In last month's column, I said that I'd like to start building some exposure to emerging markets debt, denominated in its local currency. The thinking behind this is that emerging markets have sound public finances - unlike the UK and euro area - and that their currencies are likely to appreciate. So you get your income, your capital back, plus a boost from the exchange rate.
There are various ways to do this, but exchange-traded fund provider iShares has some very cost-effective index trackers in this space. One of the most popular among institutional investors has been iShares Barclays Capital EM Asia Local Government Capped Bond ETF (ticker SGEA full data here) This yields just under 4 per cent to maturity, with an average duration of about eight years. This is jam-packed full of South Korean government debt and bonds from Malaysia, both of which have high credit ratings of at least A. I am interested in this fund, but it's essentially a bet on South Korea.
So I've plumped instead for iShare's EM Government bond (local currency) fund (ticker SEML, full data here). The yield here is 6.5 per cent and you are buying government debt in local currency denominations from Mexico, Poland and South Africa (more than 50 per cent of the fund) – all of which I feel very comfortable with, especially given the yield.
This fresh punt hasn't stopped my cash levels increasing again, to 23 per cent of my total portfolio. That follows the sale of my preference shares in Lloyds Banking Group (TIDM: LLPC). I'm still very bearish about the UK banking sector and I don't see much growth in profits in the next year or so, which might put back the date when coupons can be restarted on the preference shares. Selling at 96.5p, I've made a tidy profit and I can then buy them again as confidence inevitably wanes and the price slips back under 70p (as it did in late 2009 and autumn 2011).
Elsewhere, I have bought a small slug of shares in Golden Prospect Precious Metals - a small 2 per cent position in my portfolio, worth around £1,600 at 85p. The commodities sector may have had a horrid few months, but the precious metals sector has had an even worse time. This small closed-end fund is an actively-managed play on silver and gold miners, which means that it's doubly geared - spot prices may have been weak but miners' share prices have been even weaker. Buying some reasonably valued exposure to precious metals miners (at a 10 per cent discount compared to NAV) is good insurance in case all hell breaks out in Europe and Spain starts to implode.
I like this fund's management team at New City Investment Managers, although they also manage the poorly-performing New City Energy. My recent investment in this fund has continued to produce losses - it fell 9 per cent over the past four weeks and is now down 20 per cent - and I'm tempted to institute a 30 per cent stop-loss limit to protect against any further losses.
Like precious metals, the energy sector is having a torrid time, even though crude oil prices haven't fallen back by a huge amount. I'm unfazed by all this bearish sentiment, especially as I expect the Chinese government to launch a wave of new initiatives over the next six months to demonstrate to its people that the new leadership are 'in control'. That should feed through into an uptick in prices later in the year.
My biggest gains this month were in the share price of BSkyB, which advanced by just under 11 per cent, closely followed by a 9.4 per cent increase in Biotech Growth Trust's share price.
The BSkyB move was particularly gratifying as I had been worried that the Select Committee report on the various machinations at News International would impact the share price of the satellite giant. The announcement that Mr Murdoch was "unfit" struck me as a bit over the top, especially with reference to BSkyB - whatever your view about his newspapers, BSkyB is a hugely impressive business machine with the most important pipe into the living room of British households after the BBC.
Looking at the broadcaster's recent results, the growth in new subscriptions to the TV service has slowed down, and I think that any growth at all is impressive in this market. All that said, I can't help but think the current share price is a little toppy to say the least.
The share price of mining company Ivanhoe is down a whopping 20 per cent over the past month, mainly off the back of political instability in Mongolia. If the share price continues to fall (as I think it will) I'll probably reduce my holdings.
