Drawn to US small caps

In the UK, the FTSE All-Share (Total Return) Index was up 2.2 per cent (+15.3 per cent this year). The market was driven by smaller companies, with the Aim All-Share bouncing back 3.7 per cent, the FTSE Small Cap Index up 3.0 per cent and the FTSE 250 Index up 4.0 per cent. 

In commodities, Brent oil was up 2.1 per cent to $60.75 a barrel, copper was up +0.9 per cent, but zinc, -8.1 per cent, and nickel, -17.7 per cent, suffered big falls. Gold and platinum were also friendless; gold was off -2.8 per cent to $1,472 an oz and platinum dropped -4.5 per cent to $894. Sterling was stable, gaining 1.2 per cent against the euro and flat against the US dollar.

Performance

A good month for the JIC Portfolio, with it ending the month at a new high. It regained and more the losses of the past few months, returning 5.1 per cent. It was the JIC Portfolio’s eighth-best month in 95, leaving the portfolio up 26.6 per cent this year. Since inception in January 2012 the JIC Portfolio is up 211.7 per cent (15.4 per cent annualised) comparing favourably with the total return form the FTSE All-Share Index of 91.1 per cent (8.5 per cent annualised). The JIC 'bespoke' benchmark introduced in January, is up 19.3 per cent this year.

It was a pretty good performance across the portfolio in November. Only four stocks were down and none by more than 7.5 per cent. The best performing stock was Games Workshop (GAW). It was up 28.2 per cent in response to a positive trading update, which led to profit upgrades for the current year ending May 2020 of around 9.0 per cent. In addition to the 28 per cent gain, it went ex-dividend a 35p dividend on 28 November. Not far behind were my two investment trust holdings managed out of New York by Orbimed. Biotech Growth Trust (BIOG) was up 18 per cent and Worldwide Healthcare Trust (WWH) up 14.3 per cent. I have been a long-term holder of Biotech Growth Trust; it was one of the first stocks I added to the JIC Portfolio back in 2012. It is my way of playing the rapid technological advances being made in medical science, opened up by our relatively recent mapping of the human genome. It had a stellar first few years, more than trebling in price within three years. Since June 2015 the shares have struggled to make progress and even after last month’s move are still 5.0 per cent below their peak. The sector has been de-rated and stands at a significant discount to past valuations and to the broader market. I am hopeful that after four years of sideways movement the trust has started its next leg upwards. The more broadly invested Worldwide Healthcare Trust has been a steadier performer. I added it back to the portfolio in May this year. Having first bought it in August 2012, the truth is I should never have sold it. Worldwide Healthcare Trust is a good way of playing the growth in healthcare around the world, which is being driven by growing, ageing and wealthier populations. 

SDI Group (SDI) gained 14.3 per cent and is now up 57 per cent on my average price paid between February and May and has been a significant driver of this year’s performance. No news during the month, but maybe an appreciation of its cheap valuation compared with Judges Scientific, a larger competitor whose strategy SDI is broadly emulating. A further 15 of my holdings were up on the month, a few of them, such as Avast (AVST), Bloomsbury Publishing (BMY) and Strix (KETL), hitting new highs. 

Serica Energy (SQZ) was the worst-performing stock, falling -7.5 per cent, closely followed by Anglo Pacific (APF), -7.1 per cent. No news from Serica during the month, but Anglo Pacific published a broadly positive third-quarter update. My two ETFs exposed to gold were, not surprisingly, down. The Wisdom Tree Physical Gold ETF (PHAU) was off 3.1 per cent in line with the gold price, and the L&G Gold Mining ETF (AUCO) fell 3.9 per cent. 

Recent activity

A quiet month on the dealing front. Partly because I enjoyed a holiday in Namibia and partly because I struggled to find any compelling trades. Namibia was bliss due to the attractions of the country, but also because I struggled to get any decent wi-fi. I was able to have a complete break from the markets and, more importantly, the general election. The only trade was to add to RockRose Energy (RRE) on 28 November at 1,731p. At the end of July, just after RockRose Energy came back from suspension, the share price was 1,950p, and it was 9.0 per cent of the JIC Portfolio. The share price had fallen 12 per cent, including it going ex-dividend 60p, or around 3 per cent of the share price. Due to the drop in the share price, the holding had fallen to 7.9 per cent of the portfolio. Since the end of July, the company has steadily added to its cash pile. Unrestricted cash, ie cash that does not have to be put aside for future decommissioning costs, is now estimated at around 1,950p a share, or 114 per cent of the current share price.

I expect it to do further deals. There were reports in November that it had bid $1.2bn for Siccar Point’s North Sea assets. Given there were bids up to $2bn, it is unlikely to win, but it does demonstrate the scale of ambition. There are plenty of other deals to be done, and I’m sure before long there will be an announcement. In the unlikely event that another value-enhancing deal evades it, there is likely to be further substantial dividend payments to shareholders. If it only pays this year’s 85p to shareholders again next year, that is a 5.0 per cent dividend yield; not bad while one waits.

There is also the prospect of news from its existing assets. For instance, it is currently drilling two infill wells on West Brae, which hopefully will lead to increased production and/or field life extension.

In short, I think the current share price, standing at a discount to cash on the balance sheet, represents tremendous value. I rate it as low-risk/high-return and have increased the position to 9.1 per cent of the JIC Portfolio.

Oil stocks

I regularly read investors stating that they never invest in oil exploration and production (E&P) stocks because they are too risky. I understand the sentiment, but think that as long as you are disciplined about what type of stock you are invested in, they can be very profitable. I tend to avoid those that are dependent on a binary outcome; find oil the share price goes up 40 per cent, drill a dry hole and it drops 40 per cent. I like companies that already have a decent production profile, little or no debt, robust cash flow and operate in a business-friendly jurisdiction. In the past five years, I have done well from Ithaca Energy and Faroe Petroleum (North Sea E&P stocks that were taken over), Hurricane Energy (HUR) and Diversified Gas & Oil (DGOC) and from my two existing positions Rockrose Energy and Serica Energy. Rockrose is currently my third largest contributor to overall profits behind Bioventix (BVXP) and Baillie Gifford Shin Nippon (BGS). E&P companies have provided just over 15 per cent of the total gain in the JIC Portfolio over the past eight years. I suspect that the relative undervaluation of the likes of Rockrose and Serica is partly due to investment funds not wanting to be seen holding resource stocks. Even with the introduction of stricter carbon emission targets, it will take time before worldwide demand for oil and gas falls. I think there is still money to be made from the sector in the coming years.