Portfolio review: April 2019

The last three months have seen a fairly spectacular bounce in many stock markets across the world. After the US markets had their worst year since 2008, they’ve now had the best first quarter since 1998. The S&P 500 is up almost 15% so far this year. The UK markets are not doing quite so well but have still seen a pretty decent bounce. My portfolio has had a fairly satisfying bounce along with everything else, benefiting significantly from its exposure to US Tech but being held back a bit by ‘air pockets’ in some of its smaller AIM investments.

As usual, I’m fairly bullish on near term stock market prospects. The big picture macro theme at the moment is still one of a global slowdown in economic growth (most acutely faced in continental Europe). This coupled with an inappropriately hawkish US monetary policy seemed to be the main cause behind the correction last year. The Fed has since relented and adopted a much more doveish policy, now signalling interest rate cuts are more likely than rises. I expect over time for more investors to start embracing the idea that the global growth slowdown will be temporary and that interest rates are destined to remain low for the forseeable future. I’m particularly heartened that, despite the first-quarter bounce, there still seems to be a fair degree of negative sentiment around, helpfully stoked by worries about US-China trade negotiations, Brexit and that infamous portent of doom – the ‘inverted yield curve’. These seem to me like favourable conditions for investing in quality growth shares.


The performance of my portfolio (QSS) is shown against its benchmarks in the table below (all the figures below exclude dividends). My benchmarks are the FTSE 100 and a portfolio of the top decile of UK shares according to their Stockranks. The figures below do not include dividends.

April 2019

My performance stats are looking a lot healthier than they were three months ago. I’ve outperformed my benchmarks and caught up most of the ground I lost in the last quarter of last year, though am still yet to regain my all-time highs. My three year performance is still well ahead of the benchmarks.

My portfolio has performed roughly in line with my buy and hold benchmark and slightly behind the mechanical momentum benchmarks over the last three months. I set up these benchmark portfolios to isolate the performance generated by different aspects of my strategy, as explained here. I then simplified the mechanical strategy to only focus on momentum. The robots are proving tough to beat. I may end up having to give them control of my actual portfolio if they keep this up for another few years. It would definitely make my life easier.


There have been no significant updates to my strategy. I continue to be happy with my system of periodic rotation i.e. making one trade every fortnight. The main dilemma I am facing at the moment is whether to trade at all. On the one hand I’m reluctant to deviate from my strategy of consistently rotating towards momentum. On the other hand, I’m pretty happy with all my positions at the moment and don’t want to trade needlessly. I’m starting to think about how to best identify when the market environment is suited to following momentum more avidly and when it is suited to sitting on one’s hands or even adding to the fallers. In the meantime, I’m happy to do nothing until the trading options in front of me become more compelling.

It feels like I may be starting to transform into a more patient, ‘buy and hold unless the story changes’ type investor. I’m happy with this.

Individual shares

For this review I’ve decided to go through the shares in my current portfolio and give a brief update on my thinking and recent developments. I’ve also given an indication of the positions I would add to if I had more funds.

Burford Capital (9.9%): this litigation finance provider has become a private investor favourite following some fairly spectacular returns over the last few years. This is my highest conviction position. It has a strong competitive position in a rapidly growing market and seems very undervalued. I think Burford’s valuation hasn’t been able to keep up with its progress to a large extent because there is a consensus amongst analysts and investors that the business model is not transparent and the future returns are highly unpredictable. I find this a bit bizarre when Burford’s business model is at its core simply that of an investment fund and it provides visibility of historic investment outcomes (which have been reasonably consistent) and of the cases in its pipeline. From this it is fairly straightforward to extrapolate that its profits and net asset value are likely to ramp up very substantially in the coming years to reflect the ramp up in investments that has occurred over the last two years (to more than triple the level of previous years). There is of course uncertainty in the outcome and timing of individual cases and this in turn creates the potential for ‘lumpiness’ in returns. However, even this minor drawback seems to be diminishing as Burford’s portfolio becomes more diversified. Burford’s last results substantially exceeded expectations but the share price response has been very muted, possibly because some of the large institutional shareholders (e.g. Woodford) are forced sellers. I think there is a golden opportunity to buy Burford at the moment and I’m highly tempted to fill my boots further when funds next become available, despite it already being my largest position.

Bioventix (9.9%): this has become a bit of a private investor favourite too. I think this is for good reason as the quality of this business is quite exceptional, with its lean cost structure and relatively certain and growing royalty revenue streams. The main focus for most investors has been its new high-sensitivity troponin antibodies (used in blood tests to identify heart attacks) with many investors apparently torn between the need for patience and fear it may disappoint. There were some positive noises in Bioventix’s recent results but still no meaningful revenues from Troponin. I’m wondering whether there may also be hidden upside from the prospects of its current main product (antibodies for Vit D. test). Bioventix has been warning that these sales may plateau for quite some time despite steady growth in volumes, due to pricing pressure in the downstream market (for the blood tests themselves). I think most investors are assuming this plateau will be permanent (if it indeed occurs) while I have become doubtful of this. Overall Bioventix still seems reasonably valued me given its profitability and relatively high certainty of long term growth. However, I did trim my position ahead of its recent results as it had grown too large for comfort and I thought there was some risk of a short-term disappointment.

Mastercard (9.8%): Mastercard seems a no-brainer of an investment to me. It is incredibly profitable, faces little direct competition (as I set out in my original buy case) and is growing at quite a clip, benefiting from the global shift from cash to payments made using its infrastructure. On top of that there seem to be some pretty huge additional growth opportunities in areas such as B2B payments. Mastercard’s recent results have been excellent, with significantly faster growth and more optimistic prospects than its larger rival, Visa. The valuation has always seemed too cheap for such a high quality business. I’m happy to continue to hold this for the forseeable future as one of my largest positions and perhaps even add to it on the dips.

Kering (6.7%): this was quite a rare occasion where I made an investment based on high conviction about valuation at a low point in the share price. I’m happy this turned out well but this doesn’t mean this approach is a good idea for me in general. More often than not it has backfired for me in the past, as an attractive valuation from a falling share price has often preceded bad news. Not much has changed since my original buy case: Kering has continued to trade very strongly. The price has risen by about 45% since I first bought and has now reached new highs. The valuation still looks anomalously cheap to me given its quality, especially when compared to its luxury fashion peers. I’ve added to my position on the way up and may well continue doing so.

Judges Scientific (5.1%): I bought Judges fairly recently and not much has changed since then. Its full year results were very good as it had been signalling in its prior trading updates. The shares seem cheap to me and the price has not responded much to its recent upturn in trading, so I’ve been gradually adding to my position. While I’m a fan of its buy-and-build business model and its extraordinary long term record (the share price has risen almost 40-fold in the last 10 years), its trading can be a bit patchy and the shares are not so liquid. I’m not minded to add more to my position at the moment.

Microsoft (4.8%): I don’t have much to add to my original buy case. The share price has momentarily slumped and then risen back to new highs along with many other US tech stocks. It is an obviously high quality business and I have high conviction in its growth prospects so I anticipate slowly adding to my position over time.

Gamma Communications (4.6%): Gamma has had some decent results since I bought fairly recently. I like that this business is quite boring  and under the radar yet seems to have an edge in a defensive, growing market. There is a very favourable regulatory backdrop to support further growth. I also like that this is a UK focused business. I’ve been trying to keep some of my portfolio weighted towards businesses which make money in the UK to hedge against the Pound rising, but have found quality businesses like this to be few and far between. The valuation seems reasonable though not especially cheap and I’m happy to hold until something changes.

Auto Trader (4%): another UK focused high quality business. It’s almost coming up to a year since I first added Auto Trader to my portfolio and it has been steady progress since then. Its half year results in November were ahead of expectations and it has launched a joint venture to create a digital marketplace for wholesale (dealer-to-dealer) transactions. It still seems decently valued to me and I’d happily add more, though it may make sense to wait till its full year results in June.

Paycom (3.8%): this is my second attempt investing in Paycom. After I made the ill-judged decision to abandon my previous investment at near its low point last summer, I had another chance to reinvest following the correction at the end of the year. This time my timing was more fortunate and I captured most of a sizeable bounce. Paycom makes software for payroll and recruitment and ticks all the boxes of a high growth quality investment for me. Trading is currently very good and it looks like there are years of high growth on the horizon, though the valuation is on the high side and does not leave much room for error. I’m not going to add to my position at this level but I’m happy to let it run.

AB Dynamics (3.4%): AB Dynamics is another business I wish I’d just bought and held since I first came across it (though this is easy to say in hindsight). The share price is up almost ten times in the last five years. My thinking hasn’t progressed a great deal since I first bought. Trading has continued to be excellent. While the valuation is high, it could be cheap if it can keep anything like this up. It seems like a great business but it’s not especially high conviction for me as I don’t have a very good sense of how much growth may slow down in the future or how cyclical it may be. The shares can be quite illiquid so I’m not really look to add more at the moment.

Adobe (3.3%): my thinking hasn’t really developed since I first bought Adobe about a year ago. It still seems like a great business. Trading has been consistent and prospects still look good. The share price has rebounded convincingly since the correction. I’d happily add to my holding here.

Boohoo (3.1%): I almost immediately regretted my recent decision to sell Somero to buy Boohoo after its last trading update. This is less the case now as Boohoo’s price has recovered and I am back in profit. Boohoo has relatively weak momentum and is one of the next in line for rotation. However, I do still like the business and its long term growth potential, in particular the potential for Boohoo to acquire more brands and incorporate them into its efficient operations. Trading is still very strong though revenue growth is inevitably slowing. I’m keen not to sell unless the story changes or I find an obviously better opportunity, though I probably won’t add until an upwards trajectory has resumed.

Sopheon (3%): Sopheon has frustratingly slumped over the last few months and most of the profits I had on it have evaporated. The results were actually pretty good – last year finished well ahead of expectations and the outlook was very positive. It seems more impatient traders are unsatisfied that there is little profit growth forecast for this year. I think the chances that Sopheon exceeds forecasts are pretty high, but even if it doesn’t this seems like a solid and reasonably valued investment for the long term. I did reduce my position, which in hindsight was probably too large, when the momentum weakened. I’m happy to hold on to the remainder and see what the next results bring.

RWS (2.7%): my underlying thinking hasn’t changed since I bought RWS fairly recently. What’s more interesting is that its February AGM statement was extremely bullish about current trading yet the share price didn’t really respond. It’s just started to take off this week so it seems like a decent time to be adding.

Micro Focus (2.7%): I brought Micro Focus very recently and nothing has happened since then.

Games Workshop (2.6%): my previous investment in Games Workshop was my most profitable trade ever. However, I sold too soon, overly concerned about the possible impact of the product cycle. I compounded that by changing my mind and deciding to buy back again at just the wrong time. The share price has been in the doldrums for the past few months. Games Workshop looks cheap for such a high quality business and trading seems likely to be ahead of expectations. I’m more likely to buy more than sell now the price is starting to show signs of perking up again. Bring on the next results.

Diageo (2.6%): I only bought Diageo recently. It’s hard to get very excited about Diageo, but it does seem a sound long term investment and provides useful defensive ballast, particularly at this apparently more uncertain point of the economic cycle. Trading and momentum are strong and I’d happily add more at this point.

Moncler (2.6%): Moncler is another luxury fashion business in a similar boat to Kering. I’ve held Moncler for a bit longer and so enjoyed more of rollercoaster ride in this case. It seems like an excellent business trading very strongly and the valuation is reasonable so I am looking to add to my position.

Scientific Digital Imaging (2.3%): this is probably the investment I am most excited about at the moment. It’s got an acquisitive business model and is a bit like a mini Judges Scientific, so the hope is that it can replicate Judges’ spectacular success. It’s done pretty well since I invested fairly recently and has been reassuringly active in making acquisitions. The valuation still seems cheap. I’m intending to add to my position, but slowly over time if the story plays out as hoped.

Diploma (2.3%): Diploma has had a good run since I bought in early December. It’s very defensive, aka nice and boring, and its recent half year trading report was in line with expectations. I’d add to my position here.

Broadridge (2.2%): Broadridge is a fintech business specialising particularly in providing investor communications platforms. It currently has the worse momentum out of the shares in my portfolio. I trimmed my holding substantially during the recent correction, despite having quite a bit of conviction in Broadridge as an investment. It hasn’t rebounded convincingly along with other US tech businesses. I think this is because investors are disappointed with recent results,  where profit expectations for this year have cooled, principally due to one-off event-driven activity being lower than last year’s blowout. Despite the poor momentum I’m keen not to sell yet (at least till the next results). The long term prospects still look good, the valuation seems cheap and the price is starting to perk up again.

My portfolio is rounded off with the following smaller positions: JD Sports (2%), Atoss Software (1.8%), Stryker (1.8%), Salesforce (1.8%). All have been bought fairly recently so I don’t have much new to say.


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