By most standards, including my own stretch targets, the second quarter of 2019 has been very favourable for my portfolio (PFAS). My reflections follow…


Following a lacklustre first quarter where PFAS underperformed all three of its benchmarks, the second quarter saw a complete reversal, outperforming all benchmarks for the quarter and more significantly, on a year-to-date basis (i.e. catching up lost ground). For the record, the second quarter saw a portfolio gain of 23.58%, bringing the year-to-date gain to 26.05%. The full performance versus benchmarks can be viewed here.

While the what of this achievement is very satisfying, understanding the how is more important.

London Buses

Having waited the best part of 18 months for a takeover within the portfolio, three of them have arrived in short order – just like London buses! The first of these was Manx Telecom (MANX) towards the end of the first quarter and there have been two further takeovers in the second quarter; EU Supply (EUSP) and Safecharge (SCH). Overall, the takeover premiums were acceptable rather than spectacular but nonetheless, I was happy to take the gains and recycle the profits to (hopefully) compound the portfolio.

Could 2019 become the Year of the Takeover? Watch this space!


The big story across the UK stock market in the second quarter has been the suspension of the Woodford Equity Income fund. Many column inches have been devoted to the story and I am reluctant to add to them, especially as there is a limited effect on PFAS – I have never held Woodford Equity Income fund and to the best of my knowledge, only two PFAS holdings are owned by the fund (relevant only if those holdings need to be sold down); Paypoint (PAY) and Strix Group (KETL). However, the whole episode has brought to the fore liquidity risk generally and specifically, in relation to open-ended funds.

As far as open-ended funds are concerned, they are poor vehicles for holding illiquid assets. Perhaps the rules will be changed following the Woodford saga. From my perspective, I only hold two open-ended investment vehicles: Fundsmith Equity which invests exclusively in global large caps and Vanguard Life Strategy which is a global equity tracker. It is unlikely that either of these funds will ever run into liquidity issues and if they do, we are all in a lot of trouble.

As for liquidity more generally, I am mindful that PFAS has some illiquid holdings, mainly small caps. The key for me is that if I am going to carry liquidity risk, I have to be sufficiently confident in the investment thesis to be locked into the holding long-term. I have been kicking the tyres on all illiquid holdings and am happy with those that remain in PFAS, especially those that occupy higher weight positions.

The other aspect I have been working on is to build up dividend income across the portfolio, so that I have cash flow that can be relied on and therefore, will not be a forced seller if there is either a market sell-off and/or liquidity crisis.

Azeri Gold

The exceptional portfolio performer in Q2 was Anglo Asian Mining (AAZ) which fortunately, is also my largest holding. There have been several pieces of news from the company, including full year results, an increased dividend and a compelling exploration update. Despite taking some profits recently, the holding represents a 24% portfolio weighting. I am expecting further positive news flow during the third quarter and if the price/volume equation permits, I will take further profits. This said, I am in no rush to do so, especially with the prospect of further dividend increases on the horizon.

An honourable mention should go to Games Workshop (GAW) which has also made a stellar contribution to portfolio performance during the quarter and now occupies third place in PFAS behind Fundsmith Equity and AAZ.

Looking Ahead to Q3

I have reverted to using only two categories of investment strategy; Quality/Growth (held primarily for growth and paying less than 5% dividend) and Value/Income (held primarily for value and paying greater than 5% dividend). This simplifies matters from my perspective, especially when considering how I want to weight the portfolio at any given time (e.g. risk-on versus risk-off). In reality, most holdings straddle strategies and in some cases (e.g. AAZ) rank well for all four components.

While nobody really knows what markets will do next, there remain plenty of storm clouds on the horizon while also sufficient business and market confidence to maintain a bull market. PFAS is currently positioned for approximately 40% Quality/Growth and 60% Value/Income which is both deliberate and an indication of my own confidence in the current bull market.

The shift has been subtle but is reflected in the Value/Quality/Momentum averages that I also monitor. If it were a single entity, PFAS is now an Adventurous Super Stock (at the end of Q1, it was an Adventurous High Flyer).

Whatever your strategy, I wish you a successful third quarter.

Current Holdings

The portfolio holdings/weightings as at the end of Q2 can be viewed here.