Since the beginning of the year I have become hooked on the weekly blog article written by the (anonymous) Naked Fund Manager and published on Research Tree. It really feels like he wants to help private investors understand some of the considerations of professional fund managers so that we can apply them in our own portfolio management. It’s not often that such writing really speaks to me the way these articles do and it feels like I am being given a masterclass in how to take my own investing skills to the next level.
Inspired by one of these blog articles; How sustainable are current dividends? I ran my whole portfolio through some additional filters, the vast majority of which consists of dividend paying shares, albeit with a weighting towards growth. I looked at DPS/EPS, dividend coverage, FCF yield v dividend yield, dividend growth record and ROE plus my own quality filters such as ROCE and low (or negative) gearing. The good news is that most of my holdings stood up well against this extended rigour. My core compound growth holdings in particular scored very highly, although the average dividend among this group of shares is only around 2.7%. Among the diversified income holdings where I was forecasting an average 5.2% yield this year, most shares scored favourably but it did highlight some weaknesses and made me think more critically about the underlying businesses.
I asked myself, would I want to increase my holding in this company?
The net result is that I have made some additional adjustments to my portfolio in order to make it more robust and resilient. By screening for quality while retaining an eye on growth, I have sacrificed a little income this year but I hope that it will prove that the income I do have is both sustainable and able to grow year-on-year with minimal intervention required on my part. I have summarised below a note of my portfolio trades since my Shuffling the Pack post, together with my rationale.
I have sold out of GATC, SCS, RDSB and FEET. The first three failed my quality and sustainability test on one level or another. This said, I do believe that the immediate dividend prospects for all three will probably be fine, it is more the longer-term sustainability and trying to avoid nasty shocks around the corner that have prompted me to move on. In the case of FEET, this probably needs to be viewed as a long-term hold but in the absence of a dividend, I decided there were better alternatives.
I have also reduced my exposure to SCH and RBG. Both had produced in line trading updates and been met with a mooted market reaction. Therefore, I decided to switch some funds into BJU and BVXP where there is more momentum to be had. Since then, SCH has subsequently gained a little momentum but nonetheless, I remain comfortable with these adjusted weightings.
In addition to increasing my holdings in BJU and BVXP, I have also built larger stakes in IPX, SOM, HFEL, CAML and SFR. I need to be a little careful with SOM and SFR as they are both cyclical businesses and will need to be exited as the tide begins to turn. The other five holdings though are shares I would like to be holding for the long-term and have weighted them accordingly.
To reflect these changes, I have updated the current holdings page.
Happy investing folks!
Disclosure – At the time of writing, I currently own shares in SCH, RBG, BJU, BVXP, IPX, SOM, HFEL, CAML and SFR
EDIT – An hour or so after publishing this article, Revolution Bars Group (RBG) issued an RNS stating that the CFO had resigned for family reasons. I had already reduced my exposure to RBG but the timing of this RNS has made me a little nervous that something might be afoot – abrupt CFO resignations tend to make me nervous. Therefore, I have now sold out of RBG and no longer own any shares.