full time investing for a living in 2009. So despite this somewhat trying year we have still managed to achieved my objective of growing our capital and income in real terms over that time frame. I still think that accessing quality companies with with good yields and the prospect of dividend growth is still a good way to try and achieve that, although of course others will have their own ideas.

So we literally live to fight another year having survived Covid and the roller coaster ride in the market last year. Here's to hoping that 2021 might be a better year all round, but so far it has not started that well with another national lock down, but perhaps we might get back to some sort of life by Easter or the Summer at the latest and maybe we might even get to travel somewhere too thereafter if we're lucky. Thanks for reading, you deserve a medal if you got this far and sorry for being so boring, take care & good luck for the year ahead.

Market Background.
Well November turned out to be quite a month to say the least. The fantastic news that a vaccine for the Corona virus had been very effective in tests prompted a record monthly rise in the UK stock market with most of the main indices providing total returns of around 12.6 to 12.7%. While Small caps again led the way following on from them moving above their moving average last month and thereby turning bullish. Thus this month they managed a +15.1% total return.

These moves also prompted a sharp rotation from previous quality / growth / defensive winning names towards low quality / challenged / recovery under performing names in the main, as investors anticipate a quicker return to normal and a more rapid recovery than hoped for in those sectors most afflicted by the virus. Now I'm sure you are familiar with all that by now so I'll move on.

Market Timing Indicators.
Unsurprisingly, after such a large move up in the market in the month, these have all moved above their longer term moving averages. As a result they are giving a positive signal that one should be more positive on and invested in the market. This is backed up by the US Unemployment rate which is used as a back up economic signal to judge whether to pay attention to the signal or not. This has also, somewhat surprisingly, moved down below its moving average, which is bullish, although it remains to be seen if the second wave or the vaccine disrupt or reinforce that trend. 

Within that the main indices are now about 6-7% above their trend which is towards the upper end of where they have got to in the past. While the stronger performing Mid and Smaller Cap indices are 12.3% and 17.6% above their moving averages which is a record amount in the six years or so since I've been compiling these indicators. So that might suggest that the run up in Mid and Small cap names has perhaps gone a bit too far in the short term perhaps? Or maybe they just take a bit of a breather while the larger stocks play catch up, although you would have thought in these circumstances the moves might have been the other way around. In addition in the short term, after such a strong move, it might not be unusual to see some mean reversion on the back of profit taking perhaps.

The swing factor in whether this comes to pass might be the binary BREXIT deal or no deal outcome. Press reports seem to suggest that a deal was possible this week, although it is looking as though that could even extend into next week before a key EU summit on 10th December. My best guess is that a deal will be done at the last possible minute as that is the way the EU seem to operate in negotiations with 11th hours agreements often coming at the last moment. 

Also it is noteworthy that the Portfolio since the March low to the end of November has returned 27.3% while the market has provided a total return of 16%. So on this occasion the Market Timing indicators have failed to add any value and indeed if one had traded out and were now looking to get back in you'd have also have incurred significant fees and spreads too in addition to missing out on the subsequent recovery. Thus this tends to confirm my suspicion that market timing is a bit of a mugs game and that it is generally better to remain invested and benefit from time in the market. Provided of course you can stomach the downs as well as the up and not panic out at the bottom. 

To be fair these type of timing indicators did work well in the 2008/9 GFC as Central Banks were a bit more tardy in responding that time around. On this occasion they were very quick to respond and pump in liquidity which facilitated the turnaround in double quick time. It does of course leave the US market in particular looking particularly extended in terms of its valuation at this early stage of the recovery unless that can surprise dramatically to the upside in terms of its effect on Company profits and earnings. 

On the back of that I'll probably stop writing the timing indicators up on here on a regular basis. I may however keep the data going and mention them if it seems significant in the future in terms of the signal. As a result of that I'll be keeping the Compound Income Portfolio still mostly fully invested going forward from here

Compound Income Portfolio.
It was also a positive month for the portfolio, although sadly not to anywhere near the same extent as the +12.7% total return from the FTSE All Share which I use as a benchmark. Indeed in that context the +6.8%, while great in absolute sense was perhaps, a little disappointing and not even a record, as the Portfolio has done better than that on a monthly basis on a few occasions over the years. 

Nevertheless it is worth seeing that in context as the Portfolio had outperformed the index since the March low by producing +18.6% versus +3.2% for the FTSE All Share to the end of October. Thus the portfolio in November gave back around a bit over a third of its out performance since the low. As a result the Compound Income Portfolio has year to date produced -6.86% versus the -13.17% for the FTSE All Share. Since inception the portfolio has returned +88.51% or 11.84% per annum which compares to +18.22% or 3% per annum from the FTSE All Share. 

Quantitative  Factors & the Growth/ Quality versus v Value debate.
This doesn't come as a surprise to me as the process is designed to identify and target quality growing shares with robust finances and ideally supported by improving prospects in terms of estimate revisions. Whereas the winners as a result of the vaccine news were the precise opposite of that i.e low quality, loss making in some cases and with poor balance sheets that  had been heavily downgraded. Though if users of the Scores were so minded to make that switch they could have identified suitable candidates by just looking in the lower quintile of the Scores rather than the top quintile as usual!

As someone who has managed quantitative driven portfolios both professionally and personally, this move comes as no surprise to me. Indeed at turning points in the market like this quantitative factors tend to stop working for a short period while the buy crap / recovery stocks is going on before the factors that the model taps into reassert themselves in the longer term. 

The monthly screening process does also not lend itself to that and I felt disinclined to throw out the process and charge into recovery plays or skate to where the puck is going to be as one big fan of crap stocks likes to say on Twittter! Sure if you are more of a trader and looking to make rapid short term gains then you will have needed to be buying crap and all those bombed out recovery plays hit by the virus. So congratulation to you if you have managed to do that. Personally as I'm looking to grow and compound my assets and income I still believe that buying and holdings quality stocks for the long run is probably a better way to go in my view, but each to their own.

Now I know that buying quality has become quite a trendy view in recent years after the success of Terry Smith and Nick Train with strategies based on that view. Indeed there has been a bit of a debate before the recent vaccine news about growth versus value and some even declaring the death of value investing as a major value investor threw in the towel and closed their fund in an echo of Tony Dye being sacked PDFM at the height of the dot com bubble. So the vaccine news or V-day was the catalyst for a switch back towards bombed out value stocks as the valuation differentials which had been stretched to the extreme snapped back the other way & previous momentum stocks cratered and previous losers soared. 

How long this goes on for remains to be seen as we work through the second wave and await wider distribution of the vaccines. In the short term, given such a sharp move in the space of a month, as I said earlier, it would not be a total surprise to see mean reversion kicking in to reverse some of this move subject to the BREXIT binary outcome. Ultimately though the recovery in value trend might have a bit further to run for now.

While the Compound Income Portfolio and those type of stock that I target didn't fully participate at least I bought some Temple Bar (TMPL) (which I mentioned on here a few weeks back) for my own more widely diversified portfolio and incredibly have seen it rise by nearly 50%. Which is some small consolation and does help to demonstrate how extreme some to the moves have been in such a short space of time. 

So I guess readers will have to make up their own mind about how they want to play things from here but for what it is worth I share below an interesting video from Terry Smith where he debates quality versus value. Now obviously he is talking his own book but he makes some good points even if he has probably suffered a bit of under performance in the short term since this was filmed as a result of the V for Vaccine rally in value stocks.

Summary & Concluding Thoughts.
So great news for the World that a vaccine has, somewhat surprisingly, been found to be effective in record time compared to the usual 5 to 10 years or never that had been speculated about. This has led onto a record month in stock markets around the World as investors celebrated this and the stocks beaten down as a result of the virus have had a relief recovery as investors moved to discount an economic recovery and an improvement in their prospects.

In the short term this picture is a little complicated by the current second wave restrictions, but in the medium terms is seems reasonable to assume that some sort of normality might be restored by next Spring / Summer & a sharp year on year increase in economic activity should ensue. Obviously the tricky bit will be how quickly this happens and to what extent the economy gets back to some kind of normality or will behaviour be permanently changed?

The UK market seems quite well placed within this current phase as it is heavy in many of the value sectors like Banks, Miners & Oils which are currently recovering strongly. Beyond that it remains to be seen how long that trend continues and at what point the financial and economic effects of the Pandemic start to bear on the market & the economy. Generally it is suggested that when economies get up to 100% debt to GDP which is where we are headed, then economic growth tends to be harder to come by. Think about Japan and what has happened there since their bubble peaked and how they have since struggled to grow despite low interest rates and lots of fiscal stimulus and their equity index remains below where it was in 1989. 

I guess you could say the same about the UK as we have gone 20 years already since the dot com bubble peak in 1999 with the FTSE still below where it was then. So I'd say enjoy the rally while it lasts and hopefully it might have a bit further to go as we are into a traditionally seasonally stronger period. You never know one day this decade maybe FTSE will make it convincingly through 7000!

However as a wise old Stock Broker often said to me "things are never as bad or as good as they seem." So in the same way as I said towards the end of October that you shouldn't get too bearish when FTSE was around 5700. Equally now about 6 weeks on with the market now around 6500 I wouldn't get too carried away. Nevertheless rightly or wrongly I stand by the comment that "in the long run quality dividend paying equities still seem like a decent way to find a growing yield with potential for capital gains in a low yield environment."

So there you go obviously good luck to with your investing and however you choose to go about it and of course it may be possible to get higher returns by trading aggressively and jumping into low quality recovery plays but that's not something I'll be doing for the Compound Income Portfolio. 

All that leaves is for me to wish any readers of this a very Merry Christmas if that proves to be possible at the end of this terrible year and here's to hoping that 2021 is a better one all round.