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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Here is another update on the Compound Income Scores Portfolio (CISP), this time on the monthly screening and recent announcements from companies in the portfolio.

Taking the announcements first, we had slightly underwhelming results from Headlam (HEAD) the flooring distribution company which struggled a bit for growth as one of its major customers cut back on orders and conditions in the UK were generally more difficult than the previous year as the squeeze on household budgets from falling real incomes presumably had its effect on demand for carpets etc. Having said that though the European performance was stronger and they also undertook some cost saving measures and made some add on acquisitions which helped to produce some modest 6 to 7% growth in profits and earnings despite the tougher domestic conditions. They also increased the dividend by 10%, helped by their robust balance sheet and their reasonably confident view of the future and a clear dividend policy based on a target level of cover. There was however no special dividend this year as there has been in the last few years given the outlook and the demands for capital investment that they see. Overall an OK set of numbers but the market didn't seem to like them that much and marked the shares down quite sharply on the day of the announcement. They have not recovered since and I note there have been a few small downgrades since then, so they may well continue to drift for now despite looking good value on 10x with a 5%+ dividend yield for the current year. So in summary good value and reasonable quality but lacking momentum and some concerns about the outlook, although their self help measures should help to alleviate the worst of this, so a hold for now but we will have to see how it scores come the next monthly screening to see if it remains in the portfolio. It does however, look like it has come back into a range of support between about 400 and 465p, see chart at the end.

On the same day we had better news from Bodycote (BOY) which saw strong growth, paid a special dividend and rose on the day as the market clearly liked these numbers and this helped to offset some of the weakness seen in the Headlam share price, which after all is the whole point of a portfolio. So we have something of an opposite here a quality cyclical which is benefiting from stronger demand and therefore is rated more highly (18x with a 2% yield or thereabouts) and which therefore has better price momentum which is supported too by earnings upgrades seen since the figures.

Moving onto the transactions this month these gave me something of a mental challenge as the scores challenged my preconceptions and natural inclination on some stocks as well as presenting some challenges in constructing a suitably diversified portfolio. Firstly on the sales the stocks that came as a result of the screening was Unilever (ULVR). Unilever is of course well know and a solid company which is a classic compounder and one which personally I'm happy to continue holding of a more broadly diversified income portfolio. I did decide to sell it for the CISP though to follow the process, as despite it being somewhat over sold in the short term, it still looks a bit of an expensive defensive, albeit not as expensive as it was given recent share price falls. It has however had earnings downgrades and I guess maybe investors generally are rotating towards more cyclical names given the improving economic situation globally if not in the UK.

The second sale candidate was XL Media (XLM), which even though it had only been in the portfolio for a short time, I decided to sell for a small profit despite the recent positive trading update. This was because the score had deteriorated on the recent re-rating and there had been some small downgrades. In addition to this the CISP still has exposure to this area via Taptica (TAP ) and they both seem to have come off recently as they have tapped the market for new capital and perhaps investor appetite for this area is satiated in the short term, so maybe you can have too much of a good thing.

Talking of having too much of a good thing that brings me onto the buys this month. Now back in January, which was poor timing with the benefit of hindsight, I did buy another market related stock in the shape of Miton (MGR), which gave the portfolio three positions in market sensitive stocks. Thus when Plus 500 (PLUS) came out top of the pops this month I didn't feel able to add it to the portfolio for that reason as well as being naturally biased against it myself. It does however look very cheap having just had a strong upgrades on the back of a positive trading update and it does trade on about half the rating of IG Group - so the scores are signalling that it should do well if you can stomach the risks. I note however that the directors have also placed a large slug of stock recently, although they do still retain quite substantial holdings - so even they are hedging their bets having tried to sell out previously at 400p to Playtech (PTEC). So in the end I bought some Amino Technologies (AMO) which helps TV networks with IPTV streaming and some Spectris SXS which helps companies with enhancing their productivity, see the name links for more details of their operations. Both these scored well and bring something different to the portfolio.

This now leave the portfolio looking reasonable value on around 14x with a 3.4% prospective yield based on the forecast dividend growth 15% for the current year, thereby hopefully it will deliver on the objective of delivering value, income and growth which the Compound Income Scores are designed to identify. So there you go that's it for this week and don't forget if you would like to find out more about the Scores and how you could gain access to them to help you with your portfolio monitoring and construction then check out the Scores page which has all the details.

Market Thoughts
Now that the dust has settled on the recent bout of volatility, just thought I'd put a few thought down and provide an update on the January screening of the Compound Income Scores Portfolio (CISP). So taking the market first as I suspect that will be of more interest, it has obviously come as a bit of a shock to many that share prices can go down as well as up! This is because we had been lulled into a false sense of security by the seemingly never ending story of Central Bank Quantitative Easing or QE as it is known. This led to an extraordinary period of smoothly rising asset prices, or a bull market in everything as one wag called it.

This period seems to be coming to a close as the US Federal Reserve had already started raising rates from the emergency levels which had endured for years and had quite clearly sign posted a route to the withdrawal or reversal of QE over the coming quarters a kind of Quantitative tightening or QT as it were. Stock markets had ignored these signals, even as bonds started to sell off, causing some famous bond investors to call the end of the long bond bull market. Equity investors were aided in this myopia by stronger economic statistics and the US government passing some hefty corporate tax cuts which further boosted animal spirits & hopes of stronger growth. These moves in bond yields were accelerated and brought into sharper focus after the US Non Farm Payrolls and Unemployment data last Friday came in with another strong reading and showed unemployment sticking at 4.1%. The fly in the ointment was however a pick up in wage growth, which in turn fed into fears of rising inflation and hence the knock onto bond yields and ultimately equity markets.

Now I'm not saying that this divergence originally was irrational as earnings, share buy backs and dividends tend to drive stock market returns along with expansion and contraction of the multiple that investors are prepared to pay for those earnings. Given the benign background on the back of QE and recent signs of accelerating growth investors chose to focus on that and bid up stock prices in an exponential fashion, rather than worrying about the build up of debt, rising bond yields and the probable prospect of at least three interest rate rises from the Fed this year. Last weeks events seem to have brought about a reassessment and a quick bought of profit taking which has then led to more volatility as some automated algorithms probably kicked in too. Thus equity investor may now reconsider how much they are prepared to pay.

Any way enough of the rationalizing already, what to make of it all? Personally I wouldn't be too concerned just yet, given the stronger economic background discussed above. Thus this is probably just one of those normal periodic corrections of up to 10 to 20% that you quite often get in stock markets. Quite frankly if you are  not prepared for that, which is the price you pay for investing in volatile equities then you should probably not be investing in the stock market at all. In addition to that you also need to be prepared to see the value of your equity portfolio potentially cut in half, when a really bad bear market rolls around, usually on the back of a recession or more recently the financial crisis. Now that is relevant here as I don't see a risk of recession in the statistics that are coming our from the US and elsewhere at the moment and that's why I say this is probably just one of those normal periodic corrections. Going forward I will however continue to watch the US unemployment & ISM numbers as well as the shape of the yield curve which has proved to be one of the best advanced indicators of a coming recession.

So no great change to my strategy as I want to remain invested in real assets and to benefit from the power of Compounding, but I will look to reduce risk when and if a recession seems to be on the horizon. On which the only thing I can add is that in recent decades we usually seem to have had either events like recessions, the dot com crash in 1999 and the early 2000's and the financial crisis in 2007-9 starting or having their effect late in each decade with the effects extending into the early part of the next decade. Earlier back in time I'm thinking of the late 1970's peak and early eighties recession, the late eighties peak and early 1990's recession etc. As the old saying goes history doesn't repeat itself, but it rhymes so as we approach the end of this decade it seems we may well be overdue another recession or event but as ever I guess time will tell.

Update on the CIS Portfolio
So if you are still with me I'll finish up with a quick review of this months CISP Screening. There were three potential sale candidates that came up this month, Wynstay (WYN) which was a clear sell on the scores and two which were much more marginal - Bloomsbury Publishing (BMY) and Unilever (ULVR). On balance I decide to give the latter two the benefit of the doubt. In the case of Bloomsbury I was tempted as it was a the top of its trading range and looked as though it could be breaking out of what has been a fairly well defined trading range, plus there had not really been any news flow recently which is why the score had moved down on unchanged earnings. I must admit I was tempted to let it go though because of the trading range. Sadly I didn't, as when the volatility hit it promptly collapsed back toward the bottom of its range where it is now looking over sold, so maybe there's a buying opportunity there again now?

On Unilever they had just reported results and having come back from their highs it was starting to look better value and a tad oversold. Thus I thought I'd leave that for another month and see how the market digests the figures, although I note that the earnings have been downgraded since - knocking the Score further. So we shall probably have to bite the bullet and sell it at next months screening, but we will at least pick up the dividend this month.

The replacement for Wynstay was Portmeirion (PMP) - the exciting (OK I made that up) ceramic tableware, cookware, gift ware and tabletop accessories provider. Not that being dull is a bad thing in the stock market it can mean that an attractive business is overlooked. In this case that is what the Scores are saying as it had upgrades after its recent trading update and looks reasonable value if not an outright bargain on around 13x with a 3.75% yield for the coming year. My only doubt is that it has been flat lining for the last 18 months or so after a sell of in mid 2016 on a trading disappointment I seem to remember, although it had done pretty well in the years prior to that. Since then the market has been strong and maybe enough time has now elapsed since the trading problem which may mean it's not such a bad time to get into it - I guess time will tell?

Finally I've been updating the Scores daily this week for subscribers so they can keep up to date with the moves in Scores on the back of the price moves and search for good value over sold stock. So if you would like to be able to do that too do check out the Scores page for details.

Lots of results from my kind of stocks and too many for me to go into great detail. So look out for results and updates from the likes of Britvic (BVIC), Nichols (NICL) & Unilever (ULVR) in the food, drinks and personal care area. Britvic & Nichols have both made add on acquisitions which should enhance their growth prospects. There is also a small (5%) placing from Britvic to help fund their Brazilian deal and it looks the best value of these stocks on a mid teens PE compared to 20x+ for the other two.

Aberdeen Asset Management (ADN) have reported more fund outflows reflecting investor worries on emerging and far eastern markets and less favourable investing conditions generally. They do however flag their strong balance sheet and diversification efforts but the market doesn't seem to like it.

Meanwhile after my DIY efforts yesterday and my purchases from Screwfix which is owned by Kingfisher (KGF) I see their results seem OK with even France finally showing some signs of life. Bloomsbury Publishing (BMY) have also had a good start to the year in what is a quiet quarter for them any way. Finally SSE has reiterated their earnings expectations and promised dividend increases at least in line with RPI going forward from the current full year dividend which gives a yield of 5.5%.

That's all for now as I am preparing to do a piece with the ADVFN Podcaster Justin Waite at Sharepickers.com today. So I'll try and do a quick update later with what I'm covering and details of where you can listen to it if that is of interest to you.