Thursday, 12 April 2012

Portfolio Update

I thought I might take some time today give an update 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: It has been a long haul with this one what with Copper futures treading water for the last 2 months at $3.90/ib or so just waiting for me to capitulate before they drop off a cliff. Still holding out on this one and the past few days have seen a positive move downwards. This remains my biggest short because the fundamentals are stacked against the inflation hedgers who have driven the correlation to other financial assets way up. At some point I believe this trade will break down but it is going to take a seismic shift in the viewpoint of investors or the reporting of Chinese inventories.

SAP3: Another position not working out so well but it is coming back. I saw this as quick buck and should have exited after I made one and now I feel kind of stuck with this position underwater.  Break even is around 1.56AUD/GBP so this was suffering during the Q1 risk rally. I still believe in this position long term but it is probably too similar to my copper position to add a lot of value. Australia looks a real mess when China starts slowing down its effort to relieve the Aussies of their natural resources.

SBRY: Still holding the Sainsburys shares and these have certainly proved a better bet than Tesco although they are still underwater. The stock had a nice bounce due to great Q4 results only to have it slaughtered following the Tesco results which dragged on the whole sector. The UK suffers from overcapacity of stores and declining sales in real terms. However with a 5% yield compounding, a solid franchise (Note: I base this solely on the fact that I shop there and I like it) and potential upside if the Qataris come back to the table this still looks a good deal. Prospects for real capital growth however are limited given the ongoing consumer squeeze in the UK.

Pandora A/S: This stock was a real surprisein Q1 as it started to rally and must have shook out all kinds of shorts. It shot up from 60Dkk to touch 100Dkk in just 3 weeks in January. I sold down some shares into the rally at around 67Dkk and then more at 92Dkk leaving me with around 1/5 of the shares I purchased last year and a tidy return of ~70% across all sales. Looking back it was obvious that with so many big holders having dumped the name and such high short interest the stock could become highly undervalued (4x a conservative forward P/E at its trough). A classic example of a fat pitch.

I am holding onto the remaining shares to see how the business pans out longer term. The jewellery is certainly yesterdays news but there could be value here and I enjoyed collecting my 8% dividend yield although the stock has come off the boil since January and now trades around the 65Dkk mark which is still a tidy return on my average in price of around 45Dkk.

RSA: This is a new one for me which I acquired this week. The stock is trading way down on 5 year lows despite a very limited exposure to euro peripheral bonds, decent underwriting performance and a great yield. With solid dividend growth over the past 5 years and a yield of around 9% the compounding effect of reinvesting dividends makes the stock attractive by itself assuming further capital losses are limited. Certainly one for my tax free account if I want to capture the dividend reinvestment argument properly.

Risks for this are obvious; it is a european financial so could get blown around by further chatter regarding the glacial unfolding of the euro area collapse. It is also a global insurer so all kinds of catastrophes pose a risk to medium term underwriting results.

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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