Focusing on sectors that will prosper

Continental European markets did well, with the DAX up 6.3 per cent, the Italian MIB up 7.3 per cent and the French CAC up 5.1 per cent. In the Far East, China gained 6.8 per cent and Hong Kong 6.4 per cent, but the Nikkei 225 was up only 1.9 per cent. Commodities were also robust. In a clear indication that markets were more optimistic about the economic outlook, copper gained 12.5 per cent, and oil was up 10.5 per cent, with Brent crude above $40 a barrel.

UK equities continued to lag. The FTSE All-Share (TR) Index was up only 1.5 per cent, leaving the index down 17.5 per cent in the first half (H1). The FTSE 250 has fared even worse, down 21.8 per cent. That compares with a fall of just 4.0 per cent for the S&P 500, a 7.1 per cent drop for the DAX and a 12.3 per cent fall for the MIB.

Gold continues to make progress, with it achieving an all-time high in sterling terms. The price need only rise another 8 per cent to exceed September 2011’s all-time high of $1,900 an oz. With the chairman of the Federal Reserve making it quite clear that interest rates will stay low for at least two years, gold feels as though it has further to go.

Performance:

It was a solid month for the JIC Portfolio. It was up 2.0 per cent, just ahead of the FTSE All-Share (TR) Index. Year-to-date, the JIC Portfolio has crept into positive territory. It is up 1.0 per cent against a 17.5 per cent slump for the FTSE All-Share.

Last year I introduced a "bespoke" benchmark consisting of funds managed by some of the most accomplished fund managers in the industry. This was an attempt to create something more demanding than the FTSE All-Share as a comparator for my own performance. I have decided to simplify matters by adopting the FTSE All-World (GBP) Total Return Index as my primary benchmark. It is readily available, and to be honest the complexion of my bespoke benchmark was a little arbitrary. I have long lamented my lack of US exposure in the JIC Portfolio. The adoption of this new benchmark will force me to address this issue and have more of a global outlook.

Since the inception of the JIC Portfolio in January 2012, the portfolio is up 235.3 per cent (15.3 per cent annualised) compared with 62.9 per cent (5.9 per cent annualised) for the All-Share and 175.2 per cent (12.6 per cent annualised) for the All-World Index.

June's winners were led by Syncona (SYNC), which gained 20.7 per cent. Aggregates company SigmaRoc (SRC) was close behind, increasing 18.9 per cent following a positive trading update early in the month. Venture Life Group (VLG) updated on the same day. It started with: "The company is pleased to announce that it is confident it will comfortably exceed market expectations for this year." The share price ended the month up 16.4 per cent. Simon Thompson has written extensively on both companies in the Investors Chronicle, and I can't disagree with his target price of 60p for SigmaRoc and 95p for Venture Life. The other more than 10.0 per cent gainer was Anglo Asian Mining (AAZ), up 11.0 per cent and benefiting from the robust gold price. When its plans for future mine development are more precise, it should make further progress.

The negatives: Sylvania Platinum (SLP) fell 18.2 per cent, PayPoint (PAY) -17.0 per cent, Anglo Pacific (APF) -16.7 per cent, Duke Royalty (DUKE) -13.2 per cent, Watkin Jones (WJG) -12.8 per cent and Serica Energy (SQZ) -10.1 per cent.

Activity

I made nine trades during the month. I added to Anglo Pacific twice (on 1 June at 161p and 11 June at 141p) as the 6.5 per cent dividend yield was too attractive  too pass on. Anglo Pacific went ex-dividend 4.13p per share on 4 June. I added to my Bioventix (BVXP) position on 12 June at 4,191p and introduced a new holding in De La Rue (DLAR) on 3 June at 121p. This is a classic turnaround story, but recent news has been encouraging, with its authentication business winning new contracts. The currency business has also stabilised, with contracts being won for its polymer banknotes. I bought just a 1.0 per cent position, intending to double up after its results on 17 June. As it happens, the company took the opportunity to bolster its balance sheet with an open offer to raise £100m gross. The terms of the offer were seven new shares for every 16 held at 110p a share and I put in for my allocation plus some more. Whether I get any of the extra shares I applied for will be dependent on other shareholders not taking up their allotment. As I write, I am waiting to hear how many shares I have been allocated, but I am hopeful it will take me near to my 2.0 per cent target.

I have long appreciated that at some stage I would need to reduce my exposure to oil. I listened to an excellent interview with Jeremy Grantham, co-founder and chief investment officer of GMO. That and reading The Future Is Faster Than You Think by Peter Diamandis and Steven Kotler helped me decide that now was as good a time as ever. I also had some plans for the cash released. On 16 June I halved my oil exposure from around 12.0 per cent to 6.0 per cent. Out went RockRose Energy (RRE) at 1,181p, realising a decent profit. I also cut my position in Serica Energy at 118.2p. I decided to sell all my RockRose as I considered it the riskiest of my three oil holdings: It is the stock most dependent on a higher oil price. If the oil price improves, it should do well, but if it weakens it will suffer most. Unfortunately, my sale was ill-timed, as earlier this month management recommended an all-cash takeover at 1,850p a share. C’est la vie! Serica Energy sits in the middle. Gas will be part of the energy mix in the UK for many years to come. Perhaps the RockRose deal will highlight the value in Serica and other North Sea players. I kept my 4.0 per cent position in Lundin Energy (NOR:LUNES) as I think it can tolerate lower oil prices for longer. With its low operating costs and the ramp-up of production at Johan Sverdrup, cash flow should be robust. If the oil price goes higher, its share price might not be as geared as RockRose, but it should still benefit, throwing off increasing amounts of cash.

I used the proceeds to reintroduce a 4.0 per cent position in BlackRock World Mining Trust (BRWM) on 16 June at 355.1p. During the bull market of the past 10 years or so, miners have lagged. The positives now are valuation and the prospect of higher prices. Lack of investment could see supply failing to meet demand. Demand could also receive a boost from the shift to the 'new economy' with, for instance, electric cars requiring far more copper than traditional internal combustion engines. BlackRock World Mining has the added attraction of a 6.4 per cent dividend yield. On 16 June I added a 2.0 per cent position in the Wisdom Tree Cloud Computing ETF (WCLD) at 2,875p. This ETF tracks the BVP Nasdaq Emerging Cloud Index. It contains many companies that people will be aware of, including Adobe, PayPal, Docusign, Zoom, Salesforce, DropBox, Slack and Shopify. It is challenging to present a 'value' case for investing in these stocks. Still, I think, given the growth being achieved, a small position might add value in the medium to long term. I have given it a High Risk/High Reward rating, thus the 2.0 per cent position.

The only other trade was to reduce the L&G Gold Miners ETF (AUCO) to 4.0 per cent on 25 June at 2,767p. I needed the cash to pay for the De La Rue open offer.

All change at the JIC Top 10 Portfolio

In August 2014, I set up the JIC Top 10 Portfolio. The idea was to hold just 10 stocks, all of which were in the JIC Portfolio. The aim was to achieve superior performance. Over the near-six years to 30 June, it was up 59.0 per cent, which compared favourably with the FTSE All-Share return of 16.2 per cent, but disappointingly lagged its bigger sibling by around 10 per cent. It had really become a bit of a distraction.

I decided in June to convert it to a portfolio that holds only funds (investment trusts, ETFs and Oeics) and have renamed it the JIC Funds Portfolio. Like its predecessor, it is a real portfolio, and I am taking a five-year-plus view and expect to make minimal changes along the way. It is unashamedly growth-oriented, which might mean it gets hit hard over shorter periods when there is a market correction. On the other hand, hopefully, the near-10 per cent exposure to gold and to 'quality' companies as found in the likes of Fundsmith (GB00B41YBW71) and Chelverton UK Growth (GB00BP855B75) might mean my fears are overdone. I also expect the exposure to healthcare, through Worldwide Healthcare Trust (WWH), and stocks held in some of the other funds, to provide excellent long-term growth and an element of defensiveness. The transition was completed on 30 June. There are 17 positions, of which the largest is the iShares NASDAQ 100 ETF (CNDX) at 10 per cent. It also holds Baillie Gifford Shin Nippon (BGS) at 6.0 per cent, and 3.0 per cent in each of the Wisdom Tree Cloud Computing ETF, VanEck Vectors Video Gaming & eSports ETF (ESGB) and VanEck Vectors Junior Gold Miners ETF (GDXJ). My aim is to beat the FTSE All-World (GBP) Total Return and look forward to seeing how it performs relative to the JIC Portfolio.

Outlook

Last month I admitted to a change of heart that led me to be fully invested. With interest likely to stay low for a long time, I see no alternative to equities. Lower rates should allow equities to command higher ratings. I'm most keen on those areas I think will come out of Covid-19 in a stronger position, such as biotech, healthcare and technology. In case I'm wrong, I still have a reasonable exposure to gold, which seems like an excellent two-way bet.