INVESTMENT PORTFOLIO APRIL 2021
ASSET TYPE: Stable businesses with stable + growing dividends (+3% yield).
OBJECTIVE: Grow passive income stream.
RISK v REWARD: Lower risk, lower reward potential.
ASSET TYPE: Profitable businesses with high growth potential.
OBJECTIVE: Long term capital growth.
RISK v REWARD: Medium risk, medium reward potential.
ASSET TYPE: Early stage companies with potential of rapid growth.
OBJECTIVE: Chance of large capital gains.
RISK v REWARD: High risk, high reward potential.
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Up until now, I have always managed the Bull Headed Bear portfolio as 1 portfolio with 3 sub-sections based on objectives or goals. It has always been a conscious decision to have a split of; Income Stocks, Growth Stocks and Speculative Stocks. Over the last 18 months, the portfolio has developed and grown considerably. Going forwards, I believe I will be better managing these as individual portfolios.
Last month, I explained I had invested in multiple speculative stocks. This resulted in the speculative section of the portfolio totalling 15%. This proportion is too high meaning the entire portfolio is at risk.
From this month, I will split the portfolio into 3 separate portfolios. This will make it easier to focus on the objectives of each one and allow better management the capital proportions. The aim has always been to have roughly 50% in Income, 45% in growth and 5% in speculative. Last month, I let the discipline slip therefore I have some work to do to rebalance the proportions. Managing them as separate portfolios helps gain better visibility and maintain discipline when allocating the funds.
I would be interested to hear your thoughts on this transition and any experiences you have with portfolio management.
BHB INCOME PORTFOLIO:
April has been a solid month for the income portfolio with total investment returns up 3.7% for the month and up 7.6% year to date. The majority of stocks in this portfolio finished higher in the month with the banks and the miners doing particularly well. Banco Santander SA (+10.2%), Diversified Gas & Oil plc (+9.9%), Rio Tinto plc (+9.9%), Diageo plc (+8.7%) and Anglo American plc were the top 5 performing stocks from the portfolio. However, the supermarkets had a disappointing month. Both Morrisons (WM) Supermarkets plc (-4.7%) and Tesco plc (-3.4%) being the worst two performers in the portfolio.
Much of the solid performance is due to company earnings looking strong as the UK and US economies re-open. There is also regular discussion around the commodity super cycle with supply issues across much of the commodity world. Commodity prices have increased dramatically over the last year and are expected to keep rising.
In last months update, I explained how I transitioned shares from standard broker accounts to my Stocks & Shares ISA. The only way to transition is to sell and re-buy and unfortunately, I failed to transition the Intel shares. I sold them in the standard account and failed to buy back again before the price increased. This month, Intel released quarterly earnings and although they beat expectations for EPS and revenue, the stock dropped around 6%. This was due to investors being disappointed with the dip in data-centre sales which is one of Intel’s most profitable areas. The concern is that Intel are losing market share to companies like AMD and NVIDA.
I had set a buy order for Intel while attempting to transition these shares to my ISA for $59. This order executed when the price dropped after the earnings release. This highlighted a flaw in my process/disciplines. Having the order open going into earnings is risky. As it turns out, I am still bullish on Intel and pleased to have it back in the portfolio. Nonetheless, I need to tighten up my process for managing orders.
April was an excellent month for dividends with April 2021 up 125% vs April 2020. The main driver for this increase was Rio Tinto who increased their dividend and paid an additional special dividend. It was also pleasing to see Diageo and Ericsson increasing their dividends.
The growth portfolio had a solid month finishing up 4.5% in April and up 4.4% for the year. This portfolio is heavily invested in big tech and we have seen solid performance from these companies this month. Last month, I opened my first positions in Alphabet inc. (GOOGL) and Amazon.com inc (AMZN) which have increased 14% and 12% respectively since buying. Apple inc. (AAPL) and Microsoft Corp. (MSFT) are both up around 7% for the month. These all recently released earnings and beat expectations in a big way:
Although the results have been far better than Wall Street expected, the stock prices have not responded as positively. Many of these stocks have seen significant gains over the last year so could be priced for perfection. We could be starting to see some consolidation in these stock prices.
I have held shares in Nokia Corp (NOK) and LM Ericsson (ERIC) for a while now primarily for the exposure to 5G growth. Ericsson has performed very well and is up almost 50% and has given some dividends along the way. Nokia, on the other hand, has been disappointing so far. At one point last year, I was down almost 40%. However, Nokia finally came out with positive earnings triggering a monthly gain of 18%. This brings the Nokia holding back to break even in the portfolio.
Entain plc. (ENT) (formally GVC Holdings plc.) has also done well again this month. Up another 11.4% in April and up over 100% in the last 12 months. As America’s online gambling presence continues to grow, Entain keep growing with it.
There was a new addition to the growth portfolio this month with the purchase of JD.com inc. (JD) – see below for more details. Due to the tensions between the US and China, Chinese stocks are relatively cheap. JD.com and Alibaba are both in the growth portfolio and I’m really happy with these prices. The tensions are still creating a bearish atmosphere for these stocks and so the risks are there. That said, any sign of the tensions easing could see some dramatic price increases.
The speculative portfolio continues to be the biggest challenge in the overall performance of the portfolio. It is also the portfolio that challenges my mental discipline as an investor. If you read last months portfolio review, you will have noticed I invested heavily in EV and Hydrogen. While doing this I broke my own rules regarding portfolio proportions. I generally aim to have no more than around 5% of the total portfolio in speculative stocks. Last months purchases to the total to 15%. The stock market punished me for this with a few of these stocks down almost 30% in the first week!
These stocks have potential for high returns but can also deliver big losses. Having 15% of the portfolio in speculative stocks is making me a little nervous. This is the main factor in my decision to manage the holdings as 3 separate portfolios. Separate portfolios allow me to keep a closer eye on the allocations and the performance. The danger of speculative investments is not only in the initial higher risk. They are very volatile which can drive emotional reactions. Investing needs to be as logical and factual as possible as emotions can lead to mistakes and irrational decision making.
The Speculative Portfolio finished down -0.5% for the month of April and is down -1.5% for the year so far. As a result of being over exposed in this portfolio, I have now hidden the speculative stocks from the watch list.
JD.com , Inc. (#JD)
BUY PRICE: $77
JD.com is a company that has been on my watch list for some time. I have been cautious with this stock because of the US – China tensions under President Trump. There is also a threat of delisting Chinese stocks from the US stock markets. Although these tensions are still ongoing under President Biden, I don’t believe his actions will be as extreme.
Fundamentals and projections look strong with forecast revenue growth at 26.4% and forecasted EBITDA growth at 43%. Its valuations are not cheap but are significantly cheaper than US equivalent stocks. According to my models,there is a potential for at least 15% annual return for a long term hold.
I have opened a small position for the moment. The chart shows a potential gap down (price drop between previously respected price levels) to around $64. If the price drops through this gap, I will increase the size of the position.
Intel Corporation (#INTC)
BUY PRICE: $59
As previously mentioned, this purchase was simply moving the holding from a standard broker account into my Stocks & Shares ISA.
I like Intel as an income stock for the 2.5% dividend yield with the additional potential for growth. There is a risk as growth slows and competitors show signs of taking market share. That said, Intel is a huge company generating a lot of cash flow. There is a new CEO and so far I have liked his approach and strategy. They have the cash and the opportunities to turn this company around.
Argo Blockchain plc. (#ARB)
Buy Price: £1.39
Argo Blockchain was one of the speculative investments last month. Although I managed to resist buying any of the EV/Hydrogen stocks at lower prices, I failed with Argo. The stock price dropped dramatically in April along with the majority of crypto related investments. At £1.39 I could not resist buying more shares.
No sales this month.
NEXT MONTHS PLAN
At the time of writing this post, we are in the middle of earnings season. There have been some strong earnings beats already which have not resulted in the price increases normally expected. A significant amount of stocks have declined towards the end of the month. I will be watching closely to see what the markets do over the next few weeks.
I aim to recalibrate some of the financial models with the new analysts forecasts following earnings. Look out for these in new valuation posts.
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