My StockRanks £20k Portfolio 1 year on (Part 2) - The Rebalancing

Introduction

My StockRanks £20k Portfolio 1 year on (Part 2) - The Rebalancing,  is part of a series of posts about adopting the Stockopedia StockRanks into a £20K starting cash balance portfolio. 

The following links provide the journey so far with the most recent first.

1. My StockRanks £20k Portfolio 1 year on (Part 1)
2. My Stockopedia 20k Farmed Portfolio - The PLUS500 effect and why I am happy
3. My StockRanks Farming Approach - a 20k Real Money Test Portfolio

As followers of this series are aware the portfolio is now 12 months old and it is now time to rebalance the portfolio.  

I have to admit that I have found the process of rebalancing a bit of an emotional struggle.   By sticking to the rules I have had to sell many of the stocks that 'I love' .  This was something that I struggled to accept.  Twelve months ago I had selected some stocks that as an 'old fashioned stock picker' I knew quite well and felt a little confident that they would do well.   The high StockRanks seemed to me to confirm my confident biases.

This year I have found less stocks to choose from in my screeners as quality stocks have become high in value.  The real test for me has been my emotions and thus sticking to the rules.

I created a you tube video here, where you can see me starting to tackle the rebalancing.  in this video my lack of confidence in my new selection is evident.  But that is the challenge.  To trust the StockRank system, stick to the rules and keep emotions at arms length.  So this is what I have done.

My Rules

1. The Stockopedia QVM Recipe (Quality > 66, Value > 66, Momentum > 66)  
2. Dividend Yield 12 month rolling > 0
3. Market Cap > £20m
4. Spread (bps) < 500
5. Sector includes - One screener for each sector (10 sectors in total)
6. Rebalance every 12 months *new rule

 Exit Plan

A stock will leave the portfolio when it goes below StockRank 90 and a more suitable qualifying stock can take its place. Once the Stock is part of the portfolio the Quality, Value or Momentum figures may go below 66.  That is ok as long as the Stock remains above 90 at the time of rebalancing.

The Portfolio

So here it is, my portfolio rebalanced and pretty much 50% of Stocks have been turned over.

All stocks are now UK only.   Tesoro (NYQ:TSO) , Finsbury Food (LON:FIF) , JD Sports Fashion (LON:JD.) , Barratt Developments (LON:BDEV) were all sold out.   This was the most difficult decision for me.  I found myself emotionally attached to BDEV and JD.  I have invested in both these stocks over the past few years in my other portfolios and they serve me well.  But it was important for me to stick to the plan.  BDEV and JD. were both in the Consumer Cyclicals sectors along with Epwin (LON:EPWN) so as explained in the video I had to sell.

I reduced my holdings in Empresaria (LON:EMR)  and Newmark Security (LON:NWT) and then increased my holdings in Epwin (LON:EPWN).   EMR had done well but was coming close to my over weight limit and EPWN had yet to fully perform.

Adding to the portfolio were Berkeley Group (LON:BKG), Fyffes (LON:FFY), H & T (LON:HAT), Manx Telecom (LON:MANX), and Safestore Holdings (LON:SAFE)

This is the Value v Quality bubble chart.  I am happy with this and gives me some confidence that the portfolio will (hopefully) continue to do well.  

Again there was no utilities that qualified for my screener.   This meant that the cash allocated for a utilities stock should be used elsewhere.

I originally thought about buying another financials to align with the Market Average, however after buying HAT and SAFE, the screener brought up £MGR .  It had a StockRank below 90 but was also another small cap at £44m market capitalisation.

I felt that I was too heavily weighted on the small caps and now I required to find a suitable large cap.  Interestingly after selling JD. and BDEV to reduce my weight on Consumer Cyclicals, it was that screener that provided me with the most stocks with ranks over 90!

That left me with an awkward moment.  Do I buy back either JD. or BDEV after emotionally kicking them out earlier?    Would I continue to remain in love with them?  I decided not to buy them back.  Instead I ran the screener again and went with the large cap Berkeley Group (LON:BKG).  Only time will tell if I made a mistake and again over weighting on Consumer Cyclicals!

All are nicely balanced at around 9% after reducing my holdings in EMR, NWT and increasing the holdings in EPWN before buying in the new stocks

Forecast Rations vs. Market Averages

For the first time in my reports I wanted to show this screen.  I didn't use this screen at all to rebalance the portfolio but I was pleased to see that my portfolio has been closely aligned to the market averages on some of these key figures.

Conclusion

Thanks to everyone who has contacted me and offered me friendly and welcome support throughout year one and onwards into year two.   Year two I feel will be very different since many quality stocks have raised their valuations quite high.   There has been less stocks for me to choose from and many of these stocks I am unfamiliar with.   But for me this is a real test in a current challenging stock market environment.

I hope you continue to wish me luck.  I may offer a wee update on how this portfolio is doing during the year.   However unless there are any unforeseen and negative exceptional circumstances that will force me to act, then I shall see you in twelve months time to rebalance the portfolio again.

best regards

Ian M Smith

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