It's time to do some some late summer pruning. I have finally removed some disappointing irritants in my portfolio that have blown past their stop-loss levels. So out goes New City Energy, a specialist oil and gas investment fund that has dismally underperformed and lost me a packet, along with Low Carbon Accelerator, which collapsed after its key holding in the wind turbine technology space suffered a catastrophic engine failure involving falling turbines.
And finally, it's curtains for oil and gas engineering services contractor Cape. I've always been a bit of a contrarian, but I should have been better prepared for the 'warnings come like buses, in threes' syndrome. I bought Cape after a warning about a contract issue for its North African business, which in turn followed the departure of its chief executive.
But that was not the end of the bad news - a few days ago came news that Cape's Australian business was also in trouble and that profit expectations for this year would not be met. I'm not going to hang around to find out what comes next and have decided to take my 30 per cent loss on the chin and exit quietly.
On the positive side, I've bought into two specialist funds. The first is Utilico Investments, which I mentioned in this column last month. It's a quirky vehicle that invests in a concentrated portfolio of gold miners, in particular Australian-quoted Resolute Mining, infrastructure companies and the managers' other fund, namely Utilico Emerging Markets. The shares trade at a whopping 33 per cent discount to net asset value (NAV). My logic for buying into this fund is that it plays into two themes that I particularly like - undervalued gold mining stocks and quality infrastructure companies.
My other buy is a recent listing on the London Stock market, Dexion Capital Group's IRIS fund, which invests in a master fund run by Credit Suisse that buys into catastrophe and natural disaster reinsurance bonds and contracts - with a target annual dividend payout of about 5 per cent a year. Hopefully, this fund will provide relatively low-risk exposure to a very non-equity correlated asset class, run by a well-respected specialist team at this big Swiss private bank.
While on the subject of slightly odd, even quirky funds, it's also worth mentioning that the outlook may be improving (slightly) at Ecofin, a long-term holding of mine. This specialist investment trust hasn't had a good three years with total returns of minus 4.6 per cent, including dividends as opposed to a gain of 34 per cent in the MSCI World index. Sentiment hasn't been strong towards utilities, especially major US plays, and some of the fund manager's other investments in clean energy and China (the fund is invested in Origo Partners) have not exactly set the world alight.
However, I noticed a few weeks back that the Ecofin managers had upped the value of their holding in Lonestar Resources (87.5 per cent owned by subsidiary Ecofin Energy Resources) by one-third. This is a big valuation uplift based on a manager's internal estimate of the value of an unlisted company, so some caution is needed. But it's clear that this Texan-based shale gas operator is making enormous progress in the fast evolving US energy scene.
I also notice that Ecofin has initiated a small position in Italian energy company Enel - my sense is that southern European utility outfits might be worth a look over the next six months, once the inevitable dividend cutbacks have been announced. Despite this good news from Lonestar, Ecofin's share price has actually moved down in the last few weeks with the discount to NAV increasing to just under 30 per cent.
Generally, I remain a relative bull over the one- to three-year time frame and think that equities in some parts of the world are beginning to look very compelling in value terms. In particular, I think the UK market looks excellent value and would like to materially increase my direct equity exposure.
The problem is, I can only see more trouble on the short-term horizon, as Europe singularly fails to get its act together fast enough for an increasingly irascible and impatient Mr Market. I treated the recent announcement by European Central Bank boss, Mario Draghi, a great deal more positively than most investors and I think the bottom line is that the European leadership elite will, eventually, do everything in their power to preserve the eurozone. But the key word in that last statement is eventually.
In the meantime, my money is on much despair and grinding of teeth from September through to November, with renewed concerns over the US election as icing on the cake. In these circumstances, I'd quite like to keep a 20 per cent cash reserve to buy quality equities at cheap prices.
