CIS Portfolio Update
So summer is over and markets will perhaps make more meaningful moves as traders return from the beaches. The last three months were not that special, with August being the worst of the three with a -2.76% return from the FTSE All Share. The CISP did better than this by falling less, although this was offsetting a smaller lag behind which it saw in July. This now leaves the Portfolio up by just over 5% YTD versus a flat market, so OK but no cigar.

As far as the monthly screening goes, quite a few potential trades came up, however with it being based on limited news flow in August I decided to skip doing any trades this month to save on unnecessary turnover as a number of them seemed quite marginal.

Monthly Timing Indicators for UK Markets & general comments.
On the Monthly timing indicators that I produce for the UK market, these all remained in positive territory, albeit less positive now after the falls in August. Similarly the economic indicators also still suggest a positive outlook is appropriate, although there too there are just a few signs of things may be coming off the top in the short term.

So it would seem, despite the wobbles in the market over the summer and the on going worries about BREXIT & trade wars that it is probably still worth remaining invested in equities. I have to admit though that it is all starting to feel a bit late cycle given how long this recovery has been going on and given the fact that the bull market from March 2009 is now reaching a record duration too, although there is some debate about this depending on how you measure it & corrections that have occurred along the way in various past bull markets. It has to be said though that bull markets don't just die from old age it is usually caused by the Fed tightening monetary policy, which is exactly the phase we are in, although thus far they don't seem to have slammed the breaks on sufficiently to stop the market in its tracks. Indeed sometimes you do get a final euphoric run up which then sets the market up for a fall when the good times end. With all global central banks now moving to a tightening bias & starting to withdraw the stimulus that was put in place post the global financial crisis, it remains to see how markets will cope with that.

A couple of other things that made me think about this recently was firstly a snippet in Money Week about Warren Buffet and also the stats on the amount US investors have in equities versus cash (see pictures below). Neither of which are particularly bullish, but equally not a reason to rush out and sell all your equities either. Just pointing out that things have been good for a long time and at some point, may be in the not too distant future , things may cut up rough so just be careful out there and don't get carried away.

Here is a quick update on the trades that resulted from the latest monthly screening on the Compound Income Scores Portfolio (CISP) which is based off of the Compound Income Scores. For a reminder this generally tries to pick new holdings from the top Decile & hold positions which at least rank in the top quartile.

First up on the sale candidates was Amino Technologies (AMO) the Software provider to network TV operators, which had reported disappointing half year results as expected earlier in the month. The conundrum with this one is that they say this is due to a major customer order scheduling, but they say they expect to make up the shortfall in the second half. This does however leave them as a hostage to fortune and potentially an accident waiting to happen, so I let it go. The only thing that gave me pause for thought was that the forecasts had jumped after the figures, so maybe an analyst is confident they will bounce back or more likely just following the company line, as ever time will tell, but I'll be watching from the sidelines.

The second sale was VP the tool hire & services company which had done well since entering the portfolio at the turn of the year. The score had therefore deteriorated & the shares looked overbought so I didn't argue with it.

Those together with the cash that was retained last month & from 3 dividends this month gave room for three new positions, based on their Scores and factoring exposure the portfolio already has in place. Thus to replace VP, Somero (SOM) another cyclical construction related service provider seemed like a natural replacement as it scored better than VP.

Next up was a slightly strange one called Chruchill China (CHH) - which is quite similar to Portmeirion (PMP) which the portfolio has traded successfully in the past. In this case it looks as though it is being well managed as it increases the proportion of sales it gets from international catering markets and by increasing value added offerings thereby helping to shrink the contribution from the UK consumer business where conditions remain difficult. 
Apart from it scoring well i notice that despite the recent upgrades after their trading update, the price has not really responded. So given the numbers I reckon the market might wake up to it and respond positively when they actually deliver their final results at the end of August., assuming of course that the outlook then still remains positive.

Finally the last new holding which brings something different to the portfolio was the recently listed legal services group  Gateley (GTLY). This one scores well and looks reasonable value having come back from highs recently, despite earnings upgrades and the fact that it is still come the final dividend of 4.8p which is worth about 3% at recent prices.  

Here is a quick update on the trades that resulted from the latest monthly screening on the Compound Income Scores Portfolio (CISP) which is based off of the Compound Income Scores. For a reminder this generally tries to pick new holdings from the top Decile & hold positions which at least rank in the top quartile.

Thus the sale candidates which came up as a result of their scores dropping below 75 were: Miton Group (MGR), Ferguson (FERG) and Hays (HAS). Of these Miton Group was the closest call as it had a score of 72 on the back of  a low quality score form their variable margins & low ROCE in recent years plus, somewhat surprisingly some recent downgrades. it had however re-rated since it was bought at the turn of the year and provided a total return of 57.4% for the portfolio, including the annual dividend. As the CISP has two fund managers with the other holding in this sector being Jupiter Fund Management which looks cheaper and scores better than Miton (despite having seen bigger downgrades) so I decided to let Miton be sold, although overall it is probably still OK if you wanted to run with it yourself.

Ferguson's score had also slipped due to downgrades and middling quality and reduced value after a 20%+ rise in the price since it was purchased so that went too. Hays was similar although in this case, although the Score was well below the cut off I was tempted to keep it as the score mostly seemed to have deteriorated on not much news and they have a trading update coming up. But given that and the fact that chart seems to be in the middle I guess that could go either way when they update so again I let this one go through.

The replacement candidates that came up again included Plus500 which I have avoided putting in the fund due to my own reservations to detriment of the fund. If I had allowed it when it first came up it would now be showing a 50%+ gain. I see this week they have delivered another positive profits warning although on this occasion the price has not really responded. So maybe the market has caught up to this one now?

So that aside I did plump to put some Ramsdens Group (RFX) into the fund to replace Miton Group. This brings foreign currency (travel money), jewellery retailing, Pawn broking and a bit of a roll out story to the portfolio and might provide some defensive aspects if things do cut up rough given their exposure to the gold price and more demand for the pawn if the economy should go into reverse. It also looks quite cheap on less than 10x with a 4%+ yield and as a bonus was looking oversold thanks to some badly handled / communicated directors sales last week. I was probably biased in favour of this one though as I bought some myself recently too, but in my defence I note Stockopedia rates it as a Super Stock.

Next in was Qinetiq (QQ.) which describes itself as a leading science and engineering company operating primarily in the defence, security and aerospace markets (click their name & the other two to visit the investor relations websites if you want to learn more about them and research them further). It seems a pretty good quality play with improving fundamentals, although it is not the cheapest stock in the market, but nevertheless it brings something different to the portfolio and Scores well with a CIS of 97 so in it goes. Again I probably have a bias here, but in favour of this one as I bought it myself earlier in the year in the low 200's, although again this is a Super Stock according to Stockopedia.

Finally for a bit more defensive stodge I reluctantly allowed Wynnstay (WYN) to re-enter the portfolio, despite its previous low return appearance. It seems to be recovering from a difficult patch and has seen upgrades after their interim results and Stockopedia have it down as a Super Stock too so who am I to argue. If it can return to its previous highs from last year, then it could at least provide a 20%+ return this time around which might be more exciting, but I wouldn't hold your breathe as this seems like a boring dependable stock, albeit low quality with low stable margins of around 2%, which has been around as a business for 100 years, but sometimes boring is good! I note it is a bit over bought in the short term, so if you are tempted you might get a better entry point if you are patient or not as the case may be. Personally I struggle to get excited about this one with its low margins, but for the record Stockopedia seems to think this one is a Super Stock too - so appropriately given what it does, their Stock Rank system is er... bullish on this one!

Click a chart any chart below to bring up a larger view and you can then scroll right through them.

So here we are half way though the year already and for once we seem to be having a proper summer in the UK, as the jet stream is apparently behaving itself this year. Fortunately, like the weather the UK stock market has also picked up and started to behave itself after a decidedly chilly first quarter, although June did provide a modestly negative total return. See the table below for full details.

 Source: FTSE Russell

Consequently the Monthly market timing indicators that I track for the UK indices all remain ahead of their respective moving averages by around 4%, although only 2% in the case of small caps as they have lagged the broader recovery this quarter. Thus these are signalling that it should be safe to carry on compounding as do the economic indicators that I monitor.

With that in mind moving onto the Compound Income Scores Portfolio (CISP) - it was another good month for the portfolio. It produced a total return of +2.61% for the month which compares with the -0.18% from the FTSE All Share which I compare it to. This leaves it up by 6.6% YTD, which is 4.9% ahead of the above index. The star this month was Auto Trader (Auto) which roared up by 21.3% on the back of well received results. While I'm glad I gave VP the benefit of the doubt last month ahead of its results, as they also rose by 14.7% when these were well received too. The third double digit riser was Tapitica (TAP) which bounced back more on relief that it's update was not a warning like the one produced by XL Media, which the Scores managed to get the CISP out of before it happened.

On the downside Ferrexpo (FXPO) continued to sink like a lead balloon on the back of trade war fears leading to falling metals prices, while Bellway (BWY), despite a good update, suffered from profit talking as some others in the sector seemed to be indicating that margin may come under pressure from here. So maybe this is as good as it gets for housebuilders perhaps? Finally Spectris (SXS) fell by 8% but I can't see anything that might have caused that other than a catch all profit taking comment.

Since inception just over three years ago it means that the CISP has achieved annualized returns of 19.9% per annum, not bad although that's not a patch on the 50% per annum returns reported by @Glasshalffull1 on Twitter. Finally on the numbers don't forget you can get a breakdown of the monthly performance via a link on the Portfolio page or by clicking here if it's too hot for you to click twice.

So everything in the Stock Market garden appears rosy at the moment even if the actual garden is looking a bit scorched as we continue with the proper summer referenced earlier and the continuous blue skies. Indeed for recent investors it must seem like blue skies every day in the stock market these days. It is however worth remembering that stock markets tend to be leading indicators of trouble ahead and can and do start corrections or have crashes even when the skies seem blue, think 1987 crash, 2000 .com bear market and of course the financial crisis in 2008.

Now I'm not saying that one of those events is imminent, but worth bearing in mind that we have had a 9 year bull market already and the US Federal Reserve seems likely to continue raising rates and as the old saying goes "don't fight the Fed." So at some point the effects of that and the withdrawal of liquidity by other Central Banks around the world will, like the sun and plants in the garden, cause stock market returns to wilt, in the same way that it lubricated them on the way up.

Finally since we're having a Summer a bit like 1976 I'll leave you with a track from that year, the lyrics from which stating "You can check in any time you like but you can never leave..." also seem appropriate to the seemingly impossible BREXIT negotiations where re-moaner rebels seem intent on ensuring that we never actually leave. Indeed I've doubted all along if we would ever actually leave and I continue to think I'll believe it when and if I see it.

After that I'll just share another video which I saw recently featuring Paul McCartney which was both funny & moving at the same time. If you dind't see it and even if you don't like James Corden I'd recommend it as it might change your mind - enjoy and have a great summer.

A busy day for announcements from holdings in the Compound Income Scores Portfolio (CISP) today, so much so I had to check the calendar to make sure it wasn't Thursday today. So any way here in brief is a summary of the relevant news announcements.

Alliance Pharma (APH) - the acquisitive group which buys mature licences to drugs and medicines etc. has, in line with this strategy, announced that it has agreed to acquire the marketing rights in the Asia-Pacific region for an anti-dandruff shampoo (Nizarol) for £60 million  ($79.5 million). This is being acquired from a subsidiary of J & J & is being funded by an underwritten placing of shares at 91p which will therefore raise £34 million with the balance of the cost being funded from their existing debt facilities. They say that it had a Pro Forma EBITDA of £7.1m in 2017 on sales of £18.5m, so it seems quite profitable and the multiple they are paying does not seem too high. Consequently they say that it expected to generate material earnings enhancement in the first full year of ownership. This is quite helpful as the shares were starting to look a little stretched in valuation terms, although the placing and the recent rapid rise in the share price resulting in a re-rating may mean the shares are capped out for a while now. Thus I suspect they may go back into one of their customary sideways trading ranges, but I could be wrong of course.

Ferguson (FERG) - the specialist plumbing and heating distributor announced its Third quarter results for the 3 months to 30 April 2018 which saw revenues up by just over 10% in total and 7% on an organic basis. Most of the growth was driven by the strong US economy while the UK operations are undergoing a restructuring. They also said that the fourth quarter has started well with organic revenue growth in line with the third quarter and that given the third quarter out turn, the Group is well positioned for a successful outcome for the year.

Taptica (TAP) - the data-focused marketing solutions company announced a trading update which, after the profits warning from XL Media (XLM which was sold back in March on a deteriorating Score prior to their warning) was a pleasant surprise as they said they expect to report adjusted EBITDA for FY 2018 moderately ahead of market expectations and revenue growth in line with market expectations demonstrating a moderately higher-than-expected EBITDA margin.

This was helped by the fact that they  have also continued to work closely with the Tremor Video DSP team to implement operational and cost efficiencies and have been able to achieve further improvements in gross margin in that unit. They also said that they continue to evaluate acquisition opportunities, which remains a key element of the Company's growth strategy. Thus with the current trading going OK and the integration of Tremor Video DSP delivering improved margins if they can do some more successful add ons then this should help them to continue their more recent successful growth streak, which the rating of around 9x PE doesn't seem to give much credit for.