Stock Picks | Boon's Fund Recap - May 2022

2nd Jun '22 by Boon

11 comments 1758 reads

See all the previous Monthly Recaps here.

May Performance -0.7% vs FTSE All-Share benchmark +0.4%

YTD Performance +2.3% vs FTSE All-Share benchmark -0.1%

(Part Time) Fund Manager’s Report

May was a frustrating month for me. The first half saw blistering outperformance, as much as a +5% outperformance vs benchmark MTD. The markets had lurched downwards, while both my ISA and SIPP held their values up well. However, by the end of the month, the markets had recovered most of their losses, while my holdings were barely unchanged. As a result, May ended down -0.7%, while the FTSE All-Share benchmark was up +0.4%. The AIM-100 was down -4.5% in May, where the majority of the shares in my portfolio are from.

YTD the AIM-100 is down -20%, while my ISA (all AIM shares) is up +1.1%.

Five months in, I am up +2.3% overall across my SIPP and ISA, a privileged position to be in. Charts below.

ISA YTD Performance (vs FTSE All-Share in grey)

Sipp YTD Performance (vs FTSE-100 in grey)

Earlier this month, it suddenly dawned on me that I might now have too many companies in my portfolio. Last year, I ran a concentrated portfolio, and my goal was to diversify. However, has the pendulum swung too far? I now have 15 companies (excluding my two ETFs). I know many other investors run a larger portfolio. But for me, as a part-timer with a demanding day job, is 15 too many? And I still have quite a bit of cash (28%) in both portfolios to deploy. Your thoughts in the comments below would be much appreciated.

May was a month dominated by the “missed opportunity” theme. Not in terms of buying, but in terms of selling. I had correctly identified that Spaceandpeople (LON:SAL) might have been a bit toppy at c15p during early May, and sold, but only half my holdings. It then went as low as 12.5p, and now at 13.5p.

Similar goes Zytronic (LON:ZYT) – I decided to sell at c170p right after results, but got distracted that day and didn’t execute, and the price has fallen ever since. I succumbed to the investor weakness of waiting for a bounce-back, and the shares at now at c155p.

I firmly believe that being decisive, but not rash,…

Unlock with Email

Unlock with Google

Already have an account?
Login here

About the Author

Boon

Premium Member

Private investor actively managing his share portfolio (The Boon Fund) as a hobby while still working 9-to-5! See The Boon Fund on Substack for updates from 2024 onwards. See my Stockopedia articles for my monthly holding and my thoughts (up until Dec23). +9.7% Performance in 2023 (compared to +3.8% for All-FTSE) +12.0% Performance in 2022 (compared to -3.4% for All-FTSE) +21.6% Performance in 2021 (compared to +14.6% for All-FTSE) more »

11 comments

Boon

2nd Jun '22

Appendix: current holdings

Small (0-5% of portfolio) , Medium (5-10% of portfolio), Large (10%+ of portfolio)

ISA - Changes	Name	Size ↓
No Change	Begbies Traynor (LON:BEG)	M
No Change	Medica (LON:MGP)	M
No Change	Appreciate (LON:APP)	S
No Change	Zytronic (LON:ZYT)	S
New	Yu (LON:YU.)	S
Partial Sell	Spaceandpeople (LON:SAL)	S
No Change	Intercede (LON:IGP)	S
No Change	Time Finance (LON:TIME)	S
No Change	Fulcrum Utility Services (LON:FCRM)	S
No Change	Oxford Biodynamics (LON:OBD)	S

SIPP - Changes	Name	Size ↓
No Change	£XSPS	L
No Change	Phoenix Group (LON:PHNX)	M
No Change	£SGLN	M
No Change	Spectra Systems (LON:SPSY)	S
No Change	Saga (LON:SAGA)	S
No Change	Rio Tinto (LON:RIO)	S
No Change	Itv (LON:ITV)	S

illiswilgig

5th Jun '22

Hello Boon - thank you for sharing this, it's much appreciated. An interesting portfolio and I look forward to future updates. And well done on your current performance.

As to whether 15 stocks is too many - or too little - I really could not say. Only you can know that. But its an interesting question - so here are some thoughts - please do with them what you will.

It intrigues me that you consider that it might be too many - because you don't have enough time to research them all fully.

There is normally a strong argument made for holding more stocks to diversify and reduce the impact of any one stock going 'Boo' - not to coin a phrase - and massively reducing performance.

That's always seemed counter-intuitive to me in that reducing the ability to research each investment fully should also reduce performance?. Of course that assumes that you don't subscribe to the Efficient Market Hypothesis and that you are comfortable with the increased volatility that a smaller number of stocks brings with it. It does seem to me that most of the hugely successful investors quoted in books also don't subscribe to the EMH and much of their success is down to a few right calls backed by significant concentration of their portfolio.

I've recently become a full(ish) time investor. An enforced change due to the impact of long covid. The silver lining is that I'm enjoying it enormously even though my performance is not as good as yours. Yet.

One clear consequence - for me - of more consistent research and analysis is that the number of stocks that I hold has reduced by 50% from around 40-50 to 20-25. And its still a struggle to fully research all of them - at least in the sense of constantly revisiting and updating my analysis and forecasts.

On the face of it I still have a way to go to get down to 15 stocks - and thats not easy right now with so many apparent bargains around me. But my portfolio is not equal weighted. Just 5 of my stocks comprise over 50% of my portfolio. It was closer to 60% until recently when pull-backs have made it less concentrated. Though for no reason other than sentiment upon lack of news so I fully expect the concentration to increase again. And why not - it seems to make sense to back my highest conviction investments with the most funding. Albeit not the most comfortable approach. In my case the absolute number of stocks that I hold is probably less important than the concentration of my holdings which is a lot more concentrated than the 20-25 stocks implies.

That's a long winded way of saying that perhaps you are asking the wrong question? Instead of asking whehter 15 shares is the right number perhaps it should be whethe your portfolio concentration reflects your assessment of risk versus reward - in my case the number of shares I hold tends to flow from that allocation. Sure I'd love to hold more - but then I'd have defund my best opportunities?

In my case the 5 shares are MS International (LON:MSI) Anglo Pacific (LON:APF) Macfarlane (LON:MACF) Vianet (LON:VNET) and interestingly the one that I hold in common with your portfolio Zytronic (LON:ZYT)

Zytronic (LON:ZYT) - you are quite right. If your conviction here is not strong then 170p would have been a good exit. My reasons for buying are longer term. Here are some fairly recent thoughts for what its worth. Like all of these shares I've spent a lot of time analysing and researching and in each case I think I see something that the market has yet to recognise. Doesn't mean that I am right. Or that the market will ever agree with me. My track record proves that. Some I get right. Others not. In the case of Zytronic which is effectively a turnaround suspended by the pandemic. - its a niche product development into a future market growth opportunitiy.

Did you listen to the recent management presentation on IMC? I listened because management ability is an important factor for me. Attending the AGM is not practical for me. To start with it was a little less than overwhelming, not to say a bit shaky. But to be fair it was the first time they have presented results (that I am aware of ) away from an AGM and the first time presenting to PI's. I normally pay less attention to the read through of the results slides than the Q&A and am inherently sceptical if the presentation appears too slick and the presenters too smooth as I want to get under the surface.

By the time of Q&A they were much more into their stride and the answers I found to be frank, open and illuminating - at least as far as they are allowed to be. At one point the CEO was beginning to bounce up and down in his seat, revealing both passion and excitment (I thought) over the growing opportunities, particularly for unattended retail (vending) and the EVC market in particular. Actually 3 of my top 5 shares have potential exposure in different ways to the EVC market opportunity.

Anyway, but I digress - you may have listened to the IMC presentation and come to another conclusion. I see Zytronic as a powerful combination of cash rich, asset owning, cash generating technology company with a growing portfolio of IP, patents and manufacturing knowhow in a market niche that has used the pandemic to refurbish its production facilities, lower its cost base, buyback shares and launch new products.

Unfortunately - or perhaps fortunately depending upon how you look at it - its not a share that PI's want to hold right now. For a number of reasons, tiny market cap, huge lack of liquidity, exit of institutional investors at tender offer, growth from a low base after the pandemic and lack of clarity over the ability of the company to capture the future market opportunity - it's a neglected and undervalued share in a bear market.

At the AGM update the H1 turnover was 25% with the order book 40% up and at the interims turnover was 24% ahead but management are habitually cautious on the full year turnoout as they only have around 1 or 2 months forward visibility on orders and much can depend upon their OEM customer orders how and when the orders flow though to Zytronic. That's an important point I think - as Zytronic is tiny and the market is niche - so unpredictability of order flow means that management have to keep their epectations conservative - even if they are bouncing up and down with excitement. As the actual current order flow, due to their customers own supply contraints and sales success - can make the order flow down to Zytronic volatile and easily mask the overall growth trajectory. In my view it increases the likelihood that they will exceed expectations. That's something I like - but it means the shareprice trajectory tends to lag the company growth. Not good if you are looking for a swift exit?

Because it's tiny and neglected and because the turnaround is starting from a low base in growing markets I think the immediate short term future for the share price is uncertain. Indeed with buyback ending recently I'm slightly surprised that the price has not already fallen. I do expect it to - and when it does I'll use it to buy more shares if I can.

In the 1 to 2 year timeframe I expect consistent growth in turnover and growing clarity on the size of the market opportunity in vending (EVC's) and across Industrial, Gaming and Finance to re-rate the share price considerably. In the meantime they still have spare cash to return to shareholders and growing dividends from cashflow. But then I could be wrong.

And of course none of this should be taken as a recommendation to buy Zytronic shares - perhaps you've come to a different conclusion in which case I'd certainly love to hear it,

Cheers

Mark

Boon

7th Jun '22

Mark, thank you for the very long comment! I thoroughly enjoyed reading it.

On Zytronic (LON:ZYT) thank you for flagging up the recent IMC presentation. It has been languishing on my to-do list to watch it. I subscribe to all the bull points that you mentioned on it; my rationale for selling was based on the somewhat high PE it is trading at the moment, and also the large revenue exposure to the gaming sector. Granted, gaming has boomed in the first few months of re-opening; but if consumer savings are depleted and lean times are ahead, gaming volumes will suffer, no? Or maybe not; there will always be the hardcore gamers, and maybe desperation will drive more to the slot machines to try their luck?

On diversification - maybe 15 is too few. I had a bit of a think about it some more. If I step back; my goal is to beat the market by at least 5-10% yearly, and minimise the risk of any big losses. That means I definitely do not want to run a concentrated portfolio. But of course, the bigger the portfolio, the more likely it is to revert to the "mean" index return.

What I think I'm looking for is to find a set of shares to invest in that will:

- minimise losses and avoid the big landmines, so that collectively they slightly outperform the index.

- if the average position side is 6.67% (eg 15 companies) and every year, I manage to find 2 winners out of the 15 companies (and by winner I mean deliver +50% returns)

- then the combination of the two is, approximately, 1% (basket of 13 shares beat the index slightly) + 3.36% (winner 1 delivers 50%) + 3.36% (winner 2 delivers 50%) = 7.67% return above the index

Of course, this is a very simplistic model in my head, but you can see that repeated over the years, if it works, will deliver that 5-10% outperformance. This, of course, assumes that I'm good enough to find two winners that deliver 50% yearly, consistently, by shortlisting only 15 companies to invest in!

Epsilon

8th Jun '22

"I firmly believe that being decisive, but not rash, is probably a key skill for a successful investor."

This is an important issue for an investor. The successful investor must have access to three things:

1. Adequate information
2. Good analysis of the information
3. Objective behaviour, vs. making decisions with feelings & emotions

A key point is that any decision (Buy/Sell/Hold) can only be assessed based on the information available at the time that the decision was made.

It would appear however that you are assessing your decisions ex post:

eg you are classifying your decision to Buy LON:THG as 'rash' because the stock fell after purchase.

eg your decision not to buy LON:PHTM is likely being classified as 'indecisive' because the stock subsequently rallied.

Hindsight is a wonderful thing. But focussing on (1-3) will likely lead to more successful outcomes.

Bouden54

8th Jun '22

I think the the number of stocks also depends on the value of the portfolio - if I had a smallish portfolio (say 20k) then I'd probably only hold a few stocks. If I had something more substantial (say over 500k) then I'd want a lot more diversification and probably want at least 40 individual stocks.

Perversely, holding more stocks can be less time consuming - with a very concentratred portfolio you need to carry out very detailed analysis of each position. If each position makes up only 2% then you can afford to be slightly less thorough, although obviously returns will tend to be more in line with the index. Having said that I have a pretty high number of positions (around 50) yet consistently manage to beat all the main indices, so for me it's still worth running my own fund (as opposed to just giving it to a fund manager to look after).

Boon

11th Jun '22

I agree with your 1 to 3.

My point was being Decisive. I had come to a decision, on Photo-Me International (LON:PHTM) for example, which included 1-3. But as with all decisions in life, doubt creeps in, and one spends time running through in one's head, whether one has missed anything or analysed any part wrongly. It is that dithering; how do I have the courage to always just confidently push the red button right after I come to a conclusion to buy or sell?

Boon

11th Jun '22

I agree with your small vs big portfolio, and add one more qualifier. Whether it is small or big relative to your financial status.

A £20k portfolio if your net worth is in the millions, probably fine to run concentrated, as even if it loses 80% of its value, you'll still be OK financially.

But that same £20k if your net worth is only £30k, then you would want to diversify it, so to minimise the risk of a big loss.

My ISA and SIPP, combined in The Boon Fund, is a substantial (30-50%) part of my net worth. Therefore, my first priority with it is capital preservation; secondary is market beating returns.

Having just thought and written that, it dawned on me that perhaps 15 holdings in total is probably too little, for risking 30-50% of my net worth. On the other hand, a similar part of my net worth is equity in a single property. So hmm.

BnB

12th Jun '22

It’s all a question of information privileges. You can have a very high level of confidence in the value of your house relative to the market. You cannot say the same about your equity holdings where you are at a disadvantage relative to the BoD and then better resourced market participants. For years I was happy to have 90% and then later, but on a larger scale, 50% of my net worth tied up in a single business. The difference being a) I owned it and therefore had the most privileged information, and b) entrepreneurship is a trap whose growth (good) and working capital requirements (bad) eat up your assets and attention.

Would I now place my assets in only 15-30 companies? Maybe one day if I am a more experienced and confident investor. Until then a diversified global portfolio of 200 holdings gives me geographical, currency and thematic diversification - although it is quite directional on factor, ie growth - ouch!

Epsilon

12th Jun '22

"My point was being Decisive. I had come to a decision, on Photo-Me International (LON:PHTM) for example, which included 1-3. But as with all decisions in life, doubt creeps in, and one spends time running through in one's head, whether one has missed anything or analysed any part wrongly. It is that dithering; how do I have the courage to always just confidently push the red button right after I come to a conclusion to buy or sell?"

This is a key question.

The harsh reality is if you think of the three requirements for investment success we will, as investors, always be found lacking somewhere:

1. Adequate information - INVESTORS WILL ALWAYS BE LACKING SOME KEY INFORMATION

2. Good analysis of the information - ANALYSIS WILL NEVER BE PERFECT

3. Objective behaviour, vs. making decisions with feelings & emotions - WE ALL HAVE BIASES THAT WILL INFLUENCE BEHAVIOUR.

So it's good to start by realising that in the long run investors will only get it right maybe 6-7 times out of ten decisions (*).

You will make mistakes.

I will make mistakes.

Even Warren Buffet will make mistakes.

I think it's important to calculate an intrinsic value for every (prospective) holding, incorporating a confidence factor. This DCF calculator may be of use:

http://www.moneychimp.com/arti...

With an intrinsic value for each holding, upside can be used to inform stock weighting in the portfolio

From there maybe just buy an initial starter position (say 20% of target weight) and then just track newsflow - if the newsflow is positive & upside to intrinsic value is still attractive, then increase the holding towards target weight.

Hope this makes sense.

(*) This is true in many areas of life. Think about a football manager signing players. 100% success is unlikely, other than by chance. Think of Chelsea signing Romelu Lukaku. Or Watford signing Danny Rose. Or the majority of Man Utd's signings in the last few years.

Boon

12th Jun '22

Cross-posting my comment on a Daily SCVR report here, as I ended up writing quite a long bit and wanted to share it!

----------------

Read through the latest Barclaycard monthly consumer spend report for month of May.

Some interesting points. My comments are in italics:

Furniture stores (-25.4 per cent) and sports and outdoor retailers (-19.6 per cent) were two categories that saw noticeable declines in May compared to the same period last year, when demand was high. Furniture stores were also down month-on-month (-3.1 per cent), suggesting that shoppers are reducing spend on bigger-ticket items as living costs rise.
Even Grocery and Speciality Food (excl hospitality, restaurants, etc) saw slight declines YoY. Despite inflation.
Clothing retailers also saw growth compared to April (8.6 per cent), perhaps due to a combination of Brits updating their wardrobes for the summer, as well as increasing inflation. So it looks like short-term, the trend looks good.
the travel industry, which outpaced inflation and saw triple-digit growth (189.7 per cent) compared to last year. Encouragingly, the sector also grew month-on-month, with travel agents seeing a sizeable uplift of 24.2 per cent and airlines growing 6.6 per cent. Encouraging to see travel agents see MoM growth, as they are a lead indicator for travel, as people book in advance (but complicated by buy now pay later). Summer travel strength looks like it is in the bag now.
spending on digital content and subscriptions declined -5.7 per cent. This comes as a fifth (21 per cent) say they are reviewing their subscriptions and cancelling any they can live without, with 18 per cent of these Brits cancelling a TV or streaming service.
restaurants (-5.9 per cent) and bars, pubs and clubs (-1.2 per cent) seeing slight declines when comparing spending in May 2022 with April 2022. This is very bad news for hospitality, when taking into account inflation. Albeit hard to compare, as April did have Easter long weekend.

Off the top of my head, this bodes well for Saga (LON:SAGA) in terms of Cruise, Travel Agency, and FX sales. Also for Quiz (LON:QUIZ) as they specialise in dresses, which will be in demand for summer travel given people need to update travel wardrobes. Bodes well for £SSP recovery at train stations and airports.

I would be avoiding the likes of DFS Furniture (LON:DFS) and Made.Com (LON:MADE) with the spend trends going quite negative now. And keeping an eye on hospitality without a strong loyal customer and/or affluent customer base with discretionary income. Revolution Bars (LON:RBG) and £HOST and Cake Box Holdings (LON:CBOX) and Restaurant (LON:RTN) come to mind. Although perhaps very value-focused like Fulham Shore (LON:FUL) might continue to do well as people trade down.

(I hold SAGA in The Boon Fund)

Boon

4th Jul '22

June portfolio update - will be a bit delayed as was meant to get it out today (Sun 3rd July) but unexpectedly got Wimbledon tickets. So my writeup will be finished next weekend. Also I'm going to do a half year special.

The short is that on relative terms, performance has been good, outperforming the FTSE All Share benchmark by c7% so far in 2022.

But one can't eat relative returns, and on an absolute basis I'm just barely in profit for the first half of 2022.

During June, so many buy price alerts were triggered for me. I'll be sharing some of them; many are getting to silly cheap valuation territory IMO.

Boon's Fund Recap - May 2022

(Part Time) Fund Manager’s Report

Unlock the rest of this article with a 14 day trial

About the Author

Boon

11 comments

Appendix: current holdings

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...