JIC Portfolio; July Review

3rd Aug '15 by johnrosier

4 comments 13222 reads

Background

The main themes dominating markets during July were Greece, China and commodities. Continental European markets, relieved that some sort of agreement was reached with the Greek government in the 29^th minute of overtime, managed quite decent returns; the French CAC was up 6.1%, the Italian MIB, +4.8%, The Spanish IBEX, +3.8% and the German DAX, +3.3%. Across the Atlantic the main topic of conversation continued to be about the strength of the economy and the timing of the FED’s first interest rate hike; the S&P 500 was up 2.0% and the NASDAQ, 2.8%. Japan continued its upward trend, with the NIKKEI 225 rising 1.7% and will hopefully gain the 1.5% it needs to break though the 18 year high achieved in June.

China, having gone up like a rocket in the first five months of the year continued to drop like a stick; the FTSE China A All Share was off 15.7% but is some 11.7% above the 9^th July low. It will be interesting to see whether that proves support if it is tested again in the coming months. China’s economic and stock market weakness had a dramatic effect on commodities; oil (West Texas Intermediate) dropped 19%, copper, 9% and gold, 7% which in turn hit the shares of mining stocks. Russia, was off 7.7% due to its dependence on oil.

In the UK the FTSE All Share (Total return) Index was up 2.4% with the FTSE 100, up 2.7%, leading the way; the FTSE 250 Mid-Cap Index was up just 1.0%, the FTSE Small Cap, +0.7% and the AIM All Share, with its heavy exposure to resource stocks, was down 0.6%.

JIC Performance

Another good month for the JIC Portfolio rising 3.3% which given it is principally exposed to mid and smaller companies is all the more pleasing. Since January 1^st it is up 15.2 compared to +5.5% for the FTSE All Share (TR) Index and since inception 43 months ago is up 119.4% v +44.8% for the Index. As at 31^st July the annualised return for the JIC Portfolio was +24.5%.

Monthly Returns for the JIC Portfolio and the FTSE All Share (Total Return) Index since January 2012:

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jimbobjames2002

3rd Aug '15

Hi John, I've been tempted by Baillie Gifford Shin Nippon Closed Fund (LON:BGS) for a while now, but I read somewhere (sorry I forget the source) that a US interest rate hike could have an adverse effect on the Japanese economy, at least temporarily. I guess as a long term investment it may not matter too much, but it's tricky to know when the best entry point might be as someone looking to buy in.

Thanks

James

johnrosier

I can't say I am too worried by the FED putting up rates. It is likely to be very slow and tentative and will not be a surprise, as it was in February 1994 when Greenspan hiked rates, causing the S&P 500 to drop nearly 10% over the next couple of months. I suspect this time that if the markets reacts adversely it will all be over in a day or so as buyers come in.

As for Japan, I'm not in the slightest bit concerned about what the FED does; of more importance to me is the JCB's QE programme targeting 2.0% inflation and the massive switch from bonds to equities that is being undertaken by the Japanese Government Pension Schemes.

Thanks John, really useful insight.

Cheers

James

Cisk

4th Aug '15

Hi John, I echo your comments re: Melrose Industries (LON:MRO). The market reaction was somewhat muted after an initial 15% rise in the share price on the morning of the announcement.

The Board have done exactly what they set out to do and sold the entire division probably far earlier than they imagined, for a great price. I read some comments that they could have held out longer and got a better price - well that might have been the case - who knows - but to achieve a profit of £1.8bn in around three years is a huge achievement by any measure.

I think the key will be how much debt is left post acquisition; clearly they are retaining a substantial amount of cash (circa £1bn) post special dividend, plus the Brush business, less the current debt. Currently the market is valuing the rump for just under £800m, that looks a little mean to me.

Also some institutions (specifically BNP Paribas) bemoan the lack of news on acquisitions and can't see any on the horizon. Putting aside my view that most of the so-called analysts in such institutions are overpaid monkeys and are clueless / follow the herd, this is clearly a senseless comment by BNP as a) we won't get any news until it happens, b) there is no way that they are going to drop any hints until it does, and c) of course they are looking at potential acquisitions; I suspect they are keen to do a large one but of course the price has to be right (they looked at Charter before Elster and walked away because it was too expensive).

So for now I'm a happy holder and look forward to reinvesting the special dividend in due course.

JIC Portfolio; July Review

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Johnrosier

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