When I first started writing this blog back in 2015, I was only a few years into my investing journey, and was just starting to get to grips with the world of investing. Since then, I’ve met dozens of private investors in all sorts of circumstances – from social events in Windsor (ever been to a Wheeliebash?), to networking events in London (the Master Investor Show), to people reaching out through social media and here through my site. Today, I’ve got a few hundreds readers here on the blog, 1,500 social media followers that engage with me through X.com, and regularly meet with private investors at events in London.
Let’s start with the good news – after two rough years in the market, my portfolio is showing some positive performance, having gained 4% in the first six months of 2024. This has made a lovely change from the last two years when I’ve seemingly spent month after month looking at gradual declines in the value of my portfolio.
Without dwelling too much on the macro-economic outlook, things in the UK look to be stabilising, with inflation back down at 2% (after years of nearly double-digit inflation) and interest rates being held steady at 5.25%, up from less than 1% for over a decade. This increase in interest rates has decimated property values – hitting my real estate investment trusts (REITS) and income focussed portfolio particularly hard, but with the rate rises halted, the damage seems to be done and the natural income of my portfolio is starting to generate gains again.
Re-reading some of my old annual reviews, I’m struck by a bearish tone, which I confess hasn’t entirely abated, but I do feel as though a lot of the dangers I was fearing have now come out into the open. Interest rates are up, commercial property is facing huge issues, the Conservatives have finally done enough damage for the electorate to wake up and throw them out, our relationship with Europe is pretty much rock bottom (so the only way is up), productivity and growth is actually being discussed as a real issue, and the US is now months away from voting in one of two geriatrics to President of the most powerful country on earth. None of this is a positive backdrop, but I feel much more comfortable with it being out in the open that with everyone closing their eyes and telling me it will all work out “just because”.
On the investing front, the UK market looks incredibly undervalued compared to the US and although I’ve been diversifying geographically for a few years, I’m still heavily overweight the UK, with a 70% (compared to 100% less than five years ago). I’m actively working to bring this down but am most comfortable investing in the UK, have made it work historically, and see little reason to change my approach.
Takeovers picking up pace
In the first half of this year, I’ve had three takeovers – Smoove (formerly ULS Technologies), which closed in January. The company did was developing an online platform to streamline the moving proves for homeowners, removing the need for paper trails, capturing key property information and providing real-time updates to parties engaged in the process of property conveyancing. and was exited for a loss of 16% over three years.
In April, a second bid was made for Darktrace (LSE:DARK), by Thomas Bravo, which was recommended and accepted by the board. I decided to exit the position to lock in the gains, which sat at about 33% since I originally invested, or an annualised return of 16.5%.
The third takeover was UK Commercial Property REIT (LSE:UKCM), which was acquired by Tritax Big Box (LSE:BBOX) /under a share offer scheme, which has left me with a small position in Tritax. I’ve held onto my Tritax shares for now but was never particularly keen on the company and was losing patience with UKCM so may exit this holding in the second half of the year.
I’ve opened two new positions in Journeo (LSE:JNEO), Ensilica (LSE:ENSI), and reopened a position in National Grid (LSE:GRID). The first of these, Journeo, is a UK small cap technology company specialising in software for transport integration. I first came across the company during my time co-hosting the Twin Pete’s Investing podcast, when one of my co-hosts mentioned the company as a research idea.
For readers that aren’t aware, Journeo has developed a market-leading portfolio of solutions specifically created for the challenging environment of the public transport industry. Their solutions are widely implemented by some of Europe’s largest transport operators – a space I think will become increasingly “in demand” in our drive towards net zero.
Ensilica is a different beast entirely and is a fabless supplier of complex mixed signal microchips. Basically, they do the design work of the chips but subcontract the production rather than doing it themselves. In addition, the company has a portfolio of intellection property covering cryptography, radar technology, and communication systems, which it licenses out.
I first encountered the company in 2023 at the Master Investor Show in London and was really interested in the business. Obviously, microchips are a hugely important part of the modern economy, being used in everything from vehicles to manufacturing controls and advanced robotics and computing solutions.
What put me off investing was the “story-based” way in which I met the company – I’ve written before about the challenges of investing in small and micro-cap companies and I’m always very wary of getting too caught up in the excitement of a good story and ignoring financial realities like growth, competition and the need for profit.
As a result, I put the company on my watchlist and spent the next year trawling through company trading updates, annual reports, and interviews with the management team to get more comfortable with the business and see how it performed. Obviously, I liked what I saw, as I decided to open a starting position.
Topping up existing holdings
Finally, I’ve topped up positions in NextEnergy Solar Fund (LSE: NESF), Secure Trust Bank (LSE: STB), S4 Capital (LSE: SFOR), Ecora Resources (LSE: ECOR), Chesnara (LSE: CSN), and Warehouse REIT (LSE: WHR). With the exception of S4 Capital, these are all profitable businesses, paying healthy dividends, and most have been long-standing positions in my portfolio. The oldest of these is Warehouse REIT, which I’ve held since 2017, followed by Chesnara which I’ve held since 2018, and Secure Trust Bank, which I began buying in 2021. Ecora Resources, NextEnergy Solar Fund and S4 Capital are all newer additions, being added in 2022/23.
S4 Capital is the clear outlier – being loss-making – and a deviation from my usual approach. The business is hugely cash generative but has been a dog of an investment, plummeting from my initial buy price of around £4 down to around 50p as of the time of writing this article. Despite this, there has been some significant institutional interest and a director recently bought nearly £500k of shares in early July, topping up their holdings. Sir Martin owns around 9% of the company, with Oro en Fools B.V., a trading entity owned by another two Directors, holding nearly 6% after their recent top up in July.
This ownership stake is worth tens of millions, which in addition to the smaller holdings by several other named Directors, gives a powerful incentive to get the company profitable and the share price repaired. This isn’t a certainty but gives me some willingness to extend the company more time to correct its performance.
Strategic Cash Management
In addition to equities, I also began actively managing my cash position in 2022, looking to take advantage of the improved interest available on cash balances. My strategic reserve is cash which is earmarked for future investment opportunities, usually with a lead-time of three to six months, but which also provides a reservoir of assets that can be accessed to fund emergencies.
Some investors, lacking experience hold little to no cash in their portfolio, preferring to be “fully invested” at all times. By comparison, more experienced investors recognise that holding cash provides optionality, enabling them to top up existing positions or act on new opportunities as they emerge.
In addition, a small cash weighting also helps to steady the volatility of a portfolio, but over time, this cash loses value to inflation. To address this, my strategically managed approach to cash recognises the benefit of holding cash within a portfolio whilst taking action to minimise the loss of value over time by maximising the financial returns it generates.
Most brokers will pay a limited rate of interest to portfolio managers for holding cash – usually a few percentage points lower than high street savings rates – and will deposit this cash in their own savings account which pays a higher rate of interest, thereby generating a small profit.
By splitting my cash reserve into two parts, I limit the amount of immediately available cash to a minimum required for short-term operational requirements and invest the remainder in a range of liquid bond funds. Of the 10% I aim to keep in cash, I only keep around 2.5% in pure cash and invest the remainder in four bond funds – GCP Infrastructure Investments, Royal London Sterling Extra Yield, abrdn Sterling Inflation Linked Bond Income and iShares UK 0-5yr Gilt Fund.
By doing this, my portfolio benefits from an increased cash yield of 4.6%, an additional 210 basis points over the rate offered by my broker, or £210 for every £10,000 held in cash.
This value changes over time, but my active strategy seeks to maximise this yield boost whilst retaining some level of liquidity and security in the underlying investments.
International Holdings
At the beginning of the year, I reviewed my diversification targets and made small alterations to reduce my weighting to the UK and increase the other regions accordingly. As of that review, I now have a slightly higher target weighting to the US, Asia and Switzerland, which I have continued to work towards through the first half of 2024.
| Old Target | New Target | Difference | |
| United Kingdom | 71% | 67% | -4% |
| United States | 10% | 12% | +2% |
| Cash | 10% | 10% | 0% |
| Asia | 5% | 6% | +1% |
| Switzerland | 2% | 3% | +1% |
| Europe | 2% | 2% | 0% |
| Region/Fund | Annualised Return |
| United States | |
| UBS S&P 500 Index Fund | 8.4% |
| Asia | |
| Henderson Far East Income Fund | -0.4% |
| Baillie Gifford Japan Fund | 0% |
| Stewart Investors India Fund | 19.0% |
| Switzerland | |
| UBS ETF MSCI Switzerland | 5.6% |
| Europe | |
| Barings Europe Select Trust | -3.0% |
After a few years of building these positions, I am somewhat disappointed by the performance of a number of these holdings. I am considering switching out my position in Henderson Far East Income, which I have held since 2017, for a passive dividend ETF. The fund has been a high yield holding but a perennial disappointment, and I have a feeling that after all these years it might be time to bite the bullet and move on. The region has been a tough one for investors and I suspect the focus on high yield has led to some poor investment selections.
The Henderson board recently reconfirmed it’s focus on the dividend but also stated its intention to increase its holdings in India, Indonesia and Taiwan. Ultimately, my patient approach to investing is causing me to take my time with this one, but I’m definitely starting to question the point of holding this fund (and paying the associated management fee) over a passive (and lower cost) alternative.
Also on my hit list are the Barings European fund and Baillie Gifford Japan Fund, neither of which are generating any significant returns. I am willing to give both a little more time to generate a positive return but can see the day coming when both are replaced with either individual holdings or tracker funds. As these are newer additions to the portfolio, I am willing to give them more runway before making a decision but am wary of giving active funds too long to underperform before culling them.
As a basket, these holdings are returning around 4.9%, which is less than half of the return of my UK holdings and probably reflects a combination of fees and poor management.
Next six months
During the second half of the year, I’m going to continue building my international holdings but will also take steps to slim down the middle of my portfolio. As a reminder, I run a “three tranche” strategy, with ten positions making up the first tranche, weighted between 50-55% of my portfolio, a middle, comprising 35-40% of my portfolio, and a small ‘tail’ of underweight positions comprising 5-10%.
When I add positions to my portfolio, I usually start them off in the middle, and then either hold them, or top them up into leading positions over time. If positions underperform the others, they gradually fall into the tail, at which point I either top them up or sell them. Likewise, if an investment performs well, it becomes gradually larger relative to the others in my portfolio and I may well average up to make it a leading position in time. This privilege is usually reserved for companies I have held for several years, whose management teams I am comfortable with, and whose businesses I both understand and like.
Over the last twelve months, I have found myself acquiring new positions in individual equities to the point where my middle tranche is looking a little fatty. For example, I hold Aviva (LSE: AV.), Phoenix (LSE:PHNX), and Legal and General (LSE:LGEN) all of which operate in the same space. Legal and General is one of my largest positions, but Aviva and Phoenix are in the ‘middle tranche’ of my portfolio.
It is also debatable whether or not I need exposure to all three of these businesses, in addition to asset managers M&G (LSE:MNG), City of London Investment Group (LSE: CLIG), and Polar Capital Holdings (LSE: POLR).
These positions were selected for a reason but continuing to hold them ad infinitum doesn’t seem like the best use of capital and so I feel that making a decision about combining them might be the way to go. Having said that, I consider all six holdings potential candidates for takeovers and all pay solid yields, so I’m in no particular rush to take action.
Finally, what effect do I think our new Labour government will have? Personally, I’m not overly optimistic about positive changes they might bring in but feel more relieved that we’ll be spared the Conservative’s chaos for a few years. Their spending plans look fairly tame, spending a bit more on the NHS (joy), taxing private schools (joy), increasing stamp duty (joy), and some dental and childcare pledges. By closing some loopholes they’re hoping to raise a few billion for extra NHS appointments, healthcare equipment and so on.
Historically, Labour and the stock market haven’t been great friends but considering the UK equity market is already on it’s knees after 14 years of the Conservatives, I’m not entirely convinced they’ll do much more damage than has already been done. The question of the hour remains growth, or to be more precise, the lack of it. GDP growth has been flatlining since 2008 and our new government is going to have a tremendous challenge trying to get growth trending upward again. Supposedly, Labour’s first “mission” is to kickstart the economy and “secure the highest growth in the G7 – with good jobs and productivity growth in every part of the country”.
To do this, they’ve got a number of schemes, including double housbuilding from 150k homes a year to 300k, building “Great British Energy”, which they’re hoping will create 600k high-quality jobs, forcing water companies to clean up the horrific mess they’re creating in our waterways, and developing another industrial policy for the country based on green energy including £1.5bn for new gigafactories, £2.5bn to rebuild our steel industry, £1bn for carbon capture technology, and £500m to accelerate the green hydrogen industry.
The only trouble with all of this remains the fact that the UK has a persistent budget deficit and mounting debt – so where is the money going to come from? Following on from Jeremy Hunt, Rachel Reeves, our new Chancellor, seems keen on pushing our pension funds into these projects. Whether or not this actually happens or not remains to be seen but I’m not sure I want any government of ANY stripe directing my pension – my taxes are to fund government projects, my pension is to support me in retirement. Considering the fact that I am likely to be 80 by the time I am able to claim the state pension, I have absolutely no desire to let the government start meddling with my private arrangements, which I wouldn’t need if they didn’t keep pushing up the state pension age to such a ludicrous extent.
Ultimately, I think most of this is likely to be marginal for growth but I think the bigger benefit will come from some stability, fiscal prudence, and a wilingness to invest in productive capacity in the UK (as opposed to importing hundreds of millions of pounds of COVID protective equipment that gets incinerated a few years later…). As for my portfolio, we’re into the second half of the year with all to play for!