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On 16 May when we checked on the Beginners’ Portfolio’s first year of progress, it was very pleasing to see it up 32% since inception. At the time, the FTSE 100 had closed the previous day on 6,694 points, up 23% over the same period, with the FTSE All-Share up 25% on 3,527.
Since then, the FTSE 100 has fallen back by 464 points to 6,230, with the All-Share index dropping 225 points to 3,302. So how much has the Beginners’ Portfolio given up since the end of a great first year?
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Including a £20 final dividend from Vodafone (LSE: VOD), here’s what the portfolio looked like at close of play on 3 July:
| Company | Shares | Buy price | Total cost | Bid price | Proceeds | Gain/loss | % change |
|---|---|---|---|---|---|---|---|
| Vodafone | 289 | 168.5p | £499.51 | 187.6p | £532.16 | £32.65 | 6.5% |
| Tesco | 159 | 305.5p | £498.23 | 332.0p | £517.88 | £19.65 | 3.9% |
| GlaxoSmithKline | 34 | 1,440.5p | £502.22 | 1,658p | £553.72 | £51.50 | 10.3% |
| Persimmon | 79 | 617.9p | £500.55 | 1,211p | £946.69 | £446.14 | 89.1% |
| Blinkx | 1,319 | 36.9p | £499.68 | 116.5p | £1,526.64 | £1,026.96 | 206% |
| BP | 112 | 434.5p | £499.01 | 448.1p | £491.87 | -£7.14 | -1.4% |
| Rio Tinto | 16 | 3,048.4p | £500.18 | 2,650p | £414.00 | -£86.18 | -17.2% |
| BAE Systems | 146 | 332.3p | £497.59 | 396.7p | £569.18 | £71.59 | 14.4% |
| Apple | 2 | $458.4 | £605.98 | $420.8 | £532.57 | -£73.41 | -12.1% |
| Aviva | 146 | 321.4p | £499.71 | 343.1p | £490.93 | -£6.78 | -1.4% |
| Dividends | £184.31 | £184.31 | |||||
| Total | £5,100.66 | £6,759.94 | £1,659.28 | 32.5% |
(It is not a real money portfolio, but it’s run in exactly the same way — I account for actual bid/offer spreads, commissions, etc, and include dividends in these occasional performance updates.)
It’s further up!
While the FTSE indices were slumping, the Beginners’ Portfolio has actually picked up another 0.5%, for a 32.5% gain including dividends and after accounting for all costs. Over the same period, the FTSE 100 is now up only 18%, and the All-Share is up 21% (both excluding dividends).
The biggest changes since our year-end valuation include a 43p fall in Tesco (LSE: TSCO) to 332p after a Q1 update didn’t do us any favours. We also saw a further slump in Rio Tinto (LSE: RIO), of 263p to 2,650p, with Chinese fears depressing the whole mining sector even further.
But we’ve been saved by further recovery in the housebuilding sector, with Persimmon (LSE: PSN) up another 65p to 1,211p, and by another climb by video technologist Blinkx, of 7.7p to 116.5p — those two shares are now up 89% and 206% respectively.
We have also seen Aviva recovering a bit, from 323p to 343p, and it’s now pretty close to break-even once we include all transaction costs.
Yet to shine
While I’m pleased with the risers so far, and sanguine about Tesco and Rio Tinto, the hidden diamond in the portfolio for me is BAE Systems (LSE: BA). Engineering is out of fashion at the moment, especially in the hard-pressed defence sector. But that’s what allowed the portfolio to add BAE at a bargain price — we should be thankful for the bears.
Forecasts for the year to December 2013 suggest an 8% rise in earnings per share, which is modest, especially with a flat 2014 expected. But that does put the shares on a forward P/E of only around 9.5 — significantly lower than the Aerospace & Defence sector average of almost 13.
And BAE is on a price to cashflow ratio of even less — around 6. So those earnings are translating nicely into the actual folding stuff. And debt? Well, there’s none. In fact, as of December 2012, BAE was sitting on net cash of £387m.
In an interim update in May, we heard that things were still going as expected, and that the company had so far purchased 17 million of its own shares under its current buyback programme.
Results soon
BAE’s first half ended on 30 June, and results should be with us on 1 August. There shouldn’t be any surprises, but I’m certainly looking forward to them. And while we await what must surely be a long-term rise in the share price, I’m happy to sit back and collect more than 5% a year in well-covered dividends.
Finally, my idea of the kind of shares that should make up the core of a beginner’s portfolio is the same as my choice for an ISA, or a retirement portfolio — or in fact, any portfolio. I’d start with good strong companies that should stand the test of time and potentially reward you for decades.
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> Alan does not own any shares mentioned in this article.
