Malcolm from Edinburgh has reshaped his pension portfolio after studying some past performance data

Monday 9 November saw things change for investors as the surge of enthusiasm associated with finding a vaccine for Covid-19 buoyed markets. For the first time in many months the vast majority of my 30 shares rose markedly.

This did not trigger a notable increase in buying and selling on my behalf. I reduced my investment in two funds but little else. It was pleasing though to see that half my shares were now in profit, just above a quarter were between 5% and 10% down with most of the others close to between 20% and 25% in arrears. Only two stocks, BP (BP.) and Royal Dutch Shell (RDSB), were steadfastly lagging at around 50% below their purchase price.

Following ‘vaccine Monday’ my first 10 months of investing had now led to a more satisfying break-even figure and in the weeks thereafter to a smallish surplus; all up, something which in my opinion helps justify investing in a pension fund rather than taking out an annuity.

HAVING A MORE CONCENTRATED PORTFOLIO

There is more work to do. What emerged as a priority is to fine tune the width and depth of my portfolio – 30 shares in an invested portfolio of £150,000 now seems to me rather too many – and review the sectors investments are in.

Informing decision making was a table in the Editor’s View column in Shares on 22 October 2020, which highlighted that the FTSE 250 had significantly outperformed the FTSE 100 over the last two decades.

With elegant simplicity the table indicated that the 10-year change in the FTSE 100 was 4.1% and 65.2% for the FTSE 250.

Given that my portfolio contained 18 FTSE 100 stocks, eight in the FTSE 250, two from the AIM market and two shares from the global Xetra market, a greater prominence for shares in the FTSE 250 was an idea to consider. Moreover, paying closer attention to the FTSE 250 index enables selected trusts and funds be added to my portfolio if wished.

IN AND OUT

So began the process of identifying sound investments from the FTSE 250 to invest in and reviewing whether to retain FTSE 100 shares or not.

Following an analysis of share price charts, price to earnings ratios and increasingly directors’ dealings – I do like to see directors buying shares in their own companies – shares were purchased from the FTSE 250 in Drax (DRX), Hill & Smith (HILS), Kainos (KNOS), Renishaw (RSW) and TI Fluid Systems (TIFS),
plus Fidelity European (FEV) and Smithson Investment Trust (SSON).

During this period, shares in FTSE 100 companies HSBC (HSBA), Smiths (SMIN) and Taylor Wimpey (TW.) were sold.

Most of these new investments matched my continuing preference for investing in construction, banking/insurance and pharmaceuticals and to a lesser extent technology and minerals. Based on relative lack of knowledge and unease about the level of risk/reward, I shy away from retail, leisure and travel.

There were no changes in the sectors I am invested in, but given that most of my investments are typically £4,000 to £6,000, the idea of reducing the number of shares held from 30 to around 20 and investing as much as £8,000 to £10,000 in each of these shares appeals as part of a ‘less is more’ growth strategy.

ASSESSING OTHER HOLDINGS

In recent months, I have been carefully reviewing share price fluctuations, the relative resilience of shares, and those shares which may well thrive if the recovery programme for Covid-19 is successful. To a lesser extent, dividend payments have been considered as well.

On this basis, Aviva (AV.), Howden Joinery (HWDN), Scottish Mortgage Investment Trust (SMT), DS Smith (SMDS), Tesco (TSCO) and Unilever (ULVR) seemed to fit my criteria for a larger investment as well as investing from scratch again in past favourites: Melrose Industries (MRO), SSE (SSE) and UDG Healthcare (UDG).

Identifying further first-time shares will continue in the months ahead, as will reviewing existing shares, which are modestly in surplus or slightly in arrears and deciding whether to sell, hold or increase investment in them.

I have also paid closer attention recently to the AIM 100 index as in 2020 it performed markedly better than the FTSE 100. It is interesting to review the business model and rationale for these companies and often the changing use of technologies which are planned. So far, I have added Blue Prism (PRSM:AIM), Gamma Communications (GAMA:AIM), GB Group (GBG:AIM) and ITM Power (ITM:AIM).

REVIEWING LAGGARDS

A further priority is deciding what to do with shares which are 15% to 25% in arrears. My review of company reports and related literature has helped draw attention to why Diageo (DGE), Smith & Nephew (SN.) and Vodafone (VOD) are struggling.

While GlaxoSmithKline (GSK) and Tate & Lyle (TATE) have been praised by some market commentators, my shares in them continue to perform modestly, despite having attractive price to earnings ratios, solid earnings yields and appealing dividend payments. If I could grasp why these shares rarely show sustained improvement, then I might really be onto something.

DISCLAIMER: The views in this article are those of the author and not of Shares or AJ Bell, the owner of Shares. Readers should consult a suitably qualified financial adviser if they are unsure about managing their own investments. Past performance is not a guide to future performance. Shares’ Editor Daniel Coatsworth owns shares in Smithson Investment Trust referenced in this article.

 

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