Readers will recall that at the beginning of July I restructured my portfolio following the Brexit vote and moved towards quality, safety and hedges while also retaining positions in a handful of special situations.

One quarter on and how has this strategy paid off so far?

Portfolio Performance
Across the portfolio there was a generally positive post Brexit bounce followed by a pretty dire September with even companies announcing good results seeing underwhelming share price reactions.

Portfolio 2nd Quarter (Fiscal) Year to Date
FTSE All Share (Benchmark) +5.07% +11.79%
ISA 1617 +5.54% +2.31%
Special Situations -4.80% +43.22%
Compound Growth +9.43% +5.48%
Focused Income +1.41% +4.46%
Overall Performance +1.21% +20.69%

I have reached the conclusion that simply publishing my current holdings on this site is insufficient to be meaningful in relation to my overall portfolio performance. Therefore, I am going to begin publishing weightings when reporting my portfolio performance on quarterly basis. This won’t always be a true reflection of weightings throughout the quarter as I will continue to trade around the edges and of course, share prices rise and fall. This said, I will try to post here if there are any significant changes. Readers can see the current holdings and weightings here

Quality
I am very happy with the quality of my core portfolio where I am focused on dividend paying growth stocks that are running with low/no debt and where, in my assessment, earnings are unlikely to be negatively impacted during the Brexit process. Over time, I am confident this collection of core holdings will outperform. Readers should note that my critical timeframe is the end of 2019 when I plan to retire and between now and then my primary focus is on capital growth. So to a large extent, I can afford to be patient with this basket of core, quality holdings but of course, one has to remain ever vigilant and be prepared to exit if the performance and/or outlook changes. I also take the view that quality shares are likely to rebound relatively quickly following a market correction and most importantly, I have a significant portion of cash sitting on the sidelines to capitalise on such an opportunity.

Additionally, I have a handful of special situations holdings that have done very well year to date although in truth, my weightings in these holdings are too high. My largest holding (GVC) has just entered the FTSE 250 and will be returning to dividends next year on the back of debt refinancing in February 2017. Therefore, I am likely to continue running this winner. Against this, SRT has had a bad quarter and I have sold a couple of tranches as various stop points have been triggered. This has hit my overall performance quite hard and I still retain a core holding in SRT.

Safety
I am currently running with around 46% cash which is very unusual for me. The reason for this is that I remain uncomfortable with many aspects of the market; the Brexit process beginning, the current Deutchse Bank crisis, US Presidential elections and monetary policy such as quantitative easing to highlight just a few. It seems to me that we are due a significant correction in the market, although I’ve no idea what the actual trigger will be or when it will come. I hope that it happens during October so that I can be fully invested going into November/December which are traditionally good performing months. However, this year so far has been so topsy turvy and has defied many of the traditional market wisdoms that it would not be a great surprise to me if I am still sitting on a large amount of cash at the end of this calendar year.

Hedges
In the meantime, I have a couple of hedges in place to supplement my cash position and core holdings. In the event, I did not take out an index short, instead, focusing on taking a couple of gold positions which I wrote about here in August – readers should note that I have subsequently sold out of GWMO at a loss.

While gold is not a pure hedge against general market corrections, I do see it more as a hedge against major currency shifts, a possible banking crisis and the risks inherent in current monetary policy both in the UK and across the Eurozone.

Outlook
I believe it is too early to reach a conclusion as to whether my current approach will pay off. For sure, I missed out on some of the post Brexit bounce by holding such a large cash position but then again, I was also cushioned from some of the falls we have seen in individual stocks during September. I have no idea when the bubble will burst but I believe a market correction is well overdue. Therefore, I will stick with my current strategy until I feel there is better value in the market. The cash is not being depreciated while interest rates and inflation are so low and it helps me to sleep at night knowing that I can take advantage of any market turmoil. If the market remains exuberant, my core holdings should still appreciate as 46% cash means I remain 54% invested!

Sleep
Most importantly, I am sleeping very well at night. I also had a great vacation in the Caribbean this summer and spent a whole fortnight without looking at my portfolio. That was great therapy! Also this summer, I managed to find time to research a wide number of shares pretty deeply, so I feel well set with my buy list if and when Mr Market throws up some bargains. And talking of bargains, my best read this summer was Wheelie Dealers’ series of blogs on valuing shares – a must read!

Valuation, valuation, valuation – Part 1 

Valuation, valuation, valuation – Part 2

Valuation, valuation, valuation – Part 3

Valuation, valuation, valuation – Part 4

Happy investing folks!
Simon

Disclosure – At the time of writing I hold long positions in GVC and SRT, mentioned in this article