This means the income fund has underperformed the All-Share in seven of the past eight months, which is its worst phase of relative performance since 2003 when income shares were deeply unpopular. That prompts the thought: does the present underperformance tell us something about investors' attitudes or about my stock selection? I'm not sure I can answer that today, though I'm not too unhappy about my stock selection in 2014.
True, as endorsements go, that doesn't exactly ring. but inevitably I'm influenced by what has happened to share prices as much as by whatever logic put me into - or kept me invested in - various holdings. Sure, it shouldn't be that way - it's the ante-post logic that really counts - but that's human nature.
As to that ante-post logic, I've no reservations about the thinking that got me into Antofagasta (see Bearbull, 2 May 2014 and 16 May 2014) and still reckon there is about £11 per share of underlying value compared with a current price of about £7. As for aeroplane broker Air Partner (AIP) and safety-equipment supplier Latchways (LTC), whose shares I bought late last year, these are high-yield recovery situations that have yet to recover much.
Some investors would have waited for upwards price momentum before they committed capital to these two. That's not my style. As someone content to hold a stock for many years, I'm equally content to admit that I rarely have much idea where prices will go in the short term. In which case, if a company's shares look sufficiently good value today, there is no point in waiting for a bit of action that I'm as likely to miss as to catch and which may not be what I'm hoping for anyway. That rather disqualifies me as one of nature's momentum followers though don't ignore what I have written about this phenomenon in the two previous weeks.
Besides, there are other decisions to make, one of which has been sorted this week. That was to sell the fund's holding in foods processor Carr's Milling (CRM). I trimmed this highly successful investment three times during 2013 and 2014 as the share price surged upwards. I also tightened the stop loss. So when the share price dipped below the trigger, following an underwhelming trading update in January, that was the cue for a final exit at 149p (Carr's had a 10-for-one share split last month). All told, over six years the Carr's investment generated a £48,000 profit plus £4,000-worth of dividends on a stake of not quite £20,000. Would that they could all be half as good, but, when the dividend yield on the shares got down to 2.4 per cent, it was tough to justify keeping the holding in an income fund.
Another decision in the offing - thanks also to its success - is what to do with the holding in mortgage-backed securities investor Real Estate Credit Investments (RECI). However, this fascinating little company is probably worth a column on its own.
A more straightforward proposition is the investment in touch-screens maker Zytronic (ZYT), whose value has risen 50 per cent since I bought it 16 months ago. In the intervening period Zytronic has traded well and there is little doubt the group is more valuable than it was in late 2013. Yet, as is so often the case in financial markets, its market value seems to have surged ahead of its underlying - or 'intrinsic' - value.
Such statements can only be made tentatively since intrinsic value is always just an opinion whereas market value is fact. That said, when I paid 193p per share for my holding, I reckoned that intrinsic value was about 250p. Today intrinsic value may be around 270p, while the share price has soared to 290p.
That 20p rise in intrinsic value might look beggarly given that Zytronic's earnings rose 76 per cent in 2013-14. But much of that was recovery from a poor year; besides, valuation is little influenced by one year's performance. True, Zytronic's ability to generate accounting profits or free cash flow looks about 10 per cent stronger than it was at end of 2013. That adds to value, as do both the extra spare cash that Zytronic carries - £7.6m compared with £4.4m - and lower rates of corporation tax.
However, to balance that, capital spending has dried up and, in the past two years, has been less than the amount Zytronic charges for depreciation and amortisation. That means Zytronic is no longer spending to grow and this shuts off a route by which value is created. Two years ago there was enough capital spending in excess of depreciation to produce maybe 40p-worth of value on top of the annuity-style value that the company generated from its trading. Today, with 'development cap-ex' dried up that source of value has gone. Sure, it can be revived and probably will be since heavy capital spending is often cyclical.
Meanwhile, the disparity between price and value means I must tighten the stop-loss level on the fund's holding in Zytronic as I work my way through these testing times.
