SIF Portfolio: Post-Brexit Review And Lessons Learned

29th Jun '16 by Roland Head

11 comments 15053 reads

The stock market is showing signs of stability and a return to normal after a brutal two day battering. Like most of you, I suspect, both my personal portfolio and the SIF portfolio are showing considerable losses.

It’s early days yet, but I’m pleased that the SIF portfolio has so far managed to stay ahead of its benchmark, the FTSE All Share:

In my view it’s too soon to say how the UK’s Brexit vote will affect either the domestic economy or the stock market. I certainly don’t want to get into a debate about the pros and cons here. As an investor my main interest is in taking a level-headed view at the companies in the portfolio. Has the outlook changed materially since last week?

For the majority of the companies in the portfolio, I’d say the answer is no. For the most part, they’ve performed how I would have expected them to in a sudden sell off.

GlaxoSmithKline & BAE Systems

These two defensive heavyweights were always intended to offset the cyclical risks posed by some of the other stocks in the SIF portfolio. BAE and Glaxo have both performed well following the referendum. In classic defensive style, Glaxo has actually climbed 9% over the last week. Profits from non-UK sales should be boosted by the weaker pound. Over the same period, BAE has fallen by just 2.5%.

GlaxoSmithKline since the referendum

Go-Ahead Group

I had hoped that Go-Ahead would serve as a pseudo-defensive stock, thanks to its focus on public transport. So far, this experiment has failed. However, Go-Ahead has only fallen by 5% since the referendum. The majority of the 28% decline we’ve seen since Go-Ahead joined the SIF portfolio is the result of a downgrade to profit forecasts for the firm’s rail business.

Yet despite this reaction, Go-Ahead hasn’t issued a profit warning. Earnings growth is expected to continue next year, albeit at a lower rate:

I’ve discussed this previously, but in essence I’m less worried than the market. Most of Go-Ahead’s profit comes from bus operations, not rail. With the shares now trading on about 9.5 times forecast earnings, I think the downside is priced in. The resulting 5%+ yield could now attract buyers.

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Rusty2

29th Jun '16

I did think that you bought Go-Ahead (LON:GOG) at too high a price when looking at the charts, felt £26 was maybe a peak. Yes, I thought it was a good defensive stock. One negative as its many buses, fuel prices will be shooting up now, oil price has gone up and the £ has fallen. Anyway, I picked a few up this morning, think below £19 its now good value and the dividend is nearly 6%.

Macfarlane (LON:MACF) I did say I did not think it was very recession proof, ok we are not yet in a recession but I think thats why it has fallen, fears of a recession. Also thought you bought too high.

Persimmon (LON:PSN) thought you bought at right price but Brexit has scuppered the housing market. Got caught out on that as well.

Actually re food defensives I think you are slightly wrong there, some have fallen about 10%, I do hold Finsbury Food (LON:FIF) and I did hold Hilton Food (LON:HFG), maybe its concerns over pricing, as both supply supermarkets? Also J Sainsbury (LON:SBRY). is down quite a bit. Some of better defensives have been companies like: National Grid (LON:NG.) Reckitt Benckiser (LON:RB.) Relx (LON:REL), GlaxoSmithKline (LON:GSK), BP (LON:BP.) Think all these have gone up in the last week.

Trigger14

Roland I enjoy these reports on the SIF portfolio - lots of lessons for portfolio management and you've started at an interesting time.

One thing you seem to have benefited from very significantly is a systematic staggering of your buying decisions over time rather than buying lots of shares quickly. As a result you now have lots of cash and excellent opportunities to buy cheaply over the coming months. I think this may be a good aspect of disciplined portfolio management worth highlighting. In the long term do you intend to become fully invested or keep a balance of cash? Also have you thought about your strategy of when to sell? It would be interesting to hear about your thoughts on this at some point.

Also I'm not sure that you have explicitly considered geographic diversification of earnings which is another big issue Brexit seems to have brought to the fore.

TangoDoc

I am not convinced that Brexit has scuppered the house market for several reasons. House builders hold land and we still have a housing shortage. I see no reason to believe we will now see people swarming out of the country because, even with food prices up 10%, this is a far better place to live than many of them left behind. One of the sad outcomes of the vote is a rise in antisocial, anti-foreigner behaviour emanating from those with limited grasp on life. These are the people who will be hardest hit by a rising cost of living and, for their pains, they'll see little change to their community. The government is now obliged to address many of the problems that led to the Brexit support and boosting house building addresses both overcrowding, the economy and unemployment and within months, not decades. I have increased my holding of Persimmon (LON:PSN) and Bellway (LON:BWY) today.

What I meant was the share prices in housebuilders, of course this is to do with recession fears and falling prices, London is key, whether foreign investors will come in now prices have been cut because of the fall in the £ we will have to see. Nothing will happen for months, the new leader will not be in place until October before then they will all be on holiday.

Steve L

There has been a lot of director buying of shares in most of the listed housebuilders over the past 3 days, following the crash. These have been of various sizes but purchases by the chairmen, most noticeably at BKG (£800k's worth), GLE (£100k's worth) and GFRD (£600k's worth) have been substantial. Tony Pidgley at BKG is a world class operator, check his record out. I do not know whether the share prices of housebuilders have further to drop but I believe these people have a far better idea of the long term future of their businesses than me or anybody else, so have followed their money, leaving some still on the sidelines should they drop further.

Roland Head

Herbie,

Thanks for your comment. What you say re. pricing/timing is probably true with hindsight, but if we hadn't voted to leave the EU, the situation might now be quite different.

The SIF portfolio is being built in a semi-mechanical way -- i.e. I select shares that have been pre-qualified by a screen. To some extent timing and pricing are out of my hands -- I'm relying on the screen and the StockRanks to point out the most suitable shares.

Obviously the risk is that my screening criteria will prove wanting... only time will tell!

Regards, Roland

Trigger14,

Thanks for your comment. I'm glad you find these articles useful.

My plan is to gradually expand the portfolio until it reaches 20 holdings, at which point I'd be fully invested. But doing this will depend on the availability of suitable stocks that have qualified for my screen, so it could take a while.

As regards selling, as this is a semi-mechanical strategy, I do have a plan. All stocks will stay in the portfolio for a minimum of six months, after which they'll be reviewed. Stocks that have fallen out of the screen will be sold. Stocks that still qualify will be held and top-sliced if necessary.

You can find out a bit more about the detail of the strategy for the SIF portfolio in my introductory article from April:

http://www.stockopedia.com/content/introducing-the-stock-in-focus-portfolio-128456/

Diversification is proving more of a challenge than I expected. Sector, geography and cyclical/defensive diversification are all desirable, but not necessarily easy to achieve using a single set of screening criteria.

Brexit has certainly highlighted the need for diversification. The solution is still work in progress! More on this next week, I hope.

Regards, Roland

Go-Ahead (LON:GOG) and Macfarlane (LON:MACF) did fall quite a bit before the vote. Certainly as I said Persimmon (LON:PSN) was because of the vote out, I got caught out there as I expected a remain vote otherwise I would have sold them.

Is this portfolio is a fantasy one or are you investing real money into it?

Do screens work after something like Brexit? Will it take some time for things to adjust?

herbie,

The portfolio is a virtual portfolio, although its holdings may overlap with some of my own personal holdings. This is indicated in the disclosure at the bottom of the article as usual on Stockopedia.

My perception is that the screens are still working fine, but the stocks which qualify for each screen are changing more often than usual. This should soon settle down. Other factors, such as oddly-timed year ends (e.g. £GOG), can also affect screen results, as they cause the Stockopedia rolling forecast data to update.

Hope this makes sense,

Roland

Roland,

Thanks for reply, yes it makes sense, I just thought with a sudden change in share prices and even whole sectors being marked down it may take some time to work its way through the Stockopedia system, especially as some is based on momentum. Yes year ends in particular when the year is extended can throw out the figures, I noticed this with Inland Homes (LON:INL), where they delayed the year end in order to include a large sale.

Whitbyview

The problem is that no one knows what Brexit means right now. As a result, many of the forecast figures in Stockopedia will inevitably be wrong. Since many metrics and the ranks etc rely on these forecasts I cannot see how the system can be as effective today as it was before the Brexit vote. In time it will correct of course but I'm avoiding buying right now based on things like forward p/e and dividend etc.

SIF Portfolio: Post-Brexit review and lessons learned

GlaxoSmithKline & BAE Systems

Go-Ahead Group

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Roland Head

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