The Accidental Millionaire

Portfolio Performance: 20% in six months (Month ending November 2012)

2012-12-02T04:58:00.001+00:00

Recent Performance

The portfolio continues to do well. In the last six months the return has been 19.6%. By comparison the FTSE100 has increased by 9.7% over the same period.

The table below shows the monthly returns for the last 12 months:

Month	Return
Dec 2011	-2.0%
Jan 2012	3.7%
Feb 2012	3.9%
Mar 2012	-4.1%
Apr 2012	-3.9%
May 2012	-5.1%
Jun 2012	1.8%
Jul 2012	6.0%
Aug 2012	2.0%
Sep 2012	3.6%
Oct 2012	2.8%
Nov 2012	2.1%

And is further summarised in the table below:

One month	Three months	Six months	YTD 2012	12 months
2.1%	8.7%	19.6%	12.8%	10.5%

Current Holdings

Investment	Weighting
iShares EUROSTOXX 50 ETF	55.2%
iShares Asian Property ETF	16.6%
Zopa Lending	7.5%
DJ-UBS Natural Gas ETC	6.9%
Other Pension Funds	6.0%
iShares Far East ex Japan Small Cap	5.0%
Gold	1.2%
Cash	1.6%

This month has been fairly passive and no major changes to the portfolio have been made. The cash holding has increased due to dividend payments on two of our funds (I don't automatically reinvest dividends).

ishares EUROSTOXX50

This fund has performed well this month and accounts for the majority of our gains. Last month we added to this at 1989p a share, the fund is currently trading around 2106p. We've also upgraded our short term target to around 2427p (previously 2360p).

ishares Asian Property

Continues to perform well. In addition a quarterly dividend of $0.1932 (0.74%) was paid this month. The fund is trading very close to its short term target of 1668p (downgraded from 1690p last month). If the fund reaches its target the plan of action would be to liquidate 30-40% of our holdings. I would like to keep exposure to this asset class, but at these levels we can probably get back in at a better level or invest in a different region. Currently 1630p a share.

DJ-UBS Natural Gas ETC

Fairly weak performance this month (down about 4%). This remains our high risk, speculative investment but we have no reason to leave the trade at present.

Other Pension Funds

These are still active and nominal amounts are added to them each month.

Zopa Lending

Zopa rates have dropped off a bit this month with expected returns being around 5.9%. About 50% of our Zopa total remains in the holding account. We think rates will pick up in the new year and are happy to wait for plus 6% expected returns.

ishares Far East (ex Japan) Smaller Companies

Solid performance plus a $0.4495 (1.70%) dividend per share this month.Target upgrade to 1909p (from 1860p previously) with a current price of 1648p a share.

Gold

No changes.

Cash

Very little cash holdings at present as I invested the relatively large amount recently roughly splitting it; 50% EUROSTOXX, 25% Zopa, 25% Natural Gas.

Asset Allocation

Current Top Equity ETFs

2012-11-25T15:02:00.002+00:00

Here's an update on equity ETFs. China still looks the best value on paper with expected returns over 8%. However as mentioned in previous posts the high weighting of financial stocks in the China 25 fund causes some concern.

Small cap stocks are looking good value at present with Far East (ex Japan), Emerging Markets, and Eurostoxx all having small cap funds in the top 7. In some cases these funds have higher dividend yields than their large cap counterparts with potentially better growth prospects. Small cap stocks are obviously riskier but the small cap funds typically include more companies than their large cap counterparts and weighting on any individual company is usually small (c. 1%).

Going back to large caps the Eurostoxx 50 and the FTSE100 funds look good value. They pay decent dividends and are seen as low risk. The BRIC fund follows close behind offering some geographical diversity.

The table below summarises the data:

Name	Ticker	Div Yield	PE Ratio	Current Price	Initial Target	Est. Annual Return
China 25	FXC.L	2.6%	9.9	6657	9046	8.3%
FE(ex Jap) Small Cap	ISFE.L	2.1%	14.4	1632	1909	6.2%
EUROSTOXX50	EUE.L	4.1%	12.8	2076	2427	6.2%
FTSE100	ISF.L	3.5%	12.0	580	668	6.0%
BRIC	BRIC.L	2.5%	13.3	1609	1842	5.9%
EM Small Cap	IEMS.L	2.1%	19.1	6214	6635	5.1%
EUROSTOXX Small Cap	DJSC.L	2.9%	16.4	1738	1784	4.7%

· The estimated annual return is based on this formula using the above data.
· The PE ratio is taken from ishares (US site), Yahoo Finance and etfdb.com.
· Initial target is a short term target based on the above fundamentals (at this price it would be wise to liquidate and move our capital to potentially better investment opportunities)

The Life Cycle of a Stock: Apple Inc

2012-11-11T13:56:00.004+00:00

Using historical data the illustration below shows the estimated returns on Apple stock (AAPL).

The estimated returns are based on the following formula:

Estimated Returns = Adjusted Yield + Growth Rate - Adjustment Rate

The Adjusted Yield is the Dividend Yield plus half of the companys' retained earnings. For more information on the Adjusted Yield see here.
The Growth Rate is analyst forecasts discounted by 50% and capped at a maximum of 15% growth per annum.
The Adjustment Rate is used for stocks with a Adjusted Yield below 6.5% and is used to offset the fact the stock may be overvalued. The formula is this:

[ (Adjusted Yield / 6.5%) ^ 0.1 ] - 1

Comments

In 2007-2008 Apple's earnings were low given the stock price (EPS 2007: $4.04, 2008: $5.48) resulting in the stock looking overvalued despite high growth forecasts. This gave a fairly average 6-7% expected return.
In April 2009 the stock hit a 100 day high marking the end of the previous downtrend. Earnings had increased significantly although the stock price remained below its 2008 levels resulting in PE ratios in the low teens. At these levels the expected returns were around 15% a year which is high for our model.
Earnings continued to keep pace with the stock price's upward momentum and analyst forecasts remained bullish resulting in the expected returns remaining around the 15% level for 2010 and 2011.
In 2012 the stock was starting to look less attractive as an investment. The PE ratio remained low but analyst growth forecasts going forward were lower than previously giving an expected return in our model around 10%.
At the beginning of November the stock broke a 100 day low, possibly signalling the beginning of a downtrend. At the price of $574 a share the stock looks modestly priced with an expected return of 6.3%.

The Top 5 FTSE100 Stocks to Invest in Now

2012-11-08T11:47:00.001+00:00

Back in June we recommended 5 stocks in the FTSE 100 as the best stocks to buy. Top of that list was Standard Life which returned 40% profit in 5 months. The average of the 5 stocks was over 14% which compared well to around a 8% increase for the FTSE100 index.

Since then we have refined our model to take account for retained earnings which you can read about in the post "The problem with dividends".

Using this adaption to the method still gives us the same basic valuation formula:

Total Expected Return = True Yield + Growth Rate - Adjustment Rate

Where:

True Yield = Dividend Yield + ((Earnings Yield -Dividend Yield) / 2 )

Note: The earnings yield is simple 1/PE ratio.

Growth Rate = Annualised forecast dividend growth rate for the next two years discounted by 50%

(e.g. if analysts forecast a 10% annual growth rate we will use a 5% growth rate in our model to give us a margin of safety)

Adjustment Rate = ((True Yield / 6.5%) ^ 0.1) - 1

The value of 6.5% in our formula is seen as "fair" value. Stocks with True Yields below this will be penalised for being overvalued by the market. Only negative values for the adjustment rate are used.

The list filters out stocks that are down-trending currently and stocks with large amounts of insider selling.

The Top 5

Stock	Ticker	Expected annual return
BP	BP.L	17.8%
Resolution	RSL.L	16.8%
GKN	GKN.L	14.8%
Legal & General	LGEN.L	13.1%
AstraZeneca	AZN.L	12.3%

The list includes two insurance companies, an oil giant, an engineering firm and a pharmaceutical company.

BP (436p)

With a market cap of £82b BP is currently the second biggest stock in the FTSE100 index after HSBC. The stock currently pays a decent dividend of almost 4.2% on a PE valuation of just 5.1. Over the last 12 months the directors have been purchasing nominal amounts of the company stock.

After a downtrend at the beginning of the year the stock recently broke its 100 day high in mid October. Its recently pull back off its highs but remains in an uptrend at present:

Resolution (237p)

Insurance company which owns Friends Provident and AXA Sun Life. The current dividend yield is a massive 8.5% with a PE of 4.7. The forecast for the dividend growth is also positive with a consensus of 21.47p for 2013, up from 19.89p in 2011.

In the past few days Resolution has also broken its 100 day high signaling the potential beginning of an uptrend:

GKN (211p)

GKN is an engineering firm that is produces drive shafts and axel joints for the automotive industry. With a market cap of only £3.4b this is one of the smaller stocks in the FTSE100 index. It currently has a dividend yield of over 2.8% and a PE ratio of around 9.3. The current consensus for 2013 is a dividend of 8.07p, up from 6p in 2011. In the last 12 months insiders have made net purchases of the company's stock totaling over £750,000.

Its share price broke its 100 day high in mid August and has pulled back a bit since then but remains in an up-trend:

Legal & General (143p)

LGEN is a long running life insurance company with operations in the US and Europe with its main business in the UK. The current dividend yield is a decent 4.5% with a PE ratio of 11.4. In the last 3 months the insiders have been purchasing nominal amounts after some big sell offs earlier in the year totaling almost £2m. The company has a good track record of increasing dividends albeit it did lower its dividends slightly during the financial crisis in 2008-9.

LGEN is currently on a strong uptrend:

AstraZeneca (2865p)

The British-Swedish pharmaceutical giant gets half its sales from the US. With a PE of 6.3 and a dividend yield of 6.1% the stock looks good value. The company has a very good record for increasing dividends and the forecasts going forward also look favourable. The past 3 months has seen nominal insider buying but it remains negative for the past 12 months.

The stock is currently on an uptrend after breaking its 100 day high in mid July. Since then the price has fallen back a little:

The top 5 FTSE stocks: How did they do?

2012-11-05T06:43:00.002+00:00

Five months ago I posted an entry on the blog entitled "The top 5 FTSE100 stocks to invest in now". Since then the FTSE 100 index has increased from 5435 to 5869 a rise of 8%. So how well did our 5 stocks do?

Standard Life

Standard life was at the top of the list of 5 and happens to have performed the best. On the 8th June the price was 217p a share. Today (4th November) the share price is around 299p. On top of that a 4.9p dividend is due on the 14th November (ex div 22nd August). Including the dividend this gives a 40% return.

Looking at the chart the uptrend for this stock is currently strong:

Scottish & Southern Energy

SSE was second on our list. The share price has subsequently increased from 1329 to 1444p a share. On top of this a 56.1p a share dividend was paid on the 21st September giving a total return of 13.1%.

The chart for SSE also shows a good uptrend:

National Grid

National Grid has performed in line with the FTSE index seeing its price increase from 653 to 707p a share an increase of 8.3%. No dividends were paid in the last 5 months.

National Grid is showing a strong uptrend at present too:

Marks & Spencer

This stock has performed better than the market rising from 340.5 to 391p a share, an increase of 14.8%. No dividends were due over this period.

The share price has seen a strong rise recently and has broken previous highs on March this year:

GlaxoSmithKline

GSK has proven to be the only bad egg in the list. It's price has fallen from 1430 to 1361. A 17p dividend per share was paid on the 4th October but even including this the total return is -3.6%.

The price action looks pretty bad too with the 100 day low recently being breached:

Overall the 5 stocks did well. If you had invested equally in the five stocks in June then you would be sitting on a 14.5% gain which compares well to the 8% gain for the FTSE100.

Due to the popularity of the original post I will be posting a new list in the coming days.

Portfolio Performance (month ending October 2012)

2012-10-31T12:12:00.001+00:00

Recent Performance

The last five months have seen the portfolio increase in value by 17.2% which compares well to the FTSE100 index increase of 9.3%.

The table below shows the monthly returns for the last 12 months:

Month	Return
Nov 2011	-3.2%
Dec 2011	-2.0%
Jan 2012	3.7%
Feb 2012	3.9%
Mar 2012	-4.1%
Apr 2012	-3.9%
May 2012	-5.1%
Jun 2012	1.8%
Jul 2012	6.0%
Aug 2012	2.0%
Sep 2012	3.6%
Oct 2012	2.8%

And is further summarised in the table below:

One month	Three months	Six months	YTD 2012	12 months
2.8%	8.6%	11.2%	10.5%	4.8%

Current Holdings

Investment	Weighting
iShares EUROSTOXX 50 ETF	55.9%
iShares Asian Property ETF	16.7%
Zopa Lending	7.7%
DJ-UBS Natural Gas ETC	7.5%
Other Pension Funds	5.7%
iShares Far East ex Japan Small Cap	5.0%
Gold	1.3%
Cash	0.4%

Investing the majority of the cash into EUROSTOXX 50 ETF, Natural Gas and Zopa has increased the weighting in these three investments. The portfolio is very heavily weighted towards European stocks at the moment but I see the index as good value and well diversified.

ishares EUROSTOXX50

Recently increased holdings in this at 1989p a share. Short term target around 2360p, current price 2054p.

ishares Asian Property

At the current price I won't be adding to these holdings. Close to its short term target of 1690p a share. Currently 1576p a share.

DJ-UBS Natural Gas ETC

Recently increased holdings of natural gas by 50%. Probably the last addition to this trade as I don't want to hold too high a weighting of any one commodity in the portfolio. The high target price of 56c (currently 13.3c) means if the price rises then the proportion of the portfolio invested in natural gas will increase. At that stage I may slowly move out of the trade to keep the asset allocation reasonable (not more than 15% of the portfolio invested in commodities).

Other Pension Funds

These are still active and nominal amounts are added to them each month.

Zopa Lending

Current rates at Zopa in the A* long markets gives me an expected return of about 6.1% a year. With the recent moving of cash into Zopa around 50% of the Zopa balance is in holding awaiting lenders. I expect at the current rate to have lent out most of this balance within a month or two.

ishares Far East (ex Japan) Smaller Companies

No major changes in this holding. Recent IMF growth forecast downgrades have lower the expected return on this fund and thus it's short term target. Current target is 1860p a share with a current price of 1578p a share.

Gold

No changes.

Cash

Very little cash holdings at present as I invested the relatively large amount recently roughly splitting it; 50% EUROSTOXX, 25% Zopa, 25% Natural Gas.

Asset Allocation

China vs. Europe

2012-10-26T12:40:00.000+01:00

The current top 10 iShares equity ETFs. China is clearly in the lead with an estimated return of 8.29% a year followed by Europe with 6.23% a year. The rest range from just over 6% to 4.65% for Turkey. All apart from Brazil and Emerging Markets are in uptrends:

A closer look at the figures for China and Europe is summarised in the table below:

Fund	PE est	Dividend	Adjusted Yield	Growth Rate	Total Return
China	9.57	2.53%	6.49%	6.50%	8.29%
Europe	12.54	4.18%	6.08%	2.40%	6.23%

Apart from the higher dividend yield for European stocks China wins hands down. A lower PE ratio, an high adjusted yield (dividend yield plus 50% of retained earnings), and China's higher growth rate give it a higher total expected return.

Fund	Price	5yr High	5yr Low	% below high	% above low	Short term target	Target % of high
China	6625	9872	3683	33%	80%	8991	91%
Europe	2003	2829	1614	29%	24%	2361	83%

Both funds are around 30% off their highs and the Chinese fund appears more volatile. The short term targets are based on current earnings and growth forecasts and are prices at which we would start closing our positions if hit within 3 to 6 months. Increasing dividends or growth forecasts would make us revise upward our price targets.

Comparing the sector allocation the European fund is clearly more diversified than the financial heavy Chinese fund:

For this reason I have increased my exposure to Europe. Despite all the merits of the Chinese fund I feel there is too much downside potential with the high weighting towards Chinese banks in the fund. Additionally not spreading myself too thinly is a concern. I already have some exposure to Chinese stocks in my Far East ex Japan Smaller Companies fund and Asian exposure with the Asian Property Fund.

These changes see the current portfolio looking like this:

Investment	Weighting
iShares EUROSTOXX 50	55.0%
iShares Asian Property	17.0%
Zopa lending	7.9%
DJ-UBS Natural Gas	7.7%
Other Pension Funds	5.7%
iShares Far East ex Japan Small Cap	5.1%
Gold	1.3%
Cash	0.3%

I've invested most of the cash in the portfolio by increasing my holdings in Natural Gas, adding more to Zopa and the European fund that I mentioned above.

Commodity Valuations

2012-10-25T16:05:00.000+01:00

The following table summarises the expected annual returns of a 10 year holding period for a group of commonly traded ETC funds. Our valuation method is based on a long term reversion to the mean. A full description of the valuation method can be read here.

Commodity	Ticker	Annualised Return	Current Trend	Trend start date
Natural Gas	NGAS	15.44%	UP	19th July 2012
Crude Oil	CRUD	3.62%	DOWN	14th May 2012
Coffee	COFF	2.82%	DOWN	20th July 2011
Cocoa	COCO	2.26%	UP	3rd August 2012
Sugar	SUGA	1.59%	DOWN	17th November 2011
Wheat	WEAT	1.35%	UP	18th May 2012
Copper	COPA	1.32%	DOWN	23rd May 2012
Cotton	COTN	1.17%	UP	17th October 2012
Platinum	SPLT	1.13%	UP	7th September 2012
Soybean Oil	SOYO	0.74%	UP	4th September 2012
Heating Oil	HEAT	0.58%	UP	4th September 2012
Silver	SSLN	-0.66%	UP	4th September 2012
Gold	SGLN	-1.19%	UP	31st August 2012
Soybeans	SOYB	-2.02%	UP	21st February 2012
Corn	CORN	-2.05%	UP	26th June 2012

The current trend indicates whether the most recent breakout of the 100 day price channel was to the upside or the downside. As commodities tend to trend more strongly than most other asset classes it's crucial to trade in the direction of the trend. I've also included the date that the trend changed as some of these trends can continue for several years. The current longest trend is the 15 month downtrend in coffee prices. Before natural gas changed to an uptrend in July this year it had been on a 4 year downtrend.

No major changes. A few commodities have changed the direction of their trends but natural gas still remains the most attractive commodity to invest in at present:

Going forward further falls in crude oil and coffee could produce investing opportunities in the future.