Compound Income Scores Portfolio Performance
After nothing much in way of returns last month, July proved to be more productive in terms of investment returns for the Compound Income Scores Portfolio as shown in the table & graph above. This extends the out performing streak to eight months in a row since the end of November last year and leaves the portfolio up by a stonking 27.74% YTD compared to the still good 11.68% total return from the FTSE All Share which I use as a benchmark.

The highlights behind this stonking performance in July were as follows:
Ultra Electronics (ULE) - soared over 40% on the back of a possible VC bid.
Jarvis Securities (JIM) - up around 30% after positive trading update led to upgrades.
EMIS (EMIS) - up over 10% on a positive H1 update suggesting they were slightly ahead.

On the downside the main laggards were as follows:
Sylvania Platinum (SLP) - suffered profit taking as PGM fell & on mixed looking results.
Wincanton (WIN) - No news, so maybe profit taking after strong run & stories about driver shortages and their wages being bid up perhaps?
City Of London Group (CLIG) - fell H1 update saw outflows & volatility in Emerging markets probably didn't help either.

On the income / dividend front it was notable that Rio Tinto (RIO) which is held in the portfolio announced a stonking dividend increase plus special which means they are yielding over 6% on these interim payments alone. It is interesting to note that even before those have gone XD / been paid the income in the year to date from the Compound Income Portfolio is already 18% higher than it received in the whole of last year.  Looking at the latest Link Asset Services Dividend Monitor this seems like a stronger bounce back than the overall market  as they suggest: 

On an underlying basis in Q2 2021 (ie excluding special dividends), pay outs rose 43.8% to £24.3bn, recovering to one sixth below the pre-pandemic Q2 2019.
While in their outlook they suggest the following: 

• Stronger-than-expected Q2 and the removal of constraints on banking dividends mean an upgrade for 2021, more than offsetting negative second-half timing factors

• Net effect is to upgrade 2021 headline forecast by £2.5bn to £79.5bn, up 24.4% year-on-year

• Underlying dividends (ie excluding special dividends), upgraded by 3.9 percentage points or £2.7bn to £71.2bn, an increase of 13.4% year-on-year

Monthly Screening
After giving three stocks the benefit of the doubt last month as they were quite close to the cut off line it was good to see them all go onto outperform in July, although maybe I could have picked even bigger winners? Anyway one of them has seen its Score recover into the top quartile again while the other two Paypoint (PAY) and Strix Group (KETL, that ticker makes me smile) remain up for consideration as potential sales as their Scores of 60 & 67 respectively are outside the top quartile of the Scores and therefore in the  zone where I consider if I should sell them if the fundamentals justify it or if they still have investment merit or the Score has just drifted due to lack of news.

In the case of Paypoint, where the Score had slipped a bit further from last month, it is clearly trying my patience. The Q1 update that I waited for last month looked fine to me and showed some growth at the net revenue level as I had expected. They reported £28.1m v £23.2m in Q1 last year for growth of over 20% aided by last years acquisitions. This compares with £97.1m of net revenue at the full year stage. Thus with more to come from the acquisitions and re-opening benefits too and higher energy prices on the billing side it looks like they are well placed to show decent growth for the full year and they did see some modest upgrades post these figures.

That picture is obscured by the financial websites etc showing the historic figures with the gross revenues and the forecasts, which I assume are based on the net numbers, making it look like they will see a fall in sales - when the opposite is true on the underlying net basis.
So the investment case and indeed the price and rating have not changed much in the last few months since it was purchased for the portfolio. I therefore decided to give it the benefit of the doubt again and show some patience with this one while enjoying the 6% yield, although it is obviously not the most exciting situation in the short term.

The other seemingly dull stock Strix Group, which mostly makes switches for kettles and has good quality metrics like Paypoint, has shown the potential benefits of steady growth and a re-rating if you have a little patience. This one was purchased for the portfolio in February 2020 at 181p when it was on around 14x with a 4% yield as it seemed likely that it would probably cope ok with the brewing Covid crisis at the time. Fast forward to today and it has reached 334p and trades on nearly 21x with a 2.5% yield. They had a positive update which I had held on for last month, but strangely some small downgrades but the price steamed away to a new high break out. They did promise more updates on the growth outlook with the results in September. So on that basis I decided to hang on again and run this winner and hope that it doesn't boil over, although I was also tempted to top slice and add another, albeit lower quality holding to the portfolio but I resisted the temptation on this occasion. 

The other two potential sale candidates also had Scores in the 60's with EMIS being very similar to Strix Group  in so far as they had a positive update accompanied by some small downgrades and it is now trading above 20x too so not that cheap. I gave this the benefit of the doubt as a classic compounder & potential beneficiary of more NHS digitization etc. ahead of the actual results in September. Finally S&U (SUS) had seen its Score drift on little news so I decided to await the results from them in August to get a better picture. 

Summary & Conclusion.
So a stonking July for the Compound Income Portfolio after a nothing month in June and some masterly inactivity. Dividends continue to recover well and probably more quickly than expected and the Portfolio is already ahead of last year on that front and its only July. 

While on the trading front I decided to be patient / lazy again as the silly season holiday  month of August approaches and hope that some more masterly inactivity might add some more value again this month. Any way that's it for now thanks for reading if you got this far and have a great August and a good staycation or an overseas holiday if you are lucky enough to be able to get away with all the Covid traffic light lottery nonsense. 
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Compound Income Scores Portfolio Performance
The Portfolio just about managed to keep up its record of out performing the FTSE All Share this month, although in all honestly both of them returned little more than nothing.
It does however leave the portfolio with a total return of +21.5% in the year to date which is more than 10% ahead of the FTSE All Share which I use as a benchmark. This and other performance statistics over longer time periods and since inception can be seen in the table above. This is also shown in the graph with comparisons against various Indices.

Monthly Screening
There were three candidates to be considered for action / sale this month based on where their Scores had moved down to. Two of these have trading updates due in July and one was still flagged as a buy on momentum grounds, so I decided to give them the benefit of the doubt. I also did this with the third candidate as it was a recent addition to the portfolio and despite some post results downgrades it still looks good value and appears oversold while the momentum indicator suggest holding. So after last months splurge of activity in terms of transactions I made this a nothing month on that front as we approach the quieter summer months and the silly season as it is known. 

Summary & Conclusion
Sorry not  much to summarise as the returns were nothing to write home about and there was nothing to report on the trade front. In conclusion after a nothing month at the end of a robust first half in markets it does leave one wondering if markets might be losing some momentum perhaps? This is especially so as we move toward the traditionally quieter summer months and investors continue to fret about inflation and whether it will be transitory (consensus I think) or more long lasting (potential for a negative surprise).

While strong growth and upgrades are being seen currently and are probably expected to continue, again there is a risk I'd say that these hopes could be dashed if re-opening is disappointing or delayed again or, heaven forbid, the virus should somehow get more troublesome again. 

Any way I'll not spend too much time worrying about that this Summer as hopefully we can all get back out there are enjoy ourselves properly assuming all the remaining restrictions are lifted in July as promised. In the meantime an Englishman can dream that after 55 year the England Football team might come back home from a tournament with something rather than nothing this month!
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 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. 

Monthly Screening
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. 






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Just a quick note after my last blog about the Compound Income Scores portfolio monthly screening and the challenges of the decision making process. Having given it some thought I've added a couple more columns of data related to price movements which were in the background calculations. In addition to this towards the far right hand side of the Scores and the Portfolio sheets I have added what I describe as Triple Trend Momentum suggestions or TTM for short with Buy, Hold, Avoid and Sell suggestions. These are based on estimate revision data (which is already reflected in the Scores) as well as relative and absolute price momentum measures, hence Triple Trend Momentum or TTM. Price momentum is not reflected in the Scores although relative price momentum has been available as a data point for comparison and to help with decision making if one wished to factor that into your decisions. This addition hopefully helps to improve on that and make helpful suggestions as to which stocks you should be focussing on and also help to avoid value traps etc. with poor momentum.

The reason for these suggestions is that you would probably want to be trying to buy stocks that are seeing earnings estimate upgrades (or at least not getting downgrades) as stocks with these characteristics have been shown to outperform generally while the converse has also tended to be true. In addition the relative price momentum is also a well known contributor to the powerful and outperforming Momentum factor. While less well known is the absolute price momentum factor, which, when combined with relative price momentum can produce better performance and less in the way of draw downs when things cut up rough in the market. 

This was described in the following research paper by Gary Antonacci called Risk Premia Harvesting Through Dual Momentum. He also wrote a book called Dual Momentum Investing if you are interested in reading more about it and the graph below details some of his finding from this post on his website. 

Final Thoughts & Conclusion
Hopefully subscribers might find this useful as a guide to which stocks to focus on from the top two quintiles of the Scores say, as well as those that might have some positive momentum even if they do not score that well. 

So in summary the suggestions are based on the three momentum factors discussed above, earnings revisions (1 & 3 Months), relative price momentum (12 Months) and absolute price momentum (based on the share price being above or below the 200 day moving average) thus:

BUY = EPS Estimates unchanged or positive, 12 month price momentum positive and the share price being above the 200 day moving average.
HOLD = Only 2 out of 3 of the above is true.
AVOID = Only 1 out of the 3 above is true.
SELL = All 3 of the above are negative.

I have labelled them as suggestions as you would probably not want to follow them blindly, but they should hopefully help us with the decision making process when picking which stocks to buy, hold  or sell based on their Scores, other fundamental and technical factors. These changes will be live from todays update to the Scores. Any feedback or questions from subscribers is welcome or if you would like to sign up to access the Scores, you can do so by following this link or those in the site menus. 

Compound income Scores Portfolio Performance
April proved to be another positive month for the UK stock market and also the Compound Income Scores Portfolio (CISP) which continued it out performing streak again this month with a total return of 7.53% versus the 4.29% from the FTSE All share. This leaves the portfolio with a total return of 18.18% , 8.5% ahead of the index in the year to date.

As you can see in the table above the current / on going bull market in pretty much everything has helped the CISP to produce positive returns and be in the  blue over every period shown & it has outperformed  in all the periods shown too. Indeed after we saw a Pink moon last month seeing something like that in performance numbers is probably as rare as  a blue moon. Since inception the CISP has now beaten the return from the FTSE All Share by over 100% and has delivered annualized returns of around 15% versus the 5% per annum from the index for 10% per annum outperformance. Not bad for a low stress once a month screened portfolio I'd say.

​It is quite pleasing to see such a positive outcome / picture I'm not getting carried away with the success as pride often comes before a fall. In a bull market like this it is important to keep your feet on the ground as it is easy to get carried away and think you are an investing genius as the rising tide lifts all boats. Having said that though I'm pretty happy that the Compound Income Scores are a good way of identifying potentially interesting quality, income growth stocks which have the potential to outperform the market. 

Monthly Screening​
There were 3 potential candidates considered for sale based on their Scores with a couple of these having been considered and given the benefit of the doubt in the past. In the end I decided to just sell the one, Sage (SGE), that had fallen out of the top quartile of Scores, as it had recovered in price a little since I gave it the benefit of the doubt, but it has continued to see some earnings downgrades. While the valuation doesn't look that attractive with the PE of over 25x albeit with a yield of 2.8% but this is not that well covered. They have results due later this month so it remains to be seen if that was the right call or if I should have continued to hold while they struggle to grow as they transition to more of a cloud based subscription model. 

To replace that there were 3 candidates that I considered from the top decile of the Scores. Firstly was Morgan Sindall (MGNS) which I could have / should have bought last month based on a similar score, but dismissed it given it is a low margin contractor and therefore has a lower than average quality score in the Scores. So I skipped buying it again this month after a strong performance last month post their positive trading update left it looking it over bought from where it might be vulnerable to some mean reversion in the short term. 

The second candidate I seriously considered but passed on in the end was Kingfisher( KGF). Again perhaps I'll live to regret skipping it as they are trading well, have good momentum and continue to see upgrades as they benefit from the lock down buying as householders look to do up their homes and gardens as a result. As ever with such stocks the question is over the sustainability of that trend, although in this case they have some help measures in progress and the currently active  housing market should also be good for their business. It trades on around 14x with a similar yield to that of Sage at 2.8% but again like Morgan Sindall it scores below average on quality given their relative low margins and return on capital employed. So on that basis I decided to pass on that opportunity too. 

So the one I decided to add in the end was a higher quality stock (based on its operating metrics) Paypoint (PAY) which has been in the portfolio in the past but was sold based on its Score back in November 2016 at 1075p. It is struggling with a similar transition phase to Sage as they migrate their business away from serving cash customers and towards more card based,  on line payments and a parcel delivery & collection network . Again this was a slightly tricky decision as it has quite poor price momentum and has seen fairly steady downgrades, although these may have just stopped in the last month. They also have results this month so it will  be interesting to see how those come out, but last time they spoke on trading they implied they were pretty confident of hitting their numbers.

​The valuation though was much better value than Sage with a PE of under 12x for March 2022 year end  and a yield approaching 6% on the rebased dividend although again that is also not that well covered. They also offer a double digit EBIT / EV yield more than twice that of Sage. Thus the quality and value scores are both in the top decile as is the overall Score and it is looking oversold on the overbought / oversold indicator which is also included in the Scores data. 

So on that basis I took the decision to add it to the portfolio as it plays into the current expensive growth into value trend that seems to be underway and both the businesses seem to be struggling with transitioning their business which both have some good quality metrics. The difference is that Paypoint is rated much lower and closer to a no growth type of rating and arguably maybe has less competition to its payment network in convenience stores than Sage has in its accounting software area. 

Other things to note are that they have recently completed the sale of their Romanian business and are now UK focussed and are bedding in some recent card payment acquisitions. They may also have to pay a regulatory fine as part of an on going investigation which probably adds to the low rating / out of favour nature of the stock - so definitely a bit of a contrarian value idea too on that basis. I was also reasonably impressed by the names on the largest holders list shown below, although the one at the top, Astericos Group, who have 15% was not one I am familiar with. On checking though it seems they are absolute return investors with a value / quality approach which chimes with the Scores. 
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Summary & Conclusion
Another positive month for UK equities and also the Compound Income Scores portfolio which continued the outperforming streak it has been on this year and indeed over the last 1, 3, 5 years and since inception too. However, in a bull market such as this it pays not to get too carried away and indeed such a positive performance it probably as rare as a blue moon but the Scores do seem to be a good way of identifying suitable candidates for a successful quality, income growth portfolio. 

As for the screening, while the Scores can direct one, you still need to implement decisions based on them which as ever may add or detract from performance but then that is always the case in any event. This month it was Sage into Paypoint rather than Kingfisher or Morgan Sindall but as ever time will tell on the success or otherwise of that.

Any way I'll leave it there as this has already taken me a while and having mentioned blue moons I'll leave you with some music this month based on that. It's a tricky decision so I'll put up three versions and leave you to decide which one you prefer. Personally, I prefer the one  by the Marcels that featured in one of my favourite horror films - An American Werewolf in London. 

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