QVM Portfolio +31% YTD - A Bid And A Drama Triggers A New Position

Sat 4:35pm by Edward Croft

24 comments 2876 reads

It’s been a stunning year so far for the QVM Portfolio, which has returned 31% before dividends. It's even tracking 4% ahead of the NAPS Portfolio, which began with the same holdings.

The only difference between them is that when Alliance Pharma received a takeover bid, the QVM Portfolio reinvested it in the next highest-ranked Healthcare stock - SDI (LON:SDI) - while the NAPS sat on the cash.

That turned out to be a fortuitous decision.

Since January 15th, SDI (LON:SDI) has gained 64%. But it's position size was larger than usual as I'd rolled Alliance Pharma's 33% gain into the position. So, this hybrid Healthcare holding has combined to return a 118% gain on the original stake.

Beyond this, the junior gold mining positions of Metals Exploration (LON:MTL) and Serabi Gold (LON:SRB) have contributed +160% and +89%, while Seplat Energy (LON:SEPL), Journeo (LON:JNEO) and M P Evans (LON:MPE) have all added 30-40%. It’s shaping up to be a strong year.

Another bid - should we rinse and repeat?

We can’t expect every reinvestment to work out as well as SDI, but on the 30th July, International Personal Finance (LON:IPF) received a ”possible recommended cash offer”.

The share price popped up 18% on the news. The bid is mooted at 220p per share should it go ahead - which is 4.7% above the current share price.

Now, this creates a bit of a quandary. It’s not officially a recommended offer. It’s “possible”. Could another suitor come out from the wings? Could the deal fall through? If it does, the shares might pull back, but the company is trading well and there's good momentum. It’s also one of Graham’s most bullish ideas - he owns it himself and thinks the bid is too low.

Nonetheless, one of my rules for the QVM is to sell on a recommended takeover bid.

But it’s not recommended yet. According to the takeover rules, the bidder has until the 27th August to confirm its intention.

If the bid goes through, it will probably complete October or November. There’s a 4.7% gain baked in if we wait, plus another 3% from a dividend if we hold past the 28th August ex-dividend date.

So while fortune favours…

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derekwhogg

Mon 10:47am

Ed - thanks for the update as always. In terms of selling OCN, which was originally added to the portfolio as an Industrial stock, should it not be replaced by a high-ranking Industrial? As at this morning this would be NTBR or MER or 0H3Q, which are all ranked 99.

Edward Croft

Mon 11:14am

Currently, I work down the list and select the highest ranked stock regardless of sector, as long as it doesn't break any diversification rules.

At the start of the year, we had a third industrial, (rather than two) , because it was higher ranked than other sector candidates.

I would only automatically select an industrial to replace an outgoing industrial if it took the number of industrials below two.

In this situation, VINO is the highest ranked next stock. It takes the consumer defensive sector count from 2 to 3. And it leaves the industrial sector count at two.

Mon 11:15am

Yes, I was a bit flat footed I'm afraid!

Spender71

Mon 11:31am

What a vindication for your methodology! Hope we see more of the same by Autumn Mello so we can see a broad smile on Stocko faces.

shenwoodhouse

Mon 11:44am

OCN obviously not suitable for this portfolio, but I wonder if the timing of your sale might prove doubly unfortunate? After the merger completes, doesnt the published value of the combined company include OCN's (mainly quite liquid) assets at OCN's NAV of around £20 pr share instead of today's market price?

FREng

Mon 12:08pm

There's been significant buying by Brian Marsh at B.P. Marsh & Partners (LON:BPM, taking his concert party over 39%. What are the rules aboyrt the price that PIs would have to be offered if they decide to take it private?

Andy Sav

Mon 12:11pm

Hi Ed, do you have a link to a page that outlines what the rules are for working with the QVM? Thanks

Bouden54

Mon 12:27pm

Yes that's right, the stake in OCN should see an immediate uplift as its valued at NAV rather than share price. Furthermore, the OCN NAV should have seen a decent rise since the last published NAV rise given rise in US equity markets. My rough calculations are that the combined entity will be on a 45-50% discount to the current NAV.

timarr

Mon 1:14pm

It's rule 9. A bidder holding over 30% can't bid less than the highest price paid by them in the last twelve months. Which would apply to the concert party in this case.

This can be waived by the Takeover Panel.

Mon 2:04pm

Thanks Tim

rmillaree

Mon 2:42pm

B.P. Marsh & Partners (LON:BPM)

i am not convinced Brian Marsh has bought and shares recently - are you sure you are correct in your assumption here FREng?

note then update dated 7th August has tick next to "An event changing the breakdown of voting rights" - the "An acquisition or disposal of voting rights" box is empty.

Company has been buying back shares here so his holding will be going up by him doing nothing.

bohenie

Mon 2:57pm

B.P. Marsh & Partners (LON:BPM) - see RNS announcements today showing BM bought roughly 1% and Wellington increased their holding to 9.5%

Mon 3:50pm

sorry cant see anything - i can only see 3 RNS updates today none of which seem to relate to BM.

there is the one dated 7/8 but as i have advised per earlier post it looks very much to me as if his % holding increase was simply down to company buying back wad of shares rather than him buying -any hey ho i could easily be wrong here

what are your specific numbers where his shares increase 1% what is date and have you checked to see if it might be change in % ownership rather than him actually buying shares.

Mon 4:41pm

@Shenwood - quite possibly the timing is terrible on the OCN sale. You may be right. It does seem a very anomalous situation.

The interesting thing is that nobody ever challenges a NAPS rollover when normally about 15 or more of 20 stocks get replaced at the year-end.

But when a single share situation comes up like this, it inspires quite a bit more debate!

Mon 4:50pm

Andy - I said in a previous piece that I'm making the rules up as I go along - only part in jest.

Essentially, it's started from the NAPS Portfolio base... but market events come along and jiggle the pack, so the portfolio will end up very different over time. But it will take time to get there.

But here is a rough set of rules being applied:

NAPS Portfolio foundation in January 2025.
20 stock portfolio. Sector diversification as for the NAPS (2 in each sector, but only 1 in telco and 1 in utilities, fill up the last 2 slots from next 2 highest-ranked shares)
Sell on a firm bid -> replace with highest-ranked stock.
Sell on a profit warning -> replace with highest-ranked stock.
"Soft" stop loss approach, based on the Risk-Ratings. I have decided to use my discretion on this for now - as I want the portfolio fully invested.
Generally target a 1-year holding period for all positions, but I may extend holding periods on significant earnings surprises ("ahead" announcements). This is essentially a rule to "run winners" that keep announcing positively, and thus look like multi-bagging. One critique of the NAPS is that it can sell early in rather promising situations.

I will review at year-end whether to continue this experiment editorially. It's really a more active illustration of many of the rules-of-thumb we've researched over the years.

Norfolk'n'Good

Mon 6:32pm

Hi Ed

Just running some screens along those criteria - are you including dual lists or no?

Many thanks

Mon 6:39pm

Many thanks Ed

Mon 6:41pm

I generally exclude dual listed shares. I prefer primary lists in the UK.

Mon 6:42pm

Many thanks for the quick response Ed!

doctor dave

7:27am

After years of mucking around I've switched to a largely VM method and am up this year 25% so far. Seems the algorithms are much smarter than I am. Great work Ed.

QVM Portfolio +31% YTD - a bid and a drama triggers a new position

Another bid - should we rinse and repeat?

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Edward Croft

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