Friday, 6 January 2012

My Portfolio

I thought I might take a moment today to get stock specific and talk my own book on my current personal positions and the why I hold them. I try and run a kind of long/short strategy to avoid being totally market directional and I look for a hurdle rate which is basically a return better than cash with maximum capital preservation.

SCOP: This is a short ETF which tracks in the inverse of the DJ/UBS copper index. I started building my position in June with prices around $4.14/ib and kept adding as copper rose to $4.40 in late July. This has worked out nicely since then but it does leave me wishing I took profits in October as copper has mysteriously bounced back to $3.40/ib. I like the position because I acknowledge all the global supply issues but think there is way more copper out there which is not being officially counted in inventories and the process of this stockpiling has overstated apparent demand for several years. You can also add that a Chinese slowdown should have a big impact on demand and the fact the ETF is denominated in dollars means an extra boost from bearish sentiment in GBP terms from USD strength. Risk to the position in ongoing deterioration in supply due to weather and labour issues globally and easing in China.

SAP3: This is a short ETF which gives 3x the return of a long GBP and short AUD position. I hold this for similar reasons to the copper position but you can add iron ore exposure, leverage to Chinese commodity demand and an overpriced housing market to the downside for AUD. AUD is trading at historic highs against the GBP but I have been wrong so far having got into the trade with the AUD at around 1.53. Looking back I really should have bought the 3x long USD short AUD position due to the doubling up effect of bearish commodity sentiment and dollar strength but alas. Risks to the trade are pretty similar to copper.

SBRY: I bought some Sainsburys shares at around the £3.25 mark in June which was clearly too early ahead of the market selloff in August. I like SBRY for the following (i) Cheap valuation and underperformance against peers (TSCO/MRW) (ii) decent dividend yield ~5% (iii) defensive profile from consumer staples (iv) in my opinion the best quality and layout of stores in the mid-market bracket of supermarkets. So Im sticking with the stock for now and might look to add more if it falls below the £2.80 mark again. Risks to the investment are a lack of free cash flow for the dividend, falling UK retail sales and an irrational UK supermarkets price war.

Pandora A/S: I got interested in Pandora back in May after it suffered a hefty fall in price to the 150Dkk mark. Fortunately I didnt buy and then a shock announcement that the CEO was getting the shove and guidance for the year was revised way down sent the stock down 60% in a day to just 50Dkk. I decided then to buy at 51Dkk the next day looking for a dead cat bounce which never came. Instead the stock continued to sink to the point where I bought some more at 37Dkk.

I just could not see why the stock was so cheap. Even assuming flat growth for the next few years it was trading at 7x forward P/E with a 9% dividend yield. Now the dividend could be cut but this was no Thomas Cook; Pandora was still making money, generating cash and had no obvious debt problems. To my mind the stock was a classic 'fat pitch' where negative sentiment on slashed 'great expectations' meant it got dumped across the board driving the shares well below fair value. Needless to say it has been my best investment this year and I sold down some shares yesterday given the recent phenomenal rally. I think I will keep the rest for the longer term as I can see this company being around for a while albeit with much more modest growth than anybody expected at the IPO in 2010. Risks to this investment centre more around the brand which could be a fad, the outlook for precious metal prices in particular silver (upside/downside risk) and the ability of the new management to regain credibility with investors.

Caveat: Clearly I have a financial interest in these investments and this post relates solely to my personal investment positions. It is in no way a solicitation to buy or sell these investments nor does it constitute advice to do so.

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