Contrary to Mark Twain's advice that October is a dangerous month to invest, investors actually saw some gains in equities last month, although this was only clawing back some of the horrible losses that were suffered in September. This has the feel of the counter trend rally from an oversold position that I felt could be in the offing when I wrote last month.
Thus the YTD and one year numbers in the table above remain negative for the FTSE All Share Index and more so for the CI Scores portfolio as it has a more equally weighted construction versus the market cap weighting for the FTSE All Share as discussed previously.
Some of this months gains were also built on hopes of an early "pivot" from the US Federal Reserve in terms of their interest rate rises. These hopes have since been dashed by comments from Jerome Powell which induced some more volatility, although markets seemed to be trying to rally further as we have came into November this week. The much anticipated Non Farm Payroll numbers were still strong, potentially further undermining those earlier hopes of a pivot. However the headline rate of US Unemployment did edge up by 0.2% and despite the stronger than expected payroll numbers an underlying slow down in employment is evident in the longer term numbers. Indeed the US Unemployment rate is close to breaking below its moving average and all the UK headline indices are still below their longer term moving average trends suggesting caution too.
In addition the US yield curves both 3 month to 10 year and 2 year to 10 year have inverted (where short yields are higher than longer yields) and these occurrences have been reliable indicators or a recession 12 to 18 months ahead. While I have also seen a Bloomberg recession indicator that is showing a 100% chance of a recession, although I'm not so sure how reliable that is. Obviously stock markets have already discounted some of this as they tend to look 6 to 9 months or maybe even a year ahead. So at some point markets will bottom out even when the news is generally getting worse.
It just feels that it is a bit early for that to be the case as we haven't seen that much pain yet in terms of job losses or the effects on corporate earnings. Indeed thus far corporate earnings (& forecasts) seem to have held up remarkably well, although strategist are suggesting big downside on these to come as we go into next year and analysts are notorious for being wrong and often behind the curve with their forecasts in upswings and downswings. Thus on balance I'd remain cautious and not be tempted to chase the current rally too aggressively, if you are sitting on lots of cash, as I suspect there may be better opportunities to come, although I could of course be wrong in that assumption.
As far as the Compound Income Scores Portfolio is concerned this is not a concern as I am not trying to time the market and by and large remaining fully invested as I feel there is good value on offer in the UK stock market. This is demonstrated by the Year 1 PE of 8.7x & 5% dividend yield on average for the portfolio, as shown in the fact sheet at the end of this piece. That yield is forecast on 12% growth in dividends this year which should just about keep up with or be slightly ahead of inflation too.
There were more transactions last month (the table below should read October 2022 rather than September) as I decided to sell out of EMIS after they went XD their latest interim dividend in early November. This was done as they had obviously held up well as a cash proxy in the weak market and I suspect there is a chance of a referral. Subsequent to that they did announce a delay to the timetable into Q1 next year as they prepare a Merger notice for the CMA prior to a Phase one investigation of the deal. This may well be routine, but I still think that a referral is a risk here.
The proceeds were invested as I am looking to keep the portfolio fully invested rather than trying to time the market. Thus one new holding in Record ( REC a currency fund manager) was added while other existing holdings were added too and it was pleasing to see the three that were added to making a top contribution to this months performance. While since the month end Morgan Advanced Material (MGAM) had a positive trading update which has led to a further jump in the share price.
Summary & Conclusion
We saw some welcome respite to the bear market in October with what I believe is likely to be another counter trend bear market rally as we await the impact of recessionary conditions to hit corporate earnings. Thus I would expect to see further draw down to come but nevertheless the Compound Income Portfolio remains largely fully invested as I am not trying to time the market & I also believe there is plenty of value on offer in the UK market too. Please see the Fact sheet below for evidence of this & if you would like to see the full portfolio and have access to the Scores for managing your portfolio then please see here for how to subscribe. a("CMA"), preliminary to a Phase One investigation of the Acquisition.