June 2020 portfolio update

Lock-down restrictions easing off were a bit of a relief, particularly with temperatures increasing. I'm sure once the pubs re-open we'll all be piling in to share our pathogens over a pint. It only took a couple of days of sunny weather to see south coast beaches overwhelmed with people - my fingers are crossed that we don't cause such a spike in infections that schools close in the Autumn.

Markets seemed a bit fragile in June, perhaps with the huge recovery surge in stocks since the March lows investors are looking over their shoulders a little. But there are a few other reasons of course. Trumpy's polling numbers are headed south, giving Biden a lead which will have a few people on Wall Street wondering if their wallets will look a little less plump. Finger pointing from the US and Europe over potential naughtiness involving Boeing and Airbus led to a list of new tariffs being considered on various obviously airline related products such as gin and olives (?). And Whitehouse insiders couldn't quite make up their minds if the US/ China trade deal was still intact. Oh did I forget the massive increase in COVID-19 cases in the US...

This month cash was split into two investments, part went into an Investment Trust and part into an interesting software company. I've been looking into a few Investment Trusts that add to the diversification of the portfolio, particularly into businesses listed outside of the UK. This month I bought a few shares in a Trust focused on Asian/ Australasian dividends, the thinking being that most countries in which this Trust is invested seem to be doing a better job of managing their COVID-19 outbreaks, so should get their economies up and running more quickly.

As for the rest of the investment cash - it's often suggested to buy what you know, which is what I decided on with the addition of Elecosoft. I saw a name that looked familiar in an online discussion, and after a quick bit of digging found that they own a software business I used to work for. A positive trading update and decent set of accounts helped convince me to buy a few shares.

Portfolio performance
The portfolio was up 0.6% in June, slightly behind my chosen benchmark the Vanguard FTSE All Share Accumulation which was up 1.6% over the same period.

Best performers this month:
Lancashire Holdings +19%

Fulcrum Utilities +17%

888 Holdings +14%

Worst performers this month:
Saga -26%
Abcam -11%
Craneware -9%

June share purchase 1: HFEL

A few shares of the Henderson Far East Income Investment Trust (HFEL) made their way into the portfolio this month. It is run by Janus Henderson, and as the name suggests it's aim is to provide a growing source of dividends. I bought in at roughly the NAV, although given the volatility in the markets at the moment I think that NAVs should be taken with a decent pinch of salt. It gets 3 stars from Morningstar, which I take as pretty positive given that it's aim is income focused rather than capital growth.

The holdings are spread across Asia and Australasia, with over 30% in China. It has a range of sectors, with the largest being Financials and Telecomms, with Oil and Gas thankfully making up just over 1%, it's most notable holding is the semi-conductor giant Taiwan Semiconductor Manufacturing. It has around 2% gearing, and has reserves from which to payout around 9 months of dividends should it need to. The Trust's dividends have grown at around 3% - 4% over the last few years, and with the Spring sell off the yield is around 6% - 7%.

The Asia Pacific companies from which the Trust likes to invest have tended to hold more cash than their European and US counterparts and have been increasing dividend payments over recent years. A relatively low payout ratio should mean that dividend growth can continue, although that remains to be seen given COVID-19 continues to circulate without us having adequate medical responses.

June share purchase 2: ELCO
Elecosoft (ELCO) was also added to the portfolio in June. They are a software business focused on architecture, construction, and property management. It is a relatively small business, with a Market Cap just under £60m. They listed on the AIM in 2006 and have been making solid progress over the past few years.

Around 40% of revenues are generated in the UK, with most of the remainder being made in Europe and further afield. Recent acquisitions bolt onto a portfolio of architectural and construction systems, provide multiple cross-selling opportunities and should provide a useful comprehensive end to end service offering.

Elecosoft have a potentially sticky customer base as evidenced through their impressive cash conversion. Their recent trading update covering business until the end of April showed a reduction in revenues that was outweighed by increases in profit and crucially in renewed subscriptions for support and software. Recurring revenues such as these are a great way to ensure ongoing income.

The accounts look sound with a net cash position as of April. Revenues, profits and free cash have all been chugging higher over recent years. The dividend is relatively small but has been increased at an annualised rate of over 20%, and they have plentiful free cash covering the dividend.

I'm sticking with my approach of taking smaller positions in businesses I think might be higher risk - in this case, due to the small size of the business, I consider this potentially more volatile. There's a chance this could get hit by any COVID-19 downturns, although the balance sheet looks healthy, there's no need to take unnecessary chances, so only a small number of shares bought at this stage.