September catch up.

Market Timing Indicators
Given the positive returns from headline UK indices like FTSE in September, these remained positive, although with the Mid 250 & Small Cap indices showing lower returns in September these are now less bullish than the larger / broader indices like FTSE 100 & 350.

Elsewhere all the economic indicators are still in positive / bullish territory with the US Unemployment rate for example hitting a near 50 year low yesterday at 3.7%. Which all suggests that one should continue to remain fully invested.



I note that the US bond market continues to sell off as the economic strength means bond investors are discounting further rises from the Fed ahead in the near term, but at least the yield curve has not inverted yet (see graph at the start)  which also still suggests no reason to take evasive action just yet.

I do however stand by the note of caution I struck last month with the snippet about Warren Buffet's cash levels. Indeed despite all the positive economic news out of the US, the markets are starting to feel a bit nervous again as bond yields head upwards and as we head into October which is often a dangerous month to invest. So with that in mind I'll end this section with a link to the latest memo from another famous investor, Howard Marks  - who is cautioning about the potential for fall out from bonds and debt this time around.

CIS Portfolio
September proved to be another disappointing month for the CIS Portfolio as it produced another negative return of -0.9%. Unlike August this represented an underperformance of 1.6% versus the FTSE All Share Index, which I use as a benchmark,  produced a positive return of 0.7% in September.

The main damage was done by Alliance Pharma (APH) which reported interim results which on the face of it seemed fine if a little dull. They did however include a small write off of £2.5m non-cash impairment charge on its investment in Synthasia International Co., an infant milk formula business in which it has a 20% stake. Consequently reported earnings fell by 35%, but underlying they edged ahead. This write off and consequent fall in the earnings, plus the high valuation they were sitting on, may have prompted some to sell and the price therefore took a hell of a beating and ended the month down by 30.5% - which seems a bit over done to me. Aside from that the other less extreme fallers in September were Zytronic (ZYT) - 9.3% - on no news apart from a long serving non executive leaving. While  Avon Rubber (AVON) fell 7.2% as it's in line trading update presumably disappointed some investors who may have been hoping for a better outcome.

On the positive side the main winners were a mixed bag of Ferrexpo (FER) +22.7% on no news as it recovered somewhat from a long losing streak. While Taptica International (TAP) +14.3% & Churchill China (CHH) +14% both responded positively to their results statements reported in the last month.

In this months screening three shares came up as potential sales, although in each case their Scores were only just below the 75 cut off that I use. The three candidates were the aforementioned Alliance Pharma (APH), Forterra (FORT) and Spectris (SXS). In the end I decided to give them all the benefit of the doubt given they were all closed to the threshold and not therefore obvious sales. In addition I felt disinclined to sell APH down here given it looked oversold and was now offering more reasonable value, which in the week since has been vindicated by a small rally in the share price.

Forterra, despite some very modest downgrades,  still seems  cheap and all the talk  is still of trying to build more houses. So one would think that demand for their product should still have solid foundations for now. It was also close to what could be a support level.

Finally Spectris also had very modest downgrades but also seemed to be offering reasonable value, although in the week since then it has come off a bit more. So overall my override of the mechanical sale process has probably just about broken even on a very short term view ex of any trading costs and opportunity cost of not buying potential alternatives.

Any way I'll see how they come out in next month screening & get back with the programme then.

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