Which stocks I own, & how my portfolio has fared during the summer lull in UK smallcaps

Incredibly we’re already 2/3rds through the year, yet oddly 2023 feels as though its only just started. Why?

Well despite March’s banking madness & the AI frenzy, there’s still plenty of economic heavy lifting to do. Work which frankly should have been done & dusted by now, such as the fallout from the 5% interest rate hikes, the deteriorating M2 money supply & China’s slowdown.

Ok, so what happens next?

Here given the extended #NASDAQ valuations (27x fwd PER), I suspect some of the best future equity returns will come from the much maligned UK small/midcap sector.

Indeed the #FTSE AIM index is almost back to decade lows of 734 (see below), but trades on median PE & PEG ratios of 12.2x & 0.63x respectively, alongside paying a 3.3% dividend yield.

Sure volatility is high due to illiquidity issues & fund manager redemptions. Yet equally for sharp eyed, risk tolerant investors, then this is probably where the next bull market will benefit most.

Exactly when is anyone’s guess. Albeit my take is that once wage inflation begins to track towards a sustainable 3% level (ie consistent with 2% core CPI), then this should provide the necessary 'green light' for the Federal Reserve & BoE to begin cutting rates.

Meaning with markets typically reacting 6-9 months ahead of economic data - my best guess is that UK small/midcaps should begin to bounce back sometime in H1'24.

In the interim though like many other investors, my portfolio (see below charts) has been hit hard over the summer. Plus I’ve taken a very conservative approach to my position in essensys (re a software developer for flexible workspaces & large office blocks) - & decided to write down the stake entirely wrt the numbers.

That said, I haven't actually sold any #ESYS shares as yet, & believe the investment thesis is certainly NOT broken. However the danger is they need more capital to ultimately become the industry's category killer as the work-from-home phenomenon fully shakes out.

Elsewhere going forward, I plan to redeploy my 21% cash holding over the next few months - by purchasing attractively valued secular growth stocks (eg healthcare, tech, etc) that possess pricing power, IPR, recurring revenues, high profit margins & strong balance sheets.

Nonetheless, I STRESS my 23 year HIT RATE is only 63%. So 37% of the time I’m wrong & lose money.

Lastly & hopefully ending on an upbeat note. In the event there’s ever a Ukraine/Russia ceasefire - then this should also improve business confidence, sentiment and support higher corporate profits in 2025.

Best of luck everyone wrt your investments.