SIF Folio: Brexit Trading Decisions + A Surprise Return For Carr’s?

11th Dec '18 by Roland Head

13 comments 4888 reads

When UK voters shocked the market by opting for Brexit in 2016, the resultant sell-off was sharp and brutal. Most stocks bounced back as quickly as they fell, but not all.

Stockopedia founder Ed Croft’s annual NAPS portfolio suffered from this dislocating event. The NAPS returned just 5.4% in 2016, compared to a 12.5% return for the FTSE All-Share. In contrast, the six-monthly SNAPS version of the portfolio delivered an 13.9% gain for the year, beating the market.

The big difference between the two was that the SNAPS selected a fresh set of stocks at the start of July, after the Brexit vote. The NAPS selections were held unchanged throughout 2016.

Ed’s conclusion was that if the market plays a joker card, it can make sense to deal yourself a fresh hand. With this in mind, it would be easy for me to argue that it’s unwise to add new companies to my SIF folio at the moment.

Not only has Parliament’s planned Brexit vote been postponed, but the European Court of Justice ruled on Monday that the UK could cancel Brexit and stay in the EU. Without wanting to get into a political debate, it now seems that we could end up with anything from full EU membership to a hard Brexit.

I nailed my colours to the mast two weeks ago when I said that I thought a no-deal “cliff-edge Brexit is increasingly unlikely”. Time will tell. But I think that whatever happens, two years of worry mean that the eventual decision is unlikely to have the shock value of the original Brexit vote. I think that at least some of the downside risk is already priced into the UK market.

I intend to continue buying and selling stocks as usual, both within my personal holdings and in the SIF fantasy fund.

I’d be very interested to hear what you are doing with your folio -- are you making allowance for Brexit, or is it business as usual?

My screen delivers another surprise

The Stock in Focus screening results have dwindled to about 10 stocks in recent weeks. Last week, software firm D4T4 Solutions (LON:D4T4) surprised me as a completely new entrant.

This week I received another surprise, when small-cap Carr’s (LON:CARR) appeared at the very…

Unlock with Email

Unlock with Google

Already have an account?
Login here

WarrantStar

11th Dec '18

BREXIT TRADING DECISIONS
Hi Roland
Most of my portfolio were high flyers. Over the last few months they were gradually falling in price mostly due to being de-rated. Instead of making money, I was losing it. I keep an eye on the Fear & Greed Index, and it was showing a steady "extreme fear" rating. Also, I didn't like factors such as rising interest rates, trade wars & Brexit uncertainty. So, in late October, I sold everything, which overall amounted to decent profit taking. I am still watching all these factors, but sitting on the side lines. My plan is to rebuy many of my holdings, when these factors are looking more settled, and the share prices have stopped falling.

Roland Head

Hi Warranstar,

Thanks for such an honest reply. I can certainly see the logic behind your decision, especially if you're portfolio was weighted towards high flyers.

Good luck in the markets,

Roland

dodge1664

interesting stuff, Roland. I notice that the share price quadrupled between 2010 and 2014, but seems to have been going sideways since. Profit in the agricultural business seems to depend quite a bit on the weather, and on how much profit farmers are making. So they made a lot of money in 2013 and 2018 when demand for cattle feed was high. They also seem to benefit from GBP weakness, because farmers then make more money from selling their produce in the EU, and they are then able to buy more of Carr's products. The poorer results in 2017 seem to be the result of a temporary problem in one large engineering project that has now been rectified. Have you figured out whether organic or inorganic growth is the real driver?

Howard Adams

12th Dec '18

Hi Roland

Brexit portfolio decisions .....

I went 100% to cash in November when the US & UK markets both tumbled - US/China trade wars, rising yield rates, Brexit, US/Germany trade wars, US/Saudi issues, etc ... Thus, Brexit was but one aspect of concern, the geopolitical ones and bond yields the greater issues.

Since then I stepped back in with my old holdings rising to 25% invested. But have subsequently pulled right back again to 10% invested.

But a new strategy adopted is that I have retained a small holding in all my 40 holdings. I had researched them well and felt them to be good companies, but daily market movements were so erratic that I could not determine which to hold or which to drop. Subsequently I have retained all 40 and watched them ebb and flow on a daily basis with no discernable patterns at all.

I believe that once a few events stabilise some will recover rapidly and I will simply feed the winners (rapidly) and let any laggards wither. In the meantime I have built up a list of new options and will bring these into play alongside the rising existing holdings, to replace any I exit from.

Reflecting on this approach it would seem I am not viewing recent markets as a move towards a bear market, rather as reactions to political occurrences which will ebb and flow over coming months. With this in mind I am tilting slightly away from quality, momentum and growth shares and placing more of a bias towards valuations than I have done in recent months.

Regards
Howard

EDIT: for context I am -3.90% down YTD, whereas the FTSE 100 which I track against is down -11.46% as of last night.

Hi Howard,

Your results so far this year are certainly ahead of the market and my own portfolio, so congratulations!

I don't think I could keep up with such a high level of trading over so many stocks.

Good luck as we head into the New Year. I don't know what will happen with Brexit, but it looks like we still have a Prime Minister, in any case!

Regards,

Roland

_ony

Hi Roland,

My trading portfolio taking a real whack, one such stock was Keller which I must admit came to my attention when you included it in your SIF folio. I got it wrong just like you did with this stock, but I must say, I have learnt a lot in this process.

These days I've become very conservative in my approach and take more time to do my research before I part with cash.

I've read your blog with great interest as I usually learn a bit more about Stockopedia every time, so thanks for that.

Cheers
J

AnonymousUser252054

Hi, Roland, thanks for another insightful piece.

As the experts say, timing the market is notoriously tricky so I think one's investment horizon is a key factor in deciding what to do. As mine is October 2019, this year has increasingly been one where protecting last year's profits has been the absolute priority and so I mostly cashed out several months ago after watching my holdings slide. I dip in now and then to occasionally lose a bit more. If I was thinking more medium to long term I expect I'd be telling myself to hold on for the recovery, and asking my doctor to prescribe sleeping pills until then.

13th Dec '18

onybardia,

Thanks for your comment and kind words.

Keller (LON:KLR) was definitely a disappointment, but as you say, we tend to learn more from our mistakes than our successes. In this case I should have been more suspicious about problems in Asia and researched the firm's activity/history in this area in more depth. This would have revealed previous problems in the same region.

Onwards and upwards in 2019 (hopefully)...

Cheers,

Roland

Hi shine66,

Thanks for your comment and for highlighting the importance of an individual's investment horizon.

This isn't something I've really mentioned before and I think it's often overlooked in discussions about stocks. It's important for investors to be objective about time frames and not simply hold on, hoping for a rebound/quick win.

Cheers,

Roland

Hi, dodge1664

I think that Carr's (LON:CARR) is less defensive than the FTSE categorisation might suggest. As you say, it's vulnerable to market conditions in the agricultural sector, where weather and produce/feed prices can cause big swings in farmers' profits.

The engineering division is also exposed to the cyclicality of the oil market, although I'd imagine the nuclear activities are less cyclical.

My perception is that growth is a mix of organic and acquisitions. I don't think there's any one factor that's driven the group's expansion, although I haven't done a lot of historic research into this.

Cheers,

Roland
Disclosure: I own shares of CARR

14th Dec '18

I managed to dig up a few stats on this company, which is a rather strange combination of agriculture (mainly cattle feed blocks), and nuclear engineering (e.g robotic arms for use in high radiation environments).

*Operating profits by division in 2018: £13.4m (76%), Engineering £4.1m (23%). There is also a relatively small food division.
*Revenue distribution UK 85%, USA 11%
*revenue growth: UK 15%, USA +24%, Europe + 17%.

So it seems to be mainly a play on UK cattle feed, with the possibility of more growth in the US. This might not be the commodity business I assumed it to be, because of the feed supplement brands they own.

Having read about dairy farmers giving up and closing their farms, I was a bit surprised to read that the size of the UK dairy herd has actually increased by 5% over the last 5 years. Apparently, its the smaller farmers that have been pushed out.

brileen

15th Dec '18

Hi Roland
Thanks for another great piece. You have once again unearthed a company which I find of interest and am now giving further research. I did make a purchase of Anglo Pacific which you brought to our attention a couple of months ago. I bought at 142p. The price today remains at 142p, so it has weathered the downturn well so far.
Not sure what the effects of Brexit will be on the uk livestock industry and therefore feed suppliers. I know that exports to Europe are growing fast but still remain approximately 50% of our imports from the EU. Will we be able to compete once outside of CAP? Will the government continue to subsidise our farmers? Will our markets be open to cheaper imports from South America and Australia? Could be difficult times ahead. Any comments from anybody better informed than I am would be appreciated.

Overall my portfolio is down 7% since Jan 1st and down much more from the high point for the year. Experience has taught me not to try to time the market, I never get it right and I have not attempted to do so this time. I think that it is very important to be in the market in the first few days after it turns as this seems to be the time when a large part of any drop can be recovered. Lets hope I am right this time.

Regards
BB

Berksbee

21st Jul '20

Hi Roland, our paths cross again - CARR has intrigued me for a while - so long as the Oil and Gas element doesn't drag it down. Do you still hold it in the SIF? Whats your current thinking? Don't hold it (yet) but hold ADM in the US.

SIF Folio: Brexit trading decisions + a surprise return for Carr’s?

My screen delivers another surprise

Unlock the rest of this article with a 14 day trial

About the Author

Roland Head

13 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...