Writing my 2013 summary article earlier this year ('A year in investing, 17 Jan 2014) after what had been an outstanding year of 48 per cent capital appreciation, I was unconvinced I'd repeat the performance. "Looking ahead to 2014 there is no way I expect a repeat of last year's performance - in fact, I will be well satisfied just to hold present levels", I said, continuing: "Currently I see few attractive buying opportunities, prices are rather high for me, and dividend yields miserably unattractive".
Well it is no satisfaction to have been proved broadly right so far. Overall I am 1.5 per cent down at end-June - six months which have been modestly active for me in terms of transactions, but somewhat frustrating as the market ebbed and flowed with no real conviction. More of my holdings experienced 'price drift' - a falling away from previous highs than achieved noticeable appreciation: Air Partner (AIP) 550p at the turn of the year now 410p, Anpario (ANP) 323p to 256p, Dairy Crest (DCG) 545p to 440p, Fenner (FENR) 483p to 353p, Gooch & Housego (GHH) 720p to 615p and Nichols (NICL) 1,200p to 930p, all in the former category against Christie Group (CTG) 78p to 112p and Northbridge Industrial Services (NBI) 460p to 544p travelling in a positive direction.
CGT complaints
I must emphasise once again that I am very much a long-term investor, that virtually all the above holdings are still showing me significant profits and no way am I willingly going to pay 28 per cent capital gains tax (CGT) unless I have to! Having lived with varying CGT regimes over the years, I am convinced that a differential between 'short' and 'long'-term gains is the way forward, with gains made within, say, two years being taxed at an individual's top rate, with a much lower 'tapering' rate for longer-term gains.
I feel this particularly as my 40-year investment in North West contractor/developer Pochin's (PCH) is coming to an end following acceptance of an offer from the controlling family to take it private. I will make a profit overall but find myself paying 28 per cent CGT with no alleviation whatsoever for the duration of my investment. Interestingly, as the CGT rate has risen, the Treasury take has fallen: in 2008-09, CGT raised £7.85bn on an 18 per cent rate; by the 2011-12 financial year that had fallen to £4.3bn; in 2012-13 it was £3.92bn with a very similar figure in 2013-14. Unsurprisingly, investors are very reluctant to pay 28 per cent - a lower rate would encourage greater activity and probably produce greater Treasury receipts.
My Pochins' pay-out should come through very shortly boosting my current liquidity position: this was mainly created by last year's very profitable takeover of Delcam which delivered in February, and equated to approaching 10 per cent of my total investment worth. Here, again, I am hit by the 28 per cent rate. So far I have used approximately half the Delcam cash primarily in adding to existing holdings on price dips: I have bought more Concurrent Technologies (CNC) between 38p and 42p, Lok'N Store (LOK) at 205p and 211p, Anpario at 279p, Air Partner at 498p, Christie Group at 118p and Vianet (VNET) at between 69p and 75p.
Parallel to this, I was always on the look-out for new buying opportunities, somewhat restless with far more liquidity than normal. I flirted with Ladbrokes (LAD) and Wm Morrison (WMR) when they both offered 6 per cent yields before selling both fairly quickly as they drifted further. Against these very minor losses, I took a nice profit on butchers Crawshaw (CRAW) - although selling far too soon - and construction group Carillion (CLLN). Two other small sales were Norcros (NXR) and Cable & Wireless Communications (CWC) - more significant was the sale of Smiths News, now Connect Group (CNCT). I judged that they were fully valued at 240p selling most around that level and the final tranche at 164p - all within my Isa thus tax-free. However, they have fallen further to 160p at which level the yield is 6 per cent; I am tempted to go back in - indeed, I have just done so!
What to buy now
Turning to more serious purchases this year, I have built further my large PZ Cussons (PZC) holding and made first time investments in palm oil producer, REA Holdings (RE.), Tate & Lyle (TATE), and particularly retailer McColl's (MCLS). PZ Cussons has been an outstanding growth story - now a large plc in UK terms but small in its soaps, toiletries, household products etc sector compared with global US peers. Its price has been soft recently, in part due to terrorist activities in Nigeria, its dominant market, but longer-term prospects there and in Indonesia are considerable.
REA is a long-term play on its valuable palm oil plantations in Indonesia, hopefully boosted in the shorter term by a coming quotation for its shares on the Jakarta Exchange. Shorn of its traditional sugar interests, Tate & Lyle is fast developing into a major international speciality food ingredients group; although it is a much larger company than I normally invest in, I feel its potential has been somewhat overlooked and its 4 per cent yield well worth having in the meantime.
Of all the recent flotations McColl's look the best value to me at 167p having come back from a 191p listing price; I find its prospective 6 per cent yield, coupled with an approximate PE of 10, the sort of buying level combination that I like. McColl's are virtually our only large quoted convenience store operator with a total of 1,273 stores as of November 2013, comprising 707 convenience stores and 566 in the newsagents sector trading as Martin's in England and RS McColl in Scotland. I believe convenience stores have strong defensive qualities and provide growth opportunities through continuous upgrading and expansion of offering. Although its debt is higher than I would like, strong cash flows should steadily reduce this; additionally the convenience store sector is very fragmented - McColl's is adding outlets but itself could be vulnerable to a larger predator.
Dividend delight
Thankfully, my income performance these last six months has been more creditable than that on the capital side! Most of my holdings are trading well with rewarding total dividend increases. Christie Group leads the field with a 50 per cent increase followed by building products supplier Ensor (ESR) on 25 per cent, while builders' merchants Grafton (GFTU) delivered a 21 per cent boost and Anpario 17 per cent. At the half-year stage, Lok'nStore upped by 20 per cent with Gooch & Housego and Treatt (TET) on 13 per cent. I have always placed a high premium on dividend flow, particularly when it is "tax-free" and can be compounded for re-investment in my Isa. Hope and prayer zero dividend payers are not for me!
