Join our community of smart investors

Private Investor's Diary: Value back in vogue?

Former City fund manager John Rosier details his portfolio changes amid a rocky month for markets
Private Investor's Diary: Value back in vogue?


The markets and the JIC Portfolios got off to a poor start to 2022. The Federal Reserve became notably more hawkish in its response to rising inflation. US inflation hit 7 per cent in December and followed up with a consensus beating 7.5 per cent in January. Expectations are for at least four interest rate increases in 2020, the first in March. The question remains whether the Federal Reserve will kick things off with a quarter-point rise or a half. It is also on track to end its Quantitative Easing programme in March. Equity markets took fright, and at one stage, the NASDAQ 100 was down 16.6 per cent since 1 January and the S&P 500 down 11.9 per cent. Markets staged a decent recovery in the last week of the month but have since succumbed to further weakness in February. The S&P 500 ended January down 5.3 per cent, and the NASDAQ Composite, 9 per cent. The S&P's fall was its eighth worst start to a year since 1928. 

The FTSE 100 stood out as one of the only major equity indices to post a positive return in January. It gained 1.1 per cent. The FTSE 100 is seen as a "value" play due to its high financial and resource stocks exposure. The FTSE All-Share, however, fell 0.3 per cent. It was held back by the performance of mid- and small-cap stocks. FTSE Aim All-Share was off 10 per cent, FTSE 250 -6.6  per cent and FTSE Small Cap, -4.1 per cent. Continental European markets fared relatively well with the Dax off 2.6 per cent, the Italian MIB -2.4 per cent and the CAC -2.2  per cent – no real sign yet of the European Central Bank (ECB)  slowing down the printing press.

Russia was down 10.1 per cent, as markets became increasingly concerned about its hostility towards Ukraine. Fears of an escalation in the conflict also helped oil reach an eight-year high. Brent crude was up 14.6  per cent to $89.36 per barrel. Other commodities were also in demand, with nickel up 7.8 per cent, platinum +6.6  per cent and zinc +1.9 per cent. Copper, off 3.1 per cent, bucked the trend.

As an inflation hedge, gold off 1.3 per cent proved a better bet than Bitcoin, which fell 16.6 per cent. At $38,503, the latter is some way below November's peak price of $68,800. You've got to be a true believer to be able to tolerate that sort of volatility.



The JIC Portfolio was down 4.7 per cent. The drop of 5.4 per cent in January 2016 was the portfolio's worst start to a year, which didn't end well. The JIC Portfolio finished 2016 down 4.1 per cent, way behind the FTSE All-Share. That was another year where the FTSE 100 outperformed, boosted by sterling's collapse post the June Brexit referendum. While the JIC Portfolio's performance relative to small and mid-cap stocks looks okay, I'm trying to beat the All-Share. It's only one month, and whilst one might expect mid- and small-caps to catch up, it feels like larger companies will be in vogue this year. Relative valuations look attractive, and many of its component companies should benefit from interest rate hikes and higher commodity prices.

I'll cover the positives first. My largest positions did well. Lundin Energy was up 15.7 per cent, helped by the higher oil price and further consideration of its deal with Aker BP. In December, it announced that it was, in effect, selling its exploration and production asset to Aker BP. The transaction should complete mid-year. SigmaRoc was up 9.0  per cent following a positive trading update. Sylvania Platinum, +7.2 per cent, benefited from higher platinum and rhodium prices and Blackrock World Mining +7  per cent was also helped by higher commodity prices. Serica Energy gained 6.4 per cent, supported by higher gas prices and attractive valuation.

Now to the negatives, where there were some brutal moves down. De La Rue was off 25  per cent after it issued a profit warning. Things seem to have deteriorated significantly since its November update. So much so that earnings forecast for the year ending March 2022 are down 28 per cent, and for the following year ending March 2023, 35 per cent. That is very disappointing given the reasons given for the shortfall were the Omicron related staff shortages and supply chain issues. Biotech Growth Trust and Worldwide Healthcare Trust were off 21.8  per cent and 13.3 per cent, respectively. It was a poor month for investment trusts exposed to Japan – Baillie Gifford Shin Nippon, -21.1 per cent, did not buck the trend. The only one of my commodity stocks to fall was Central Asia Metals -14.3 per cent. A positive trading update was not enough to ease investors' concerns about the troubles in Kazakhstan. Why Supreme and CentralNic fell 19.1 per cent and 9.3 per cent, respectively, I don't know. Presumably just profit-taking in a stock market with low liquidity. Hopefully, results will prove me correct to hang on.

The Funds’ Portfolio lost 7 per cent. That was a poor absolute and relative return. It was behind the 3.9  per cent drop in the FTSE All-World (GBP) Index. BlackRock World Mining and BlackRock Energy & Resources Income Trust (BERI) gained 7.2  per cent and 9.0 per cent, respectively. However, their performance could not compensate for the poor performance from the portfolio’s more ‘growth’-orientated funds. Apart from the two biotech and healthcare trusts mentioned earlier, Keystone Positive Change (KPC) was down 21.6 per cent, Smithson Investment Trust (SSON) was down 17.3 per cent, Fundsmith Equity (GB00B41YBW71)) was down 9.5 per cent and BlackRock Throgmorton Trust (THRG) was down 14.5 per cent.



It was a busy month for both portfolios. I added three new holdings to the JIC Portfolio, starting with Somero Enterprises (SOM) on 5 January. Somero is a US manufacturer of machines that use laser guidance to lay concrete floors that attain the highest flat-floor precision at the lowest cost. If you are building an Amazon distribution warehouse with racking up to the roof, the floor must be flat and even. It has a commanding position, especially in its home market. Having a leading market share allows it to achieve operating margins of around 30  per cent and a return on capital and equity of more than 30 per cent. I was tempted by a cheap valuation, robust balance sheet and strong operating and free cash flow. It pays out excess cash as dividends. 

A trading update on 7 December  showed robust trading in 2021 and in its fourth quarter (Q4), leading to forecast upgrades. The next purchase was Lloyds Banking Group (LLOY)on 14 January. With further interest rate rises anticipated in the UK, it should, along with other banks, be able to widen its net interest margin. Finally Circassia (CIR). Circassia was one of Neil Woodford’s disastrous investments. It is now a different business under new management. That management is focusing on growing the sales and profitability of its NIOX asthma test. The product is a point-of-care test that helps determine a case’s severity and appropriate medication. New management also successfully oversaw the recovery and subsequent sale of Bioquell. Profits are nicely geared to higher sales, helped by a reduced cost base and gross margins of over60 per cent. In September 2021, it released a positive update and followed this with an encouraging year-end update in January. Covid hit the rate of testing, but is now recovering. I’m hoping for a 64p share price. At that level, management share options are fully exercisable. It will be interesting to see what the senior executive team does if it gets there; whether they sell or hold on. I’ll be more than happy with the near 50  per cent gain as a shareholder.

I added to three existing positions. I took Lundin Energy up to 7.5 per cent. I think the new company's prospects, comprising Aker BP and Lundin Energy's E&P assets, are not yet fully appreciated by the market. In the meantime, the oil price is drifting upwards, and it pays an attractive dividend. I'm hoping to see it over SEK 400 per share. I took Renew Holdings up to my target of 5 per cent following its Q1 update, which showed a very healthy order book. Lastly, some 20 per cent lower, I bought back some of the Biotech Growth Trust I sold earlier in the month.

I funded these purchases by three sales early in the month. I reduced Baillie Gifford Shin Nippon, Biotech Growth Trust and Worldwide Healthcare Trust to 2.5  each. While I like all three for the longer term, I did not like how the share price was behaving. In all three cases, they had dropped down below a support level. From a purely financial point of view, and of course, with hindsight, I should have sold them completely. Performance in January would have been much better. Should I be more aggressive when a stock breaks down and sell all my position? If it bounces immediately, I may look silly, but it's just an opportunity lost rather than a hit to the portfolio. I can always add it to a watch list and be ready to buy back lower. It's something to ponder.

In December, I was ruthless and cut Capita after its profit warning. This month it was De La Rue's turn. I sold out on the day of the warning as the recovery now seems a long way off. 

The Funds' Portfolio also saw its fair share of action. As with the JIC Portfolio, I reduced the exposure to "growth" and used the proceeds to add value-orientated positions. My website,, has further details of all my transactions.


Other News

SDI Group made small earnings enhancing acquisition and updated on some new orders for Atik cameras. Central Saia Metals issued a solid year-end update. I look forward to seeing what it does with its dividend at its results. CentralNic's trading update showed it had a strong Q4 with "accelerating" Growth leading to 37 per cent year-on-year organic growth in 2021. Serica Energy also updated, highlighting the increased production from its two projects which came on stream in the second half. Its cash resources grew from £91mn to £218mn. In 2022, it will receive 100 per cent of net cash flow (up from 60 per cent) from the BKR fields it acquired from BP. With gas prices projected to stay elevated throughout 2022, cash generation should be massive. Although there does not seem to be anything in the share price for it, added excitement would be the successful drilling of the "high-impact" North Eigg well in the summer. Lastly, Anglo Pacific issued a positive update. It had a record Q4, following a record Q3. It is benefiting from record-high metallurgical coal prices but also its acquisition of Voisey's Bay cobalt stream last May is looking well-timed. Cobalt prices are at record highs as demand outstrips supply. Anglo Pacific is another stock where I am looking forward to seeing what dividend is declared. I see that the Royal Bank of Canada increased its target price for Anglo Pacific to 245p. Given that it is currently 144p, I would be happy to get halfway there.



I have found myself speculating more and more about the outlook. I must remind myself that no one knows and trying to anticipate market moves is a mug's game. But a change in trend does seem to be underway. Liquidity drives markets, and there has been a lot of it around over the last fourteen years. The enormous monetary and fiscal stimulus in 2020 and 2021 gave financial liquidity a final and massive boost. That worked but has now fed through to inflation, which may or may not be transitory. The Federal Reserve is now tightening. Possibly more important than interest rate hikes is the withdrawal of quantitative easing and maybe quantitative tightening. Jerome Powell is doing something Greenspan merely talked about – removing the punch bowl from the party. He's left it a bit late and is now walking a tightrope. Too much tightening, the US stares at recession, too little, and inflation remains stubbornly high, and he loses credibility.

Given this background, I think value will continue to outperform growth. With the valuations of many growth stocks still too high, any earnings disappointment is being severely punished – recent examples are Netflix, PayPal, Spotify, and Meta Platforms (aka Facebook). The share prices of many of the smaller, "profits-tomorrow" Nasdaq companies have collapsed. Now some of the bigger one's are being hit. I continue to be happy with my high exposure to resource stocks. The answer to higher oil and gas prices is probably less demand (recession) or increased capital spending in this area. However, political and environmental pressure will, if anything, result in faster growth in renewables. That will require more significant supplies of metals such as aluminium, copper, nickel, lithium, and zinc. It will be a challenging year ahead, and thus I am also happy to hold some cash.

NameEPICMkt. Cap (£m)Risk  Low, Med, HighReward  Low, Med, High% of  Port.My target  %Total return so far %
BlackRock World Mining Trust PLCBRWM1157LH9.57.569
Serica Energy PLCSQZ690MH8.75.0103
Lundin Energy ABLUNES8524LH8.37.541
K3 Capital Group PLCK3C243MH6.55.049
Sylvania Platinum Ltd SLP259MH6.45.092
Supreme PLCSUP230MH5.75.01
Somero Enterprises IncSOM303MH5.25.0-2
Anglo Pacific Group PLCAPF293MH5.25.08
SigmaRoc PLCSRC581MH5.05.077
Circassia Group PLCCIR176MH5.05.0-3
Central Asia Metals PLCCAML391MH5.05.016
Renew Holdings PLCRNWH568MH5.05.047
Lloyds Banking Group PLCLLOY36257MH5.05.0-7
CentralNic Group PLCCNIC319MH4.65.019
Biotech Growth Trust (The) PLCBIOG382MH3.63.546
Cash depositCD LL2.5 0
Worldwide Healthcare Trust PLCWWH2048MH2.42.522
SDI Group PLCSDI185MM2.22.5161
Baillie Gifford Shin Nippon PLCBGS548MM2.12.575
Bioventix PLCBVXP162MM2.12.571