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Private investor's diary: bouncing back

Private investor's diary: bouncing back

After my poor 2016, it was great to get the new year off to a good start. The JIC Portfolio gained 4.7 per cent, comparing favourably with the 0.3 per cent drop in the FTSE All-Share (total return) index. I do not pay any attention to FTSE All-Share index weightings when building my portfolio but I use it for performance comparison. It covers most of the listed UK equity market, and if I can’t beat it over a reasonable period I might as well save all the time and effort and purchase an index tracker.

The portfolio has just entered its sixth year and since inception in January 2012 is up 122.4 per cent. Over the same period the FTSE All-Share (total return) has gained 61.3 per cent. The annualised return is running at +17.0 per cent against +9.9 per cent for the index.


After his inauguration on 20 January, Donald Trump got off to a flying start, firing off ‘executive orders’ left, right and centre. He might not be to everyone’s taste but thus far he has been good for equity markets. At this stage markets believe that his polices of lower tax and infrastructure spending will be good for growth – the Trump reflation trade. The S&P 500 gained 1.8 per cent over the month, closing at an all-time high on 25 January. On the same day, having spent much of the month knocking on the door, the Dow Jones Industrial Average at last broke through 20,000. In overseas markets, the Hang Seng was up 6.2 per cent, the MSCI India 5.8 per cent, Russia 1.8 per cent, the Dax 0.5 per cent and the Nikkei 225 down 0.4 per cent. Sterling gained 1.9 per cent against the US dollar to 1.2487 but lost 0.7 per cent against the euro, to 1.158. Gold was strong, up 5.3 per cent to $1,221 per ounce and oil gave up 2.4 per cent, with Brent crude finishing the month at $56.77 per barrel.

The Dow Jones Industrial Average

The Dow comprises 30 of the largest and most important companies from a cross section of US industry, including stocks such as Apple, Boeing, Disney, Goldman Sachs, McDonalds, Procter & Gamble and Wal-Mart. It is a strange index. It is price weighted rather than market cap weighted, which means the stocks with the largest share prices have the biggest impact on the index. It is worth noting, despite all its faults, that if you had invested in a Dow tracker in January 1984, when the FTSE 100 was created, you would have made 1,460 per cent in the Dow, way ahead of the 617 per cent in the FTSE 100 (not including dividends or, importantly, exchange rate fluctuations.)

It took 15 years – from 1972 to 1987 –for the Dow to double but this was followed by a golden period: the index doubled again in eight years from 1987 to 1995, in five years from 1991 to 1996, in two years from 1995 to 1997, and in four years from 1995 to 1999. Oh, for those halcyon days again! After that we returned to slower growth: it took 10 years to double from 1996 to 2006, 16 years from 1997 to 2013, 16 years from 1998 to 2014, and lastly, a horrible 18 years from 1999 to 2017. The big question now: how long until Dow 40,000 – two to six, or 10 to 18 years?

The JIC Portfolio

The biggest movers in the Portfolio in January were Geiger Counter (GCL) +46.7 per cent, Redstone Connect (REDS), up 36.2 per cent, Accrol (ACRL), up 17.1 per cent, Conviviality (CVR), up 17.0 per cent, BlackRock World Mining Trust (BRWM), up 13.5 per cent and XLMedia (XLM), up 12.9 per cent. Crawshaw (CRAW) was off 16.0 per cent and Revolution Bars (RBG) 11.5 per cent. Remember it is the size of the holdings that is important; it clearly helps if the largest positions put in the biggest performance. Analysis by Statpro Revolution shows that Conviviality and BlackRock World Mining each contributed 0.8 per cent to January’s return. Geiger Counter, although up nearly 50 per cent, only contributed 0.4 per cent, as for risk control reasons I restricted the size of the initial holding to 1.0 per cent. Crawshaw is now quite a small holding and so cost only 0.3 per cent.

Geiger Counter benefited from a pick-up in the uranium price. It’s too early to say whether this is the start of a sustained recovery, but the reasons I originally bought the holding remain in place. Trump is also seen as a positive with polices that are likely to support the nuclear power industry.


Accrol, the Lancashire-based manufacturer of discount tissue products for sale mainly as private label through supermarkets and discount retailers, published strong half-year results. Following the results, earnings forecasts for the current year ending April 2017 were upgraded by around 18 per cent. I added to my existing holding on 4 January at 126p. I also added to Imperial Brands (IMB) – bought on 6 January at 3,513p – taking it up to 4.0 per cent of the portfolio. The prospective dividend yield of 4.6 per cent continues to be an attraction. I added one new holding and completely sold three holdings.

The new stock is a value play. Elegant Hotels (EHG) – bought on 10 January at 80p – owns six hotels in Barbados, including Colony Club, Tamarind, The House, Crystal Cove, Turtle Beach and Waves Hotel. It operates at the luxury end of the market and has approximately 29 per cent of the island’s luxury room stock. The share price has suffered post last June’s referendum due to the weakness of sterling. The UK provides the largest number of visitors to the island and given holidays are priced in US dollars they have become that bit more expensive. I was attracted by the share price standing at a huge discount to its net asset value (NAV) of 160p and a prospective dividend yield of 8.7 per cent. In addition, there is the appeal of the business growing through selective acquisitions of hotels and/or management contracts. There might be an argument for the company paying a smaller dividend and investing the saving in refurbishing the hotel estate to ensure they remain attractive to visitors. I’m sure if that is a sensible option, then the well-known entrepreneur Luke Johnson, who has recently bought a 12.5 per cent stake, will make his thoughts known.

I sold Bradford-based replacement window manufacturer, Safestyle (SFE) – on 24 January at 297p. I thought that it looked fully valued, especially as I have some nagging doubts about the outlook for consumer spending, especially on larger ticket items. I was happy to book a super profit, having first bought the stock nearly two years ago at 162p. I sold Character (CCT) – on 23 January at 495p – for a small loss of £97. Finally, on 11 January I sold my long-standing position in Dixons Carphone (DC.) – at 356p. Again, I was concerned that the valuation was not pricing in the risks of a consumer slowdown and a margin squeeze from the increased cost of imported electrical goods.

The importance of keeping a diary

Before selling Safestyle it was most useful to be able to look back at my diary for the entry when I first bought the stock. Back in March 2015, I concluded “I think there is plenty of scope for the company to produce nice steady profits growth through market share gains in the coming years, the business generates plenty of cash and is, due to the malaise in the share price over the last year, looking excellent value. A 2014 dividend yield forecast at 5.7 per cent, growing to 6.1 per cent in 2015 looks extremely attractive as does a 2014 PE ratio of just 9.7x for 9 per cent growth falling to 9.0x in 2015. On price/cash flow it is valued at just 12.9x.” When I bought, I felt the risk reward was stacked clearly in my favour given the low valuation. Two years on, following strong performance and a rerating of the stock, the risk/reward no longer looked attractive in my view.

Looking forward

Recent weeks have been marked by extremely low volatility. The VIX Index, or ‘Fear Index’, has consistently fallen since Trump’s election. At the end of January, the weekly close was the 13th lowest reading in the 1,413 weeks since the VIX’s inception in 1990. Another way of looking at it is, since last October, the S&P 500 index has not had a single down day of more than 1.0 per cent. Moreover, as of 10 February, it had gone 39 days without a 1.0 per cent intra-day move, the longest period since 1970. In the short term, this suggests to me a degree of complacency. In the past, times of such low volatility have been followed by increased volatility, usually accompanied by a sell-off in equities. As always, it is difficult to pinpoint what will trigger this but all it needs is something to happen which causes traders/investors to think ‘perhaps I better have a little more cash’. The saying goes, ‘never short a dull market’ but this complacency makes me a little nervous and I think some caution is merited in the short term. In any case, it is always nice to have a little cash in a pull-back and at the end of the month I had let the cash in the portfolio drift up to 8.8 per cent. Longer term I remain reasonably relaxed. The outlook for growth looks the best it has for some time and with treasury yields rising, equities strike me as the best place to be.

John Rosier’s portfolio (end-Jan 2017)

NameEPICMarket cap (£m)% of portfolio
Cash depositCD8.8
Fidelity Asian Values FAS244.57.9
AdEPT Telecom ADT66.37.0
BlackRock World Mining Trust BRWM674.16.3
TR European Growth Trust TRG407.46.0
Conviviality Retail CVR435.65.4
Baillie Gifford Shin Nippon BGS241.64.9
Ithaca Energy IncIAE4364.5
Renew Holdings RNWH275.44.5
Biotech Growth Trust (The) BIOG388.54.4
Bioventix BVXP73.94.4
Imperial Brands IMB35,218.304.0
Avation AVAP112.64.0
Royal Dutch Shell RDSB178,878.503.8
XLMedia XLM210.43.2
Inland Homes INL127.32.8
Accrol ACRL133.52.3
Serco SRP1,581.902.1
Revolution Bars RBG98.51.7
Crawshaw CRAW151.7
Elegant Hotels EHG73.71.5
Gattaca GATC901.5
RedstoneConnect REDS26.31.4
Hurricane Energy HUR571.41.4
India Capital Growth FundIGC86.91.4
Geiger CounterGCL22.11.3
StatPro SOG62.10.3
Fidelity Asian Values FASS242.90.1

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By John Rosier,
17 February 2017

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