SIF October review: Small wins and big losses leave me lagging the market (BON, MOTR, KLR, NXR, EZJ & BNC)

Tuesday, Oct 30 2018 by
29
SIF October review Small wins and big losses leave me lagging the market BON MOTR KLR NXR EZJ amp BNC

The recent market sell-off has hit by rules-based Stock in Focus (SIF) fantasy fund hard. Although SIF is still ahead of the market on a one and two-year view, over the last six months it’s fallen behind index-following rivals.

Unsurprisingly, this month’s correction has accounted for the majority of the portfolio’s losses.

What’s gone wrong? I think it’s fair to say that this sharp drop has highlighted the risk of investing in stocks whose valuations have been lifted by strong momentum. When momentum goes into reverse, the same businesses are suddenly given lower valuations.

Did I overpay for some stocks? Perhaps a few.

Are they bad companies? I don’t think so. In most cases I’d be happy to hold the stocks for a medium-term recovery if my trading rules allowed me to do so (they don’t - see here for an explanation).

5bd832a83dc5aS1.png5bd832ec3e08cS2.png

I’ve bought more easyJet: A portion of my own real-money portfolio mirrors the SIF. By and large, I follow the same rules. But I do allow myself the occasional exception, and in October I bought more easyJet shares.

easyJet shares have fallen by about 25% over the last three months:

5bd8333f72cbcS3.png

This decline appears to have been driven by three factors:

  • Fears of Brexit armageddon;

  • the possibility of a Ryanair-style profit warning;

  • the risk that sector profits will be hit by overcapacity and rising fuel prices.

Personally, I see easyJet as a leading operator that’s avoiding Ryanair’s largely self-inflicted problems. So I’ve bought more. Please note I haven’t averaged down the SIF fund’s holding. I’ve only increased my personal shareholding.

Averaging down: I’m aware that for momentum investors, averaging down is seen as the ultimate folly. You’re buying more shares when you’ve already been proved wrong.

On the other hand, for value investing I think it’s perfectly logical. You’re buying more when something good just got cheaper. That’s what I think is happening with easyJet, although obviously I could be wrong.

5 stocks under review

I’ve touched on the portfolio’s disappointing half-year performance already. In the remainder of this piece I’m going to look at some of the individual stocks behind this slump. No fewer than five stocks are up for review this month, after having been in SIF for nine months or more:

  • Ladieswear retailer

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Disclaimer:  

As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested. ?>


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Bonmarche Holdings plc is a multi-channel retailer of womenswear and accessories. The Company offers clothing and accessories in a range of sizes for women through its own store portfolio, Website, mail order catalogues and through the Ideal World TV shopping channel. The Company's subsidiaries include Bluebird UK Topco, Bluebird UK Holdco and Bonmarch Limited. The Company has approximately 310 stores across the United Kingdom. more »

LSE Price
40p
Change
-10.1%
Mkt Cap (£m)
20.0
P/E (fwd)
4.1
Yield (fwd)
14.1

Motorpoint Group plc is an independent vehicle retailer in the United Kingdom. The Company's principal business is the sale of vehicles, of which are approximately two years old and which have covered over 15,000 miles. The Company sells vehicles from brands representing vehicle sales in the United Kingdom, with models from Ford, Vauxhall, Volkswagen, Nissan, Hyundai, Audi and BMW. The Company operates from over 10 retail sites across the United Kingdom. The Company has a national contact-center dealing with online enquiries. In addition to sales of vehicles, the Company operates Auction4Cars.com, a business to business online auction platform for vehicles. The Company also offers ancillary products to customers, including customer finance packages, vehicle guarantees, insurance products and vehicle protection treatments. more »

LSE Price
202p
Change
1.0%
Mkt Cap (£m)
195.9
P/E (fwd)
10.1
Yield (fwd)
3.9

Banco Santander, S.A. is a retail and commercial bank. The Banks segments include Continental Europe, the United Kingdom, Latin America and the United States. The Continental Europe segment covers all businesses in the Continental Europe. The United Kingdom segment includes the businesses developed by various units and branches in the country. The Latin America segment embraces all its financial activities conducted through its banks and subsidiaries in the region. The United States segment includes the Intermediate Holding Company (IHC) and its subsidiaries Santander Bank, Banco Santander Puerto Rico, Santander Consumer USA, Banco Santander International, Santander Investment Securities, and the Santander branch in New York. The Company's commercial model satisfies the needs of all types of customers: individuals with various income levels. more »

LSE Price
387p
Change
-2.4%
Mkt Cap (£m)
59,132
P/E (fwd)
8.3
Yield (fwd)
5.4



  Is LON:BON fundamentally strong or weak? Find out More »


5 Comments on this Article show/hide all

Melvyngd 30th Oct 1 of 5
2

Hi Roland,
The results are disappointing but as you say the Sif portfolio is in uncharted territory and you have allways told us you didn’t know how it would respond to a downturn.
I am sure you will adjust the Sif when you have time to study how it has been effected.

I recently copied the screen for the Sif P so that I could watch what was being added on a daily basis.
I also set up the same screen to include an Altman Z score of no less than 2.8 this appears to of reduced potential losses by approximately 30 to 40%it it also reduced the number of equity’s available from 11 to 8.

Hope this may be of some use.

Best Wishes

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Merlotman 30th Oct 2 of 5
2

Roland
We all know that investment is a long term exercise so I personally would remain phlegmatic about an underperformance on a 6 month basis
I would be interested to learn how much of the recent decline in SIF value is down to a general market re rating and how much is falling earnings if this statistic can be extracted. Probably mainly the former.
I do get the feel that the market is now moving away from momentum and towards value. The interesting question this raises for all of us is should we adapt our investment style to suit the conditions or stick with our chosen strategy. I personal wouldn't mix momentum and value factors in the same screen or strategy
Regards

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HumourMe 30th Oct 3 of 5

In reply to post #413459

I personal wouldn't mix momentum and value factors in the same screen or strategy

There is a Guru screen for that. Very low drawdowns, so far. https://www.stockopedia.com/sc...

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coniston 30th Oct 4 of 5

Hi Roland.
More testing times for sure with the markets,a lot of variables to consider,with the onset of expected interest rate rises following in US lead.Cyclical s generally don't like rate rises apart from Banks!!. Easy to see with hindsight though!!.

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Roland Head 31st Oct 5 of 5
3

In reply to post #413459

Hi merlotman,

Thanks for your comment. As it happens, we can see how the folio's earnings growth has deteriorated versus the wider market. In one of my articles in June, I asked whether the portfolio had too much cyclical risk. I used Stockopedia's Folio analysis tool to provide a snapshot of certain valuation metrics:

5bd959cf44db6sif-folio-ratios-vs-market-

June 2018

Here's how the same ratios look today:

5bd95a12c69dafolio-analysis-311018.png

October 2018

It seems that the folio has seen  larger fall in forecast eps growth than the wider market. Also SIF's average P/E of 9.4 is 27% lower than in June. The market P/E of 12.2 is only about 17% lower than in June. 

So my question in June -- does SIF carry too much cyclical risk -- is perhaps now being answered! 

However, I think it's too soon to draw any meaningful conclusions.

Regarding value and momentum, my view is that including elements of both in a strategy can make sense. Essentially, you're looking for stocks that are cheap and expected to improve. 

Regards,

Roland

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About Roland Head

Roland Head

I'm a private investor and writer on stock markets, with a particular fondness for free cash flow, dividends and value. I also have a lingering interest in commodity stocks. In earlier life, I worked as an engineer in telecoms and IT. The rules-based approach required for this kind of work undoubtedly influenced my investing style. I also learned a lot from seeing the tech bubble deflate in 2000-1, when I was working for a large and now defunct Canadian firm.  My investment focus is increasingly on developing rules-based strategies such as my Stock in Focus portfolio. This reflects a significant part of my personal portfolio and is the subject of my weekly column here at Stockopedia. more »

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