Over the last couple of weeks, we’ve seen a number of well-respected businesses raise cash by issuing new shares. These have included Compass Group (£2bn), Premier Inn owner Whitbread (£1bn) and Jet2 owner Dart Group (£172m). 

None of these businesses are in financial distress, as far as I can see. Instead, the common theme in these fundraisings is that management are taking steps to protect their companies against an uncertain outlook. 

By raising cash now, these businesses should be able to survive a more prolonged downturn without running into issues with debt covenants and leverage. If things improve more quickly, they’ll be in a strong position to take market share from weaker rivals.

The fundraising announcements I’ve linked to above make it clear how uncertain the outlook is for individual companies. Even experienced business leaders who’ve worked through several economic cycles admit that they don’t have any idea what will happen next. Things could get better quickly, or they might not. 

How I’ve adapted the SIF strategy

Since February, I’ve suspended all planned share sales from my SIF folio. With valuations at distressed levels, I thought the risks of holding were less than the risks of selling.

But the situation has changed. Although the uncertainty continues, lockdown is gradually being unwound. The FTSE 100 is up by more than 20% from its March low of 4,993. On a long-term view, I still think that many stocks offer decent value. But I don’t think valuations are distressed, and in the short term I think we could see further sharp falls. 

Based on this view, I’m planning to follow through on my promise last month and resume my normal selling process for SIF stocks. I think it’s important to try and maintain the integrity of my systematic strategy, even in unusual circumstances.

To bring the portfolio up to date, this week I’ll be reviewing all stocks that have been in the portfolio for at least nine months - my default holding period. Companies that still pass my screening rules (here) will stay, others will go, unless I choose to exercise my right to discretion.

Portfolio review

Four companies are up for review and possible sale this month:

I’ll come to these shortly. First, let’s take a quick look…

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