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Glass half full

David Stevenson does not believe everything the bears say and continues to plough money into the resources sector
August 30, 2013

It's been a very busy few months for my self-invested personal pension (Sipp). Lots of buys and sells, and even the possibility that I might move my Sipp to another provider - more on that later. But first it's probably worth explaining my overall investment outlook - I'm absolutely not one of those glass-half-empty types who thinks that arrogant central bankers, coded talk of tapering and the failure to resolve the eurozone's structural issues spells imminent financial apocalypse.

In fact, the hard money brigade that articulates this view has had a good drubbing via their preferred financial instrument of choice - gold. I currently have a number of weighty bets on with good friends of mine in the asset management space predicting that gold will breach $1,000 an ounce before the end of next year. I think the glass-half-empty brigade have confused moral judgement on the soundness of monetary policy (which is indeed quite possibly unsound) with simple, base animal spirits of economic actors - in my view there's a perceptible shift going on, first among consumers and then among business leaders that economic 'matters' are improving. There are of course many, many things that could - and probably should - worry us all, but investment is about hard numbers (in particular analysing crowd behaviour), rather than moral or political judgments about the soundness of key players' decisions.

On that basis I think it sensible to lower my cash reserves from the spring level of about 23 per cent to a target of about 12.5 per cent by the end of September. That lowering of cash does mean that I’ve topped up some key holdings and I have also brought a few new shares into the portfolio.

But I would add one important caveat before I start to explain my individual actions - although I am more bullish than I was two years ago, I'm not entirely 'gung ho'. I do understand and even sympathise with some of the equity bears' arguments - it's just that I don't think they're empirically right. Still I'm cynical enough to know that I could be wrong in that judgement call and therefore I need some insurance in my portfolio in case I've completely misread the global economy. One key insurance is that I won't let my cash levels get below 10 per cent of my portfolio value. There are some pockets of value out there, but not many, and I think that as markets go higher there'll be some very nasty, wobbly moments which could present buying opportunities.

 

Burning bright: David Stevenson is not convinced that oil prices will plummet.

 

Also I do have some regard for those hard money investors who maintain that just because there's no evidence of inflationary pressures at the moment, that doesn't mean that there won't be in a year's time... or even later in the decade.

Personally I simply cannot understand how the current innovative/dangerous (take your pick) monetary policies can’t result in a substantial inflationary bubble in the future. Equally, although I think interest rates will evidently remain low for the foreseeable future, that doesn't mean that interest rates won't sharply increase at some point beyond the foreseeable future, ie in three to five years hence.

So I've decided to carry on ploughing money into real assets that I like and trust, which for me means resource stocks, resource funds and picks and shovels suppliers to the commodity sector, especially where I can build a dividend income or see strong earnings growth through a long cycle.

In particular I'm spectacularly unconvinced by the current fashion for predicting that oil prices will plummet - the energy bears deploy all sorts of arguments but it seems to me that however you consume your energy, the bad news is that it'll cost you and I a lot more in the future. That means continued high spending on energy infrastructure - if you want any evidence for this, check out recent results from the likes of French oil equipment company Technip and US-based subsea specialist FMC for evidence of this continued boom. My resource component within the portfolio is now up to about 21 per cent of my portfolio and may edge a tiny bit higher.

 

 

Anyway back to my portfolio, which was down a tiny bit - by 0.47 per cent - over the past three months compared with a 2 per cent fall in the FTSE All-Share index. I've had my fair share of stinkers in the Sipp, including new boy Praetorian Resources (PRAE), Mongolian miner Turquoise Hill (TRQ) which continues to fall in value, and African agricultural play Agriterra (AGTA).

My reaction to the terrible returns from each of these three varies enormously - I've actually increased my holding in Praetorian because I believe it to be a quality investor with a great team that's going through hell at the moment. I'm slightly more ambivalent about Turquoise and its massive Mongolian mine, but hopefully this should come through in the end - especially after its local politicians get their house in order and properly welcome outside investment!

Agriterra, by contrast, is starting to annoy me - it looks criminally cheap, with vast amounts of cash on the balance sheet. It's trading in a great space African agriculture, and cash should be starting to come through the door from its operating businesses, but the share price tells us that something is very, very wrong. If the 2p level is breached I might be tempted to throw the towel in and sell.

My biggest disappointment has been BlueCrest BlueTrend (BBTs), a leading commodity trading adviser (aka a hedge fund) which only listed on the London market last year. It's had a truly terrible few months as all momentum has vanished from the futures trading space. I can only hope that Bluetrend's board is currently giving the fund manager a through kicking and that eventually this highly respected managed futures fund will find its feet. I remain optimistic and have, in a very contrarian way, increased my holding as an insurance policy on increased market volatility - my sense is that although stock markets will grind higher, they'll do so in a very volatile, stop-start manner which might provide a good environment for commodity trading adviser (CTA) funds. Or at least that’s the theory - we shall see how BlueTrend performs in the next six months.

I've also had some successes, including oil services company Kentz (KENZ), which is up another 22 per cent over the period, while my US ETF from iShares which tracks regional banks is up 10 per cent - a US ETF that tracks unconventional oil and gas companies operating in the big shale regions is also up 6 per cent over the same three-month period.

I've also had some success with a recent purchase, in China-based Origo Partners (OPP), which I snapped up when this private-equity-focused house saw its share price collapse to 7p - at which level its share price was backed up by at least 50 per cent in cash, implying that the rest of the portfolio was essentially worthless. It's up 30 per cent in the past month or so.

 

 

I've also been fairly active in tidying up my portfolio and disposing of assets that I like but just don't want to hold in the portfolio. I've sold property developer Quintain (QED) for a good profit, South African property play South African Property Opportunities (SAPO), UK-focused infrastructure company HICL (HICL) and Russian private equity fund Aurora Russia (AURR).

All of these companies made me a profit and I have nothing bad to say about any of them, it's just that I needed to free up some cash to buy some better ideas. I've topped up my holdings in:

BlueCrest BlueTrend - given one last chance.

■ The SocGen income and value-focused tracker based around the ideas of Andrew Lapthorne, an excellent long-term value strategy and a great core holding for the next five to 10 years.

■ More shares in Utilico Emerging Markets (UEM), which has done very well for me and should do even better as emerging markets return to form in 2014.

I've also brought some new shares into the portfolio, mostly flagged up in my last column back in May, including:

■ Resource funds City Natural Resources (CYN) and Praetorian Resources.

■ Mining royalty specialist Anglo Pacific (APF), which pays out a very handy income of around 4.5 per cent a year.

■ US energy infrastructure fund Source MLP (MLPS), which invests in a tax-efficient way in US pipeline trusts and boasts a generous yield.

■ China focused Origo Partners.

Last but by no means least I'm also giving very serious thought to switching my Sipp from its existing provider, Hargreaves Lansdown (HL) to Sippdeal. I'm not disappointed in any way with HL, especially as its customer service is excellent, but I have grown a little annoyed at the absence of some funds from its platform - if you're after an endless series of funds from the big houses then in my experience it'll absolutely be on the HL platform, at low cost. However, in my experience more than a few smaller, innovative boutiques struggle to make it on to the HL platform and the choice is much better at Sippdeal.

Also I'd quite like to drip feed my money into listed ETFs and investment trusts on a regular basis - like more than a few stockbrokers Sippdeal has a regular purchase £1.50 plan, which looks excellent value, whereas HL has no offer at all in this space. On the issue of costs, I suspect that both providers probably work out equally cheap, but on an overall level I'm quite taken with the flexibility of the Sippdeal offer. Watch this space.

 

View the latest breakdown of David Stevenson's Sipp portfolio.