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We review how a selection of our investment ideas have panned out
Thursday 04 Mar 2021 Author: Ian Conway

While we regularly look at how our Great Ideas are getting on we have had reader feedback about providing more clarity on the performance of our investment ideas elsewhere in the magazine.

This feature will therefore be the first of several in the coming months where we look retrospectively at these other ideas to see if they have added value.

As a starting point, we are revisiting our article on value investing published in September 2020. In it we looked at the prospects for value stocks after more than a decade of underperformance against other factors such as growth, momentum and beta.

One of the catalysts we suggested could trigger a renaissance for value stocks was a rise in bond yields consistent with an improvement in manufacturing trends, which has been the hallmark of every economic recovery for the past 20 years.

As it happened, we were a couple of months early with our article, and we didn’t predict the sharp rally caused by the announcement by US drug giant Pfizer on 9 November of an effective Covid-19 vaccine.

However, as is often the case in these situations, it paid to be early as the market reaction was so sudden and so severe that many investors who waited for the good news before buying were left behind in the stampede.

So, did our ideas add value?


National Express (NEX)

– 314p –

Buy at 120.1p on  17 September 2020

Gain to date: 161%

FTSE All-Share to date: 12.4%

We argued in mid-September that the opportunity to buy the market-leading UK bus and rail operator at 7.4 times highly-depressed forecast earnings for 2021 was too good to pass up.

While the scale and timing of a recovery were – and to a large extent still are – unknown, the valuation seemed to take no account of the fact half the firm’s revenue was contracted, meaning it got paid regardless of whether its services were running, or of the value of its US bus operations and their long-term growth potential.

At the height of the pandemic, the company still generated positive earnings before interest, taxes, depreciation and amortization (EBITDA) and its banks were willing to waive their debt covenants until year-end, giving it breathing space.

Fast-forward to today and National Express has seen a near-trebling of spring and summer holiday bookings compared with last year, driven mainly by the over-65s who were the first to be vaccinated.


Henderson Opportunities Trust (HOT

£13.56 –

Buy at 851p17 September 2020

Gain to date: 59.3%

FTSE All-Share gain to date: 12.4%

We liked Henderson Opportunities (HOT) for its 17.9% discount to net asset value and its track record of generating almost 10% NAV growth per year over the last decade, well ahead of the
6% average annual growth chalked up by the Morningstar category benchmark.

Managers James Henderson and Laura Foll look for a combination of out-of-favour stocks, like building materials firm SigmaRoc (SRC:AIM), as well as those perceived to be ‘in the sweet spot’ such as Ceres Power (CWR:AIM), the maker of fuel cells.

After the publication of its annual results in September, Ceres shares almost trebled to £16 in late January, although they have since drifted back slightly.

Meanwhile, SigmaRoc recently surprised the market by raising its full year revenue and operating profits forecasts as trading in the final quarter of last year beat expectations.

As well as a near 60% gain the shares, investors have been rewarded with a narrowing of the discount to NAV to less than 10% today.


Fidelity Special Values (FSV

 – 253p –

Buy at 178.3p17 September 2020

Gain to date: 41.9%

FTSE All-Share gain to date: 12.4%

Lead manager Alex Wright and co-manager Jonathan Wright stuck to their guns last year and were well rewarded as the market rotated to unloved and under-valued companies in the final quarter.

Despite the recent rally in value stocks, Wright is still optimistic about the outlook for UK equities and sees plenty of opportunities to buy decent quality companies at attractive valuations, with ‘meaningful upside potential’.

The fund’s top holdings include insurers Legal & General (LGEN), which is consolidating the defined benefits pensions industry with large bulk annuity deals, and Aviva (AV.), which is being reshaped by its new chief executive.


iShares Edge MSCI World Value (IWFV

£24.78 –

Buy at £21.0317 September 2020

Gain to date: 17.8%

FTSE All-Share gain to date: 12.4%

We took something of a flier with this ETF, given it had lagged its Morningstar benchmark by almost 2% per year over the last five years and the benchmark hadn’t exactly hit it out of the park to start with.

However, this BlackRock-managed passive product benefited from its overweight exposure to Asia – 33.8% at the time of choosing – which exited the pandemic much faster and in better shape than the US or Europe, driving stock prices with it.

Even an overweight position in technology stocks and top 10 holdings in IBM, Intel and Micron did the fund no harm as US hardware and software stocks continued to outperform even after the vaccine news.

Despite lacking a big weighting in classic ‘value’ sectors like energy and utilities, the fund has held its own in 2021 with a 10% return.


Kenmare Resources (KMR)

– 405p –

Buy at 235.39p17 September 2020

Gain to date: 72%

FTSE All-Share gain to date: 12.4%

We said to buy the mineral sands miner in the belief the company would be viewed in a better light by the market once it had moved a large piece of equipment that would lead to stronger output.

The company has subsequently moved its wet concentrator plant in Mozambique to an area where it is now mining higher grade ore and the benefits are already been seen with greater production levels than forecast by analysts.

It’s helped that we’re in a potential new super-cycle for commodity prices as the world starts to get back on its feet after Covid-19. Investors have become more interested in mining stocks which has given a lift to large parts of the sector.

Kenmare says global demand for ilmenite, its primary product, exceeded supply in the fourth quarter of 2020 and led to significant price increases.

Higher selling prices and greater production levels bode well for the company’s cash flow and therefore dividends for shareholders. Berenberg forecasts $0.23 dividend per share for 2021, implying a 4% yield.

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