Turning the corner?

After almost half a year of stagnation, during which my portfolio gains from the beginning of the year have been slowly chipped away, it’s starting to feel like we may be due for a decent final stretch this year. The S&P 500 breaking out to new highs seems like a promising sign, though my current optimism is likely also influenced by the boost from Games Workshop my portfolio received on Friday.

The macroeconomic backdrop has not changed a great deal, though you could make a case that things are looking up. Recent communications suggest monetary policy decisions in both the UK and US are likely to continue to be doveish. While uncertainty in UK politics rumbles on (providing temporary abatement from the exchange rate headwind I’ve endured over the past month or so),  there are signs of compromise from either side in the US China trade war. I also wonder whether investors are starting to look through the temporary slowdown in global economic growth. Of course, this is all speculative and you could just as easily have a more pessimistic outlook. Given the market is at its highs, I’m inclined to see things positively, as new highs tend to be a bullish sign.

One thing which makes me a little more cautious is that there has been a rotation away from tech and high quality growth shares towards cheaper value shares. Many of the businesses leading the S&P 500’s breakout to new highs are lower quality businesses on low valuation multiples, compared to previous years when technology businesses were consistently in front. This is perhaps unsurprising given the ‘valuation gap’ between growth and value has expanded substantially over the last couple of years. Cliff Asness of AQR suggested this week that it might be a rare time when over-weighting exposure towards value looks like it could be a good idea. I have to say that I would agree that it’s looking more and more likely that we are nearing a period when my high quality growth strategy may underperform.

I’m reluctant to change much about my strategy (which I am still confident should outperform over the longer term) but I am minded to lean more heavily towards valuation when deciding what to pick from my watchlist. To this end I’ve decided to resurrect my watchlist ranking methodology and spreadsheet. This tool makes it easier for me to move away from just focusing on momentum and helps me adjust how much weight to put on valuation too.

This is reflected in some of my recent trades, in which I’ve picked a couple of ‘recovery plays’. Three weeks ago I sold Intuit and replaced it with IG Group. This week I sold Diageo and replaced it with Burford Capital. I also made an additional trade this week, swapping Broadridge for Tristel, after Broadridge issues some mildly disappointing results.

Funnily enough, I previously bought Burford and IG Group together in March last year. I wrote up the investment cases for both then, so won’t do so again now. IG Group is looking good value at the moment: the impact of tighter regulation on spread-betting is looking likely to have worked its way through and the share price has started to recover again. Burford Capital is showing signs of a more sustained recovery following the ill-conceived and opportunistic Muddy Waters shorting attack. I am slightly frustrated that I didn’t have the balls to really take advantage of the temporary collapse in the share price but maybe it was wise to be cautious.

I have also held Tristel previously but given this was now over two years ago, I’ll revisit my previous write-up and look at it afresh.



Tristel is a UK manufacturer of hospital-grade disinfectant cleaning products. It has developed a proprietary patented technology based on chlorine dioxide. It sells across the UK and parts of Europe and is currently attempting to get its products approved by the FDA for sale in the US.

I’ve successfully traded Tristel a couple of times before and am a fan of the business – it is appealing in its simple, defensive business model and growth prospects. One factor that is less appealing is that there is a generous share option incentive scheme for management that could result in significant dilution for shareholders. There are also suspicions from a few years ago that Tristel’s management were less forthcoming about their trading than they should have been in order to make sure the share price stayed sufficiently high to ensure their options vested. Unappealing as they may be, I’m not too bothered by the effect of these incentive schemes looking forward. Maynard Payton has been following Tristel for some time and is a good source for more detailed information and analysis.


  • Business economics: the business economics look very good. Tristel has had fairly consistently high margins (currently 18%) and returns on capital (currently 20%) and throws off a lot of cash. I reckon there is likely quite a lot of potential to further increase profitability as Tristel expands its distribution and realises further economies of scale.
  • Track record: the track record is pretty good in that revenues and profits have grown at a decent rate on average over the past few years. However, there have been some ups and downs, with results failing to meet expectations in a couple of occasions and the FDA approval process taking far longer than anyone initially expected.
  • Competitive advantage: Tristel appears to have a strong competitive advantage. It has IP over its products. There seems to be some evidence from studies that its products are superior in quality to alternatives available. Its main customers are hospitals who are slow to switch suppliers. This can make it take longer for Tristel to win new customers but also means it is less likely to lose them.
  • Growth prospects: there appears to be plenty of scope for Tristel to continue to expand its distribution and grow into several large addressable markets globally. Needless to say expansion into the US could be a game changer, if it is successful. There is some uncertainty but the odds seem promising.


Momentum is good, with Tristel recently issuing decent results and the share price near all time highs. The valuation looks reasonable given the growth prospects.

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