The kids go back to school, the grown-ups go back to work and first half results season all begin in earnest next week. On an individual stock level I am happy with the positioning of my largest holdings and on a portfolio level I am broadly happy with the balance and diversification (there is clear risk though). On a macro level I remain nervous; the UK economy is beginning to creak, the US stock market is due a correction and a black swan event is always just around the corner (North Korea anyone?).

One thing is for sure, I am expecting plenty of volatility over the next few weeks.

My top 10 holdings currently account for 57.46% of the overall portfolio (as shown in the table below) with a long tail of 25 holdings, many of them awaiting cash flow from the top to cascade down.

EQUITY HOLDINGS EPIC Weighting Strategy Sector Risk Rating Stock Style
IQE IQE 20.49% Specials Technology Speculative High Flyer
Anglo Asian Mining AAZ 6.11% Specials Basic Materials Highly Speculative Super Stock
Bioventix BVXP 5.39% Growth Healthcare Adventurous High Flyer
Bodycote BOY 4.77% Growth Basic Materials Adventurous High Flyer
Central Asia Metals CAML 4.12% Income Basic Materials Adventurous Super Stock
Henderson Far East Income HFEL 3.84% Income Financials Conservative Fund
SafeCharge International SCH 3.42% Income Industrials Balanced Neutral
IG Group IGG 3.28% Income Financials Adventurous Super Stock
Impax Asset Management IPX 3.22% Growth Financials Conservative High Flyer
Games Workshop GAW 2.82% Income Consumer Cyclicals Balanced High Flyer
Total 57.46%

It is perhaps a useful exercise to scrutinise these holdings in terms of the balance between risk and reward.

Several times now I have explained on these pages my reasons for taking an overweight position in IQE. Interim results are on Tuesday 5th September which we already know will be ahead of market expectations. Of more interest to me is the forward guidance IQE will be providing at the analyst briefing later that morning and the subsequent forecast upgrades. I am expecting fireworks!

Anglo Asian Mining (AAZ)
Most people would regard this is a high risk play. AAZ are a gold and copper miner, focused on various sites in Azerbaijan. It has high debt which is being reduced rapidly via strong free cashflow and a decent gross margin. I am expecting the interim results to demonstrate this, along with further resource upgrades during H2. Moreover, I am hoping the company provide further details relating to their improved process for extracting both copper and gold at their Gedabek site. This report suggests that efficiencies could run as high as $7m per annum which in itself would more than double the 2016 net profit. While classified by Stockopedia as Highly Speculative, it is also a Super Stock with an overall StockRank of 98 (Quality 92, Value 98, Momentum 67), so there could be significant upside here and maybe it is not as risky as one would first imagine.

Bioventix (BVXP)
This niche supplier of bespoke antibodies remains a core holding, despite top slicing a couple of times this year. The business model, earnings visibility, the moat, margins and cashflow are all terrific and fully justify the premium rating. However, there is the chance of a short-term blip as the company replace a legacy revenue stream with its new Siemens/Troponin one. The thing is, if shares in BVXP do come off the boil, I’d be happy to buy more as the dividend is rock solid and likely to grow consistently over many years – i.e. if they fall off the growth axis during this revenue transition, they would firmly enter the income axis.

Bodycote (BOY)
This is a relevantly recent holding for me, buying in initially when the company launched its Powdermet Technologies. This executive team are usually quite conservative, so when they claim something is game changing, it probably is. They have also already reported interim results for H1 2016 (at the upper end of expectations), so I should be able to rest easy on this holding, perhaps with some broker coverage/upgrades coming through during the second half.

Central Asia Metals (CAML)
Another overseas (copper) miner among my top 5 holdings could in itself could be seen as high risk. However, CAML is a profitable company with strong cashflow, high margins and paying a decent 5%+ dividend. Sure, the share price will fluctuate according to the price moves for the underlying commodity but the reliable and growing dividend enables me to ignore that short-term volatility and focus instead on the long-term demand for copper which should be strong (think electric cars). Stockopedia classifies CAML as an Adventurous Super Stock with an overall StockRank of 97 (Quality 93, Value 67, Momentum 85).

Henderson Far East Income (HFEL)
HFEL gives me exposure to Asian markets that I don’t feel equipped to research and invest in directly. It is also delivering a high and rising dividend yield while adding low volatility to my portfolio. It is a holding that I intend to add to over the next year or so and I am not anticipating any excitement with this holding.

Safecharge International (SCH)
The big risk to get past with SCH is the single, dominant shareholder. If one accepts this risk, then the underlying investment case is strong. There is consolidation going on within the sector and even without this M&A premium (SCH could be a buyer or seller given its huge cash pile), SCH trades on a modest PE ratio, pays a 5%+ dividend yield and has decent growth prospects. Interim results are on Tuesday 12th September.

IG Group (IGG)
This spreadbet and CFD provider was hit at the end of 2016 when the prospect of government regulation across the whole sector loomed. That regulation has been pushed back and even if it doesn’t quite make it to the long grass, it is unlikely to be prohibitive to IGG’s business. It is one of the few occasions where I was happy to catch a falling knife and IGG’s current weighting in the portfolio has been earned by capital growth rather than new money. High margins, strong cashflow and 5%+ dividend means I am happy to continue holding. It could be due a top slice before the end of the year though.

Impax Asset Management (IPX)
This niche asset manager has a global footprint and is growing Assets under Management (AuM) at an impressive rate. It also pays a decent dividend and is perhaps due a more significant re-rating if AuM continue to rise. Stockpedia classifies it as a Conservative High Flyer and I am hoping IPX continues to provide low volatility to my portfolio alongside the growth opportunity.

Games Workshop (GAW)
This is a very unusual holding for me and despite a hefty top slice recently, they just pip Zytronic (ZYT) for 10th place. I have to rely on anecdotal research regarding the short-term prospects for the company’s products and markets (gaming is a whole different world) which seem to be on a growth trajectory. Stockopedia classifies GAW as a Balanced High Flyer with an overall StockRank of 96 (Quality 99, Value 48, Momentum 94). They also pay a 5%+ dividend and potentially, special dividends along the way. It’s a fun company to hold and so far, it has also been rewarding.

When I look at the top 10 holdings above, what does the risk and reward look like?

The first thing I note is that it has a small cap bias – IGG is the largest at £2.3bn followed by BOY (£1.7bn) and IQE at just under £1bn, down to BVXP at £112m and AAZ at only £32m. I have begun expanding my portfolio into larger cap holdings but so far, none of those holdings have climbed into the top 10 (AAZ on the other hand, is up over 50% during the summer months). As highlighted earlier in this piece, 2/10 resource stocks (over 10% of overall portfolio) also looks a little top heavy but then again, I think exposure to both gold and copper are a sensible play in H2 – the former offering a market hedge and the latter adding secondary exposure to the global technology transformation that is under way. There are a large proportion of overseas earnings and within that a decent global split, albeit with a US Dollar bias and few exposures to the UK domestic economy. While a profit warning can come at any time, virtually all of the holdings have been signalling strong earnings performance, so hopefully there won’t be too many nasty surprises at the stock specific level.

As for volatility, 1/10 is “highly speculative” (AAZ) and 1/10 is “speculative” (IQE), although these two holdings account for over 25% of my overall portfolio. As neither pay a dividend, there is clear volatility risk with these two holdings that will perhaps test my conviction at some point. Beyond that, I like the balance provided by 4/10 “adventurous”, 2/10 “balanced” and 2/10 “conservative”. Perhaps I need to add a little more conservatism over the next month or so, once I’ve had a chance to assess the upcoming interim results. For now, I can see there is risk in this portfolio but there is also strong upside potential, especially if the market remains “risk on”. In truth though, who knows?

It’s earnings season folks, let the madness begin!

Happy investing


Disclosure – At the time of writing I own shares in IQE, AAZ, BVXP, BOY, CAML, HFEL, SCH, IGG, IPX, GAW and ZYT, all mentioned in this article.