Pause for thought

As we are coming out of such a crazy year I wanted to ask myself a few questions about my investments. My goals remain the same, and the strategy to achieve them is fine I think. I have a few holdings I’m not convinced about so I’ve it’s worth asking a few questions about each:

• Why are you invested in that business?
• If you weren’t already invested would you buy it today?
• Given that you are invested, would you buy more today?
• If it’s underperforming, why not sell it? You can always buy back when the business is back on track…

So I’ve been through each holding in my portfolio, the initial exploration being to examine each holding in some detail to be sure that I want it in the portfolio.

I’ve put each holding into one of 3 buckets: slow and steady, income, growth. And a 4^th bucket for those with a question over them. It is these that I am reviewing in detail first.

 

Slow and steady	Income	Growth	Naughty step
AG Barr Compass Diageo Hargreaves Lansdown Nichols PZ Cussons Qinetiq Reckitt Benckiser Relx RWS Holdings Sage Group Unilever	GlaxoSmithKline Henderson Far East Income Impact Healthcare Jersey Electricity National Grid Tate & Lyle Telecom Plus Tritax Big Box	888 Holdings AB Dynamics Abcam Craneware Eleco Keystone IT Somero Enterprises Computacenter	Dignity Foresight Solar Fulcrum Utilities Lancashire Holdings Next Energy Solar Saga

Most of those in the “Slow and steady” box are businesses that I expect to hold for a long time, that are generally well run businesses that I’m happy to own a slice of. I’m expecting these to be slow steady compounders, and whilst they all pay a dividend (or did until the pandemic) they are not there primarily for the income. Despite these being a pretty defensive bunch of holdings, some have been hammered by the pandemic. Beverages for example you would expect to be a fairly dependable business, except when all bars, pubs, restaurants get closed for long periods. Catering, equally – shouldn’t be exciting, but has been slammed this year. I’m happy to hold these for now to see how they come out of the pandemic.

The income stocks pay a decent dividend, I don’t expect a lot of capital growth here, but this should be compensated by steadily increasing dividends. I may move some of this bucket into investment trusts over time as these have proven to be a safer income bet, and came up trumps during a rather testing period this year. Glaxo is an interesting one as they recently announced that as part of the split of the consumer health and pharma businesses they would reduce the dividend…one to think about.

Growth stocks I expect to generate capital returns, with any dividends being a bonus. I would expect these to be smaller businesses with better potential runway for growth. They have done just that. With the exception of AB Dynamics they have each come out of 2020 with a creditable performance, a couple were in the right place at the right time, just like a few others in the portfolio were in the wrong place. ABDP are uniquely placed and have a nice wide moat. They still need to deliver however, so I’ll be casting an equally critical eye over them too.

When I look at the distribution of my investments I have invested 44% in the slow and steady group, 28% in income, and 17% in growth. The growth bunch have put in an overall 45% return, compared to 14% from income and 3% from the steady mob. I’m not sure what the correct distribution should be, but I might try to make these more equal over time.

 Under review elevator pitch summary:

Dignity

Messy turnaround, regulatory scrutiny and management changes.

Foresight Solar

I’ve become sceptical about future power pricing which will impact NAV and potentially dividends.

Fulcrum Utilities

Activist investor wanting to delist the business, behind the scenes political shenanigans, board changes who appear reluctant to buy their own shares.

Lancashire Holdings

Don’t understand the business well enough.

Next Energy Solar

I’ve become sceptical about future power pricing which will impact NAV and potentially dividends.

Saga

Unconvincing business model – however likely beneficiary from vaccine rollout so may hang around in the portfolio a while if the price momentum is upwards.