It’s the end of November, so it’s time to review stocks added to the SIF Portfolio six months ago, in May. Stocks that no longer qualify for my screen may now be sold. Stocks which continue to qualify will be held, and then reviewed on a monthly basis.
Such frequent trading goes against the grain for many investors, including me. When the portfolio reaches its first anniversary, I may consider extending the six-month minimum holding period, but for now, I’m sticking to the rules. After all, there’s no point in running a rules-based portfolio if you keep changing the rules. Frequent changes make it impossible to say whether any of the rules actually work.
Here’s a list of the four stocks which are under review this week. Each company name is linked to my original article on the company:
Pan African Resources
At one point this year, Pan African Resources was the biggest riser in the portfolio. That’s not the case anymore. Pan African’s share price has pulled back with the price of gold, which has fallen by 13% from its 2016 high of $1,375/oz.
Despite this, the SIF portfolio’s holding in Pan African is still worth 25% more than it was six months ago. That’s not a bad performance.
What’s more interesting is that Pan African still qualifies for my screen, so will remain in the portfolio. Although the StockRank has fallen from 98 to 88, Pan African is still highly ranked for quality and looks cheap on current year forecasts:
I have a fairly neutral view on the outlook for gold, but Pan African has performed well this year and further gains may be possible. I’m happy to keep this stock in the portfolio.
Total return so far: +25%
GlaxoSmithKline is a relative outlier among the stocks in the SIF Portfolio. It’s both defensive and a big cap stock.
After six months in the portfolio, the pharma giant’s shares have risen by just 2.1%. However, it has provided some welcome defensive quality, plus cash dividends totalling 38p per share. This represents a 2.6% yield on my purchase price of £14.74 per share, pushing the total return on this investment to 4.7%. Not amazing, but far from a disaster.
Personally, I remain a shareholder of GlaxoSmithKline. It’s part of my long-term income portfolio, and is a stock I’m happy to hold indefinitely. I’m not completely sure why the shares have fallen over the last month or so, given that the group’s third-quarter results came in ahead of expectations.
Interestingly, 2016 broker forecasts for Glaxo have risen by 12.9% since I added the stock to the SIF Portfolio in May. Given that the total return from the shares over the same period has been just 4.7%, Glaxo looks cheaper today than it did back then.
Total return: +4.7%
However, Donald Trump’s election triggered a 30% surge in Somero’s share price, presumably thanks to Mr Trump’s campaign commitments to invest in infrastructure. Somero shares have since risen from about 175p to 230p:
Earnings forecasts have stayed flat (as you’d expect over such a short timeframe), so the resultant increase in valuation has increased Somero’s PEG ratio. This has caused it to fall out of the SIF screen, although Somero still qualifies on all other counts.
I’m a little disappointed to be selling while the going still looks good, but I have noticed that earnings growth is expected to slow dramatically next year. This is a cyclical business. If the US economy slows, the downside could be significant:
Another of my concerns is that currency risks may be growing for UK investors. The market has been quick to price in the weaker pound, but this situation may not last forever. The pound could regain some of its losses, which would devalue Somero’s dollar-denominated earnings for UK investors.
Total return: +52%
Packaging group Macfarlane has been something of a disappointment. A cautious outlook has kept the shares on a low rating this year, despite a solid operating performance.
The mood changed last week, when Macfarlane reported stronger trading during the second half. Management confirmed that full-year results should meet current expectations. The shares have since rallied 11% to 58p, but remain below the portfolio’s purchase price of 65p.
Unfortunately, Macfarlane’s interim results have also caused the group’s Piotroski F-Score to fall from 6 to 5. The threshold for my screen is 6, so Macfarlane no longer qualifies. This means that I shall have to sell the shares from the SIF portfolio this week in order to satisfy my trading rule.
Total return: -10%
Up 18% in six months
The SIF portfolio will sell three stocks out of the four under review this week. The average six-month gain on these holdings is 18%. That compares fairly well to the portfolio’s FTSE All Share benchmark, which has risen by 6.9% over the last six months.
Looking ahead, the portfolio will be left with 16 holdings. This is comfortably within my target range of 15-20, and frees up cash for new purchases over the coming weeks.
Although Avesco’s takeover looks like a done deal, I’m not going to break the portfolio rules and sell early. My holding in Avesco will stay in place until the takeover completes, or until Avesco’s six-month review is due in March.
As always, please remember that the SIF Portfolio is a virtual portfolio. My comments reflect my personal views only and are certainly not advice. Please DYOR before making any trading decisions yourself — and of course share your views in the comments below.
Disclosure: Roland owns shares of GlaxoSmithKline.