Stock Picks | Boon's Fund Recap – Year End 2022! +12.0% Vs FTSE AllShare -3.4%

7th Jan '23 by Boon

12 comments 1552 reads

See all the previous BBB Monthly Recaps here.

2022 Performance +12.0% vs FTSE All-Share benchmark of -3.4%

2021 Performance +21.6% vs FTSE All-Share benchmark of +14.6%

(Part Time) Fund Manager’s Report

Another year end! It feels like just yesterday that I started chronicling The Boon Fund at the start of 2021, which is a combination of my ISA and SIPP portfolios. What a year it was; after the huge euphoria and bullishness in markets that was 2021, albeit with fear of COVID, things have completely flipped in 2022. Investors ran fearful and fleeing the markets in 2022, but masks were thrown away with abandon during the year.

While my absolute performance in 2022 of +12% fell short of my 2021 performance of +22%, it did better on a relative basis when compared to my chosen benchmark, the FTSE All-Share. A 1560bps outperformance in 2022, compared to 700bps in 2021.

My target for active stockpicking, given the time and effort required, has always been to try to get at least 700bps to 1000bps yearly outperformance to the benchmark, so 2022 has been a good year.

(of course there are nuances, I’m including dividends but also real life bid-ask spreads and trading costs and stamp duty in my performance, while benchmarks do neither)

This 1560bps beat is even better when viewed through this additional lens; my average funds under management increased by 40% from 2021 to 2022 (combination of gains from 2021, as well as moving more old DC pensions into my SIPP). As many of you know, when you have more funds to invest, it is harder to maintain performance (more on this in the Looking Forward to 2023 section).

What has contributed to the great outperformance this year? A couple of factors:

Some realised gains; my analysis on realised positions showed that my realised positions were positive over the two years.
Alot of unrealised gains; I’m currently sitting on a number of positions that are very positive, but unrealised. Begbies Traynor (LON:BEG) (+56%), Appreciate (LON:APP) (+54%) , Metro Bank (LON:MTRO) (+60%) , Chapel Down (OFEX:CDGP) (+80%)
Dividends; a small but significant 12% of my total gains are from dividends, the other 88% from capital gains.
A bold contrarian call in November 2021; to add Xtrackers S&P 500 Inverse Daily Swap UCITS ETF 1C (LON:XSPS) which is a short…

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Boon

7th Jan '23

Appendix: current holdings

Small (0-5% of portfolio) , Medium (5-10% of portfolio), Large (10%+ of portfolio)

ISA - Changes	Name	Size ↓
No Change	Begbies Traynor (LON:BEG)	M
No Change	Medica (LON:MGP)	M
No Change	Appreciate (LON:APP)	M
No Change	Time Finance (LON:TIME)	S
Sold All	Spaceandpeople (LON:SAL)	S
Sold All	Intercede (LON:IGP)	S
No Change	LPA (LON:LPA)	S
Sold All	Fulcrum Utility Services (LON:FCRM)	S
No Change	Oxford Biodynamics (LON:OBD)	S

SIPP - Changes	Name	Size ↓
No Change	Phoenix Group (LON:PHNX)	L
No Change	Costain (LON:COST)	M
No Change	Chapel Down (OFEX:CDGP)	M
No Change	Metro Bank (LON:MTRO)	M
No Change	£XSPS	S
No Change	Spectra Systems (LON:SPSY)	M
No Change	Itv (LON:ITV)	S
No Change	Gem Diamonds (LON:GEMD)	S

BnB

8th Jan '23

Interesting analysis thanks and congratulations on your excellent performance. A very different set of sectors to those that capture my attention but some shared issues/challenges. I’m not asking you to reveal your portfolio size but I would be very interested in what you consider the limits of position sizing for small and mid caps to retain adequate liquidity. It’s something I’ve struggled with and not helped by variations within the categories. Thanks again for a very informative post.

Bluesky Ventura

Great article and performance, I hope it continues for you. Good luck for 2023,

BSV

Position sizing for ease of exit

My position sizing process is primarily based on a few things. First, I set what the time frame I'm comfortable with, if I need to sell my entire position. Currently, it's set to two days.

I then make a judgement on how much of daily sell trading volume I think I can be, without moving the price. At the moment, my past experience says around 25% is right.

I then look at the average daily trading volume. Usually just the Stocko figure, but if I eye ball and see some outliers in the past 3 months, I then do a manuap adjusted average.

So daily trading volume x 25% x 2 days is my limit.

However, I then adjust again, upwards, based on better liquidity on RNS days. As there's usually more activity in the day or two of announcements, that I can tap if needed. For now I take a 10-30% adjustment, depending on how frequently the company releases updates.

This system should work across all sectors or market.

The real solution, would be to use a proper broker to manage trades, rather than try to do it manually through my execution-only broker. This will mean I'm more confident of exiting positions in greater size without compromising pricing.

I might see if IG and AJ Bell could do it, but given that I'm still making only 4 or low 5 figure trades usually, I'm guessing this isn't feasible? Thoughts would be welcome from anyone who uses a more active broker service!

----

Position size for risk management

So that was the answer in position sizing, for being able to exit positions quickly. My other rules are that I don't take a position size smaller than 1.5% of my portfolio value, or higher than 15%. My usual size I tend to go for is 5% (so that I can aim towards a diversified portfolio of 15-20 companies). But I go lower or higher depending on how risky I think that position is. Potential gain isn't taken into account, as I have a minimum threshold of +40% in 12 months criteria, and kind of treat all my new positions as having the same gain potential.

For example, with Phoenix group (LON:PHNX) i was willing to go >10% size immediately with my initial buy, as the risk is low given its asset backing and super high visibility of revenues and profits = low risk of any shocks.

Thanks for the detailed reply. I trade through my bank’s e-trading facility although I have the backup of a high touch wealth management service. For small caps I find it quite hard to trade in five figure sums as, according to my advisor, the market makers that the bank uses for small caps are a law unto themselves and have to be bullied into trading more than £5k per day per share. This is problematic as my typical position size is many multiples of that. It can take a week or two to build a position in the less liquid names and much longer to close it down except on RNS days or bid situations. Whether a separate broker relationship would help is a valid question but I’m not keen to complicate my transaction chain.

jonno

9th Jan '23

Morning Boon

A great article as always. Congratulations on your splendid performance, especially 2022.

You provide plenty of food for thought. I run an almost exclusively UK small cap/AIM portfolio of 25 shares so 2022 was unsurprisingly challenging; down 13%. Still I remain optimistic. The reasons for investing in small caps are well rehearsed. Also I am able within reason to better understand their reporting and accounts. I would further add that many smaller companies now provide good access for retail investors by means of webinars available on platforms such such as PI World and Investor Meet Company, or physical presentations. Mello being an example of the latter

I am of the view that there are several small cap shares where prices have been excessively depressed even allowing for the economic headwinds. This for me is where the opportunities lie. However I accept that my research has on occasion been flawed. That apart in the short term the price may continue to decline despite my conviction

Before investing I ask myself three questions:

Do I really understand and know the company; opportunities, gearing, products, strategy?
Am I acting on the facts, not on speculation or predictions for inflation, interest rates etc?
Am I being stupid?

The above questions are borrowed/paraphrased from Warren Buffet, Charlie Munger and Peter Lynch. The result is that I don't invest directly in biotech, blue sky, mining or oil companies and for personal reasons I also avoid tobacco and arms/munitions companies.

Anyway enough of my waffling, the above approach has led to me to adding to my holding in Harworth (LON:HWG) at 103p as I believe that most of the misery in already baked in to the shares. Like you I am also watching housebuilders, but at present prefer the picks and shovels approach and so have recently bought Forterra (LON:FORT) instead. I have also bought at or close to recent lows Portmeirion (LON:PMP) Ten Entertainment (LON:TEG) TT electronics (LON:TTG) and £CAU I have looked at Galliford Try Holdings (LON:GFRD) that trades below the cash on the balance sheet and which I prefer to Costain (LON:COST), however construction related companies have low operating margins, which makes me somewhat circumspect. I continue to watch Chapel Down (OFEX:CDGP) for an entry opportunity.

My portfolio and those of my family are held within ISAs so one has to buy to sell, however the positive aspect is that it does impose a degree of self discipline.

I wish you all the best for the New Year and hope that come December I can emulate or at least get close to your level of performance.

Best wishes

Paul Hill

Afternoon - When convenient, I don't suppose you fancy a chat sometime. Like yourself I'm a professional investor, & we might be able to compare notes. ATB. Paul

10th Jan '23

Thanks Jonno! I too find small caps accounts and reports much easier and shorter to digest. Less accounting wizardry, than from the more highly paid accounting teams at larger companies :)

I really have missed out on investor presentations from the likes of IMC and PI World. I have watched the odd one in the past year, but must admit I have been a bit lazy, and also without the time. I wish both of them would produce text transcripts. Or maybe I need to find a way to download them for offline listening, while on the Tube to work in the mornings... would love to attend Mello one day!

You have an interesting selection of shares held as well on watchlist; as you have taken an interest in housebuilding, I want to share a recent commentary I read, from the Aurora Investment Trust update for Dec22. They write an interesting commentary (around page 6) on the housing sector, as they are overweight in that sector. Not sure I agree with all their thinking, but some of it was new to me.

I too can only go long individual shares in my ISA and SIPP :) Which is a hard constraint that makes it more challenging in these days! But there are always index short etfs... and more and more exotic short etfs to dabble in potentially...!

Hey Paul! Just found your twitter on your profile, and followed. I would be the one with Boon in the username!

11th Jan '23

Cheers Boon,

I have briefly looked at Aurora. I believe its largest position is Frasers together with two house builders. Bellway (LON:BWY) comes to mind. What put me off at the time was that I seem to recollect it was trading at par or even a small premium, but will certainly revisit and take in the annual report and commentary on house builders.

I hope that work isn't too stressful and look forward to your next review.

All the best

Mark B1

12th Jan '23

What a great post - thanks for sharing

Helvellyn

13th Jan '23

Great post Boon, thanks for taking the time.

Quite a lot to digest, learn and compare regarding position sizing etc from your post and answer to BnB.

I will need to reread a couple of times.

Great 2022 performance too, well done.

Boon's Fund Recap – Year End 2022! +12.0% vs FTSE AllShare -3.4%

(Part Time) Fund Manager’s Report

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Boon

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Appendix: current holdings

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