Compound Income Scores Portfolio
Well I say year end, but I should point out that the performance numbers I am about to talk about are based on closing prices up to 28th December 2018 as I was visiting family and in laws over the New Year period and therefore not around to collect the figures after the last half day of trading on 31st December. As I'm sure you are all aware December was another pretty tricky month for investors and Santa singularly failed to arrive with his rally.
As a result the FTSE All Share provided a total return of -3.74% in the month to the 28th & -9.47% for the year to the same date. By comparison the Compound Income Scores Portfolio (CISP) produced -5.12% in December which meant it produced or rather lost 8.52% for the year to the 28th December. So another year of outperformance, this time by 1% or so, but you can't live off of relative performance, although the portfolio will have produced between 3 & 4% in income which could be used to live off of. Still overall OK but not a lot to write home about as I know some who are prepared to run with much more concentrated portfolios and who have may be made use of stop losses etc. may have produced positive results even in this negative market background.
Now these type of losses may have come as a shock to more recent investors who have become accustomed to steadily rising equity markets on the back of low interest rates and Quantitative Easing by central banks. It is however quite a regular occurrence to see occasional bad years and in a proper recession induced bear market you can get falls of up to or in excess of 50% which you need to be able to stomach or take action to avoid or mitigate losses if you can't.
The CISP is designed to be a demonstration of whether the Scores they are based on are any good at selecting quality, growing dividend stocks and as such is generally run on a fully invested basis to allow it to do this. So far in the relatively short three and three quarter years or so it has been running, it has done a reasonable job by producing Compound returns of +54.4% in total or +12.3% per annum over that period. This compares with +14.3% or 3.6% per annum from the FTSE All Share. Again I'm sure people with more concentrated and actively traded portfolio may well have done better, but for a relatively relaxed monthly approach I don't think it's a bad result for limited effort. It certainly compares pretty well with what one could have got from investing in the index or an actively managed main stream fund for that matter, although here the CISP is probably benefiting form being more concentrated and active than most main stream funds.
Market Timing Indicators & other matters.
Regular readers will know that I have been producing these for the UK market since January 2014 despite my own reservations about trying to time the market. This was after reading some useful research which helped to eliminate the whip sawing that you can get by following these moving average / trend based indicators by adding economic indicators to them to keep you in the market for longer.
Given the falls in markets in December and during 2018 it will come as no surprise that these ind actors, based on moving averages, continue to be negative. Indeed after December they have mostly moved to the most extreme negative position that I have seen since I started producing them in 2014. FTSE 100 is the only one that has seen a more negative reading back in September 2015, so may be it has been helped more this time around by the overseas exposure it brings and the benefits or weak Sterling perhaps?
So these are all very negative and the markets are looking quite oversold, so I guess it is possible we could see a counter trend rally in the short term which could take us back up by 5 to 10% perhaps. I say this because the economic indicators that I track along side these are all still painting a more positive picture, although clearly there have been some signs or economies coming off the boil & some other more local difficulties with BREXIT and trade / growth in China more generally.
It is also worth noting that the US yield Curve (2 Year minus 10 Year) has not yet inverted, which is something that has been a precursor to previous recessions and something that everyone has suddenly become an expert on this year. I guess that's the power of the internet and information being more widely available. If however you don't know what I'm going on about, or even if you do, I would highly recommend this piece from dear old John Mauldin, whose writing I have followed for years and which acts as a great teach in on the subject with lots of useful links on the subject too.
One of the other things I have been following along side the timing indicators, as in the past it was shown to be a good coincident indicator of a turn in the economy, is the trend in US Unemployment. Now this has been firmly trending down and shows no signs of turning up just yet. So again that would also suggest that it too soon to panic or take evasive action.
One thing that did give me pause for thought on this though was a very good video below, which looks at the confluence of the current economic and debt cycles and issues coming out of the demographic situation in the US with baby boomers coming up to retirement. This had some interesting observations on possible trends in employment and other things coming out of that and is well worth a watch in my view. It did therefore call in to question whether the unemployment trend will be such a useful coincident indicator this time.
Monthly Screening for the CISP
This was also carried out just before the end of the year given my travel schedule. It resulted in two sales, the proceeds of which were reinvested into two new positions and a top up to an existing holding which had been halved after it had doubled on risk control grounds, but which had now come back to earth and was therefore now a smaller holding despite still scoring very well. I am not going to be detailing these changes here on the Blog anymore as I am giving a Free New Year upgrade to existing Scores subscribers who will now be able to view the full Compound Income Scores Portfolio together with details of the transactions each month alongside their weekly Scores updates. If you are not a subscriber or are not familiar with the Scores and if that is something that interests you then you can find out more about them and how to sign up here.
Summary & Conclusion
So after the first difficult year for a while for investors one can't help feeling nervous as we come into 2019. That being said I wouldn't be surprised if we saw some kind of rally in the first quarter although no guarantees of course, as the FTSE chart looks a bit like a top and seems to be in a pretty bearish trend in the short term. If anything I'd personally be more tempted to view any such rally as a selling opportunity as we may have entered into a more major bear market as the stock market anticipates the next recession, but as ever time will tell on that.
As for the CISP it will remain fully invested and continue to focus on the top quartile of Compound Income Scores stocks until such time as the economic indicators flash negative too, when I'll then think about what action I want to take for the portfolio on the back of that.
After Red October we have had something of a Black & Red November in so far as there was Black Friday & the Compound Income Scores Portfolio (CISP) ended in the black too. While the red came from the FTSE All Share which ended November in the red and the Monthly timing indicators which remain in negative territory too. Please see the Portfolio Menu at the top of the site or in the three bar menu if you are on a mobile device & want to see the full table of returns or other summary details about the portfolio.
In terms of this months screening for the CISP it was another mixed bag as three potential sale candidates came up as their scores had slipped below the 75 level that I use for reviewing holdings. I decided to retain two of these as their scores were only slightly below 75. One of these was again Alliance Pharma (APH) which I have already given one stay of execution to, but given the volatile markets I would expect it to be a bit more defensive from here. The other was Bloomsbury Publishing (BMY) which is a classic dividend growth stock & has the stronger second half trading period to come so here I was also reluctant to ditch it on limited news flow. The one I did choose sell was Ferrexpo (FXPO) which apart form appearing to be very cheap, I don't feel that strongly about. It could well suffer badly if we see an economic downturn (which may be what the rating is discounting) plus the portfolio retains a holding in Rio and therefore some exposure to the sector. Given the way economies are shaping up it doesn't seem like a bad time to be reducing this type of exposure.
To replace this I selected a different type of miner that scores highly, in this case a data miner as it were called D4T4 Solutions (D4T4). This £74m market cap. company seems to be a play on internet / big data type of thing and as such may be interesting after all the GDPR stuff earlier this year. Indeed their recent interim results were exceptionally strong, although this was to some extent offsetting a big drop off in business that they saw last year. So it may just be a lumpy type of business or perhaps this could be the start of a more rapid growth phase given the actions they have taken since last year.
If they can repeat the strong growth in h2 then I suspect there could be bigger upgrades down the line, but as ever time will tell on that. Nevertheless they look quite good value on around 15 to 16x predicated on a strong bounce back from last years fall in earnings. The yield is lower than I would normally look for at 1.5% or so, but otherwise it seemed like the most attractive addition to the portfolio which brings something different to the party.
It does also seem to have momentum as it is threatening to break above recent highs and maybe could even go onto hit all time highs around 280p that it set around the year 2000 if the second half proves as strong as the first half, or not as the case may be! Any way I guess it will not be every ones cup of tea and I'm not sure I can bring myself to buy it personally, so we'll have to see how it goes for the CISP.
I've talked a bit recently about high yielding UK share that I'd avoid based on their Scores. So today as it's Black Friday I thought I'd flag up:
This led them to forecast a minimum level of total revenue of £102m for the whole of their 2018-19 financial year with an EBITDA margin comparable with that achieved in 2017-2018. This looks to be about 4% ahead of current revenue forecasts and given the margin comments this should, I would have thought, flow through to the bottom line too. Thus some upgrades here seem likely. I would also note that they have set this as a minimum expectation, so presumably they may under promise and over deliver.
The shares look good value on around 12x earnings and come with forecast yield of 5% based off of 8% forecast dividend growth, which is reasonably well covered, although that is the weakest thing in their score. They make a decent operating margin of around 17% and a huge return of capital, although that's probably not that relevant for a people / service business such as this. They have had upgrades already this year and as discussed I suspect we should see some more on the back of this update or when they actually report their first half numbers in January 2019. Putting it all together they come out with a Compound Income Score of 96 (where 100 is the best) and as such they will remain in the Compound Income Scores portfolio and in my own portfolios too, as I eat my own cooking as it were.
So there you go there's a buying idea for you sourced from the Scores and as mentioned at the start don't forget you can read more about and sign up for a free trial of the Scores by clicking here. Once you sign up you'll get your Free e-book explaining the research and rationale behind the Scores. You can then try them for free for the next three weeks if you then cancel by the 16th December 2018. If you like them you won't need to do anything as your payment will be taken on 21st December 2018 for you to then enjoy a whole year of Compound Income Scores at the equivalent of just £1 a week.
Cheers, mind how you go in all the Black Friday bargain hunting mayhem, but I don't think you'll find a better value offer than our 1-2-3 Free offer get it while it's hot this weekend.
We have had a few updates and results from some well known high yielding UK shares this week which may well be held by yield hungry investors. The Companies I'm thinking of are Centrica (CNA), Talk Talk (TALK) & Vodafone (VOD). Now I mentioned Vodafone last week in a post where I explained why I don't hold it, which you can read here if you missed it.
Now as it happens they had a reasonable update and the new CEO seemed to be indicating a commitment to maintaining the dividend, which led to a relief bounce in the share price, as I suspect the market was rightly worried about the possibility of a dividend cut here. As for the other two I'll not go into detail on their trading updates here, as if you're in them I'm sure you will have read them and as it stands, I wouldn't recommend buying them given their poor scores in the Compound Income Scores.
Which is the whole point of this post, to point out how the Scores have helped me to avoid these high yielding losers and have helped direct me towards better performing yield stocks with growing dividends which I believe is the way to go. Don't take my word for it, take a look at the performance of the Compound Income Scores portfolio in comparison to these three and the broader markets too in the charts above.
If you have been holding stocks like these and are getting fed up with losing capital and seeing your dividends cut in some cases, then do feel free to check out the Compound Income Scores to see how they can potentially point you in the right direction towards growing, winning income shares and away from non growing, losing income shares.
The latest Scores will be out tomorrow, so if you'd like to try them out free for a few weeks, then don't delay and sign up today, as you won't have to pay until the third week of December. If you find they are not for you and you cancel before the middle of December then you won't have to pay anything, now I can't say fairer than that can I? So what have you got to lose, apart from a few losing high yield shares from your portfolio?
Don't forget you can get access to the Scores via Dropbox, Google Drive or Microsoft One. See the links below if one of those takes your fancy. If not and you'd prefer to get them via e-mail do get in touch via the contact form on the site or via Twitter if you follow me & I'll see what I can sort out for you. Any way thanks for reading, take care with your investments & how you choose them, good luck and don't forget to always do your own research as shares can go down as well as up as demonstrated by the three I've feature today.
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Now I'm sure you are all bored with all the BREXIT chaos too, I know I am, but I can't stop thinking about it. As from the start, as soon as leave won the vote, I feared that we will either never leave or effectively not be allowed to leave - which is looking more likely by the day. Especially when Mrs May seems to be saying BREXIT means (back my bad deal or we'll make sure there isn't) BREIXT.
Like a lot of people I'm pretty hacked off about this especially given the history of how we got here in the first place. Amazingly this is the first time I've written a post actually about BREXIT, although I probably mentioned it in passing along the way.
See the following links to see how my parents generation were misled when we signed up for the EEC which was supposed to be a free trade area only.
Plus how John Major got us to sign up to the Maastricht treaty by threatening to hold a vote of confidence in his shaky small majority government - sounds familiar.
So for what it's worth my guess is that they'll either force the unpopular deal through somehow or make sure that we don't actually leave as the majority of MP's are Pro EU and don't want a no deal scenario to play out, when they should have used it as their main negotiating tactic and been prepared for going down that route. I reckon they might even use it as an excuse to have another vote which will be worded in such a way as to make sure that remain wins this time - which the EU has had a history of with previous treaties etc.
This piece was also interesting background on this from the Market Oracle.
Finally as a bit of light relief here's a little ditty I re-wrote - with apologies to Don McLean
Brexit Pie – (Sing to the Tune of American Pie).
A long, long time ago
I can still remember how politics used to make me smile
And I knew if I had my chance that I could make those people vote
And maybe they'd be happy for a while
But the BREXIT vote made me shiver
With every paper I'd get
Bad news on the internet
I couldn't take one more step
I can't remember if I cried
When I read about the Maastricht Treaty
But something touched me deep inside
The day that democracy died
So bye-bye, Democracy Pie
Drove my Rover to Dover, but BREXIT was over
And them good old boys were drinkin' Champagne and Schnapps
Singin' "This'll be the day that UK Democracy snaps
This'll be the day that I die"
Did you write the BREXIT withdrawal agreement, and do you have faith in May above
If the whips tells you to?
Now do you believe in free trade, can democracy save your mortal soul
And can you teach me how to BREXIT real slow?
Well, I know that you're in love with the EU
'Cause I saw you votin' in the commons
You all hacked off your voters
Man, I dig those referendums and blues
I was a lonely teenage Thatcher’s child
With a Tory Tree and a BREXIT vote
But I knew I was out of luck
The day that democracy died
I started singin' bye-bye, United Kingdom
Drove my Rover to Dover, but BREXIT was over.