My personal portfolio:
Comment of the Day

February 08 2011

Commentary by David Fuller

My personal portfolio:

Top-10 long-term equity positions (by weighting) reviewed

David Fuller's view The last seven months have been among the more active for me in a portfolio that I do not wish to change very often, provided the criteria on which I bought these investments has not changed significantly. The main exception is when positions have done so well that I feel retention would be a more speculative decision than I wish to take, particularly if there are Fullermoney secular investment themes which appear to be temporarily out of fashion, potentially offering the combination of lower risk and catch-up potential. I cannot recall selling one of my personal top-10 equity investments on weakness, but I have often used setbacks as an opportunity to increase preferred positions.

The main change in the last several months has been to take profits on three holdings where strong performances had enabled them to work their way to the upper-side of my personal top-10 investments by weighting, and to replace them with four new holdings.

Just as a reminder, my three major sales in sequence were Lihir Gold (acquired), the BlackRock Gold & General Fund (the most controversial of my sales) and the Aberdeen New Thai Investment Trust. I could have sold my main investment in India for similar reasons but decided not to, partly because I had reduced risk in my view and India remains at least my co-favourite market for the very long term, despite all the legitimate concerns which we have not been reluctant to report.

1) JPMorgan Indian Investment Trust (JII LN) (monthly, weekly & daily) - JII has been the largest position in my portfolio since 2003, achieving that position mainly by performance and retaining it recently despite a significant drawdown of over 20%. Needless to say, this setback will be a concern for some subscribers, as is any profit erosion, even though we have seen similar action within the overall upward trend, notably in 2006. India's government has certainly not distinguished itself recently in dealing with corruption and food price issues. This has hastened an exodus by investors during what has also been a logical but I believe temporary fashion trend away from emerging (progressing) markets, in favour of Wall Street and other developed country stock markets, from Germany to Japan. The fundamental catalyst for this change in sentiment has been the surge in food prices and higher interest rates. The big correction in India's stock market is also creating a buying opportunity for investors who share our long-term views. If we can look beyond JII's double top at 500 and break well beneath the rising 200-day MA, it should not take too much imagination to see beyond these setbacks and realise that India is certainly much less overvalued on a regional basis and the country is very likely to remain a global leader in terms of GDP and growth of corporate profits. I think JII and its approximate equivalents in other India funds are once again buys on a gradual, scale-down basis. If I had a smaller position in my portfolio I would probably be nibbling today. If JII overshoots by falling nearer to 350p, I will very likely buy, either for my investment portfolio or in my trading account. Technically, watch for an upward dynamic to check the slide and trigger short covering. An initial low will need to hold, forming a higher reaction low and then a higher rebound high, before the crowd will sense that India has bottomed and is on the way back up.

2) Royal Dutch Shell (B) (RDSB LN) (monthly, weekly & daily) - This was my first and also largest new purchase last year, a conservative choice to give me energy exposure and a very good yield. I bought it during the sector shakeout in response to BP's Gulf of Mexico rig disaster. It has served me well; the dividend is still almost 5%, and the estimated PER is only 9. The chart shows plenty of historic and therefore psychological resistance near the £22 level which may take a while to clear.

3) Denison Mines (DML CN) (monthly, weekly & daily) - This is arguably my most speculative position so I am delighted to see it catapult into third place in my portfolio weighting, hot on the heels of Royal Dutch Shell. Denison is not for elderly widows and orphans, as they say, but it is highly leveraged to the uranium price and the sector is back in play. I think uranium is the best of the long-term energy stories although no one really knows. Many prefer solar and they could be right. However, uranium should be the better market play, at least for the next few years, because we are seeing a global boom in mining shares. Uranium is certainly not without risks. One serious accident, heaven forefend, could set the industry back a decade or more, as we have seen before. I think this is an acceptable risk in pursuit of potentially exceptional gains. Denison and other uranium shares are best purchased following pullbacks.

4) Atlantis China Healthcare Fund (ATCHLTH ID) (monthly, weekly & daily) - This performance demonstrates that it is possible to perform in China despite the higher interest rates, squeeze on property speculation, and IPO supply issues. I don't like the fees, which include 3% on redemption, but at least I am being compensated with performance and I like the sector on a long-term basis.

5) BlackRock World Mining Trust (BRWM LN) (monthly, weekly & daily) - This is a well run IT, stuffed with the world's best mining shares, and yet it still sells at a discount to NAV of over 15%. In my opinion, this is the premier holding for those who want a diversified mining fund.

6) Rio Tinto (RIO LN) (monthly, weekly & daily) - We have been through thick and thin with RIO and I still have reservations about the management which almost destroyed the company and then tried to give it to China. However Rio has a treasure trove of assets in the ground during the biggest resources boom that the world has ever seen. The ill-timed Alcan takeover is finally paying off so Rio is now firing on all cylinders. I hope they use some of the profits to increase the dividend.

7) BHP Billiton (BLT LN) (monthly, weekly & daily) - This has an even bigger treasure trove of resources in the ground than Rio. That justifies its inclusion in my portfolio although I also have reservations about BHP's management. Why did it try to take over Rio when all evidence suggested that this would never be allowed? And why didn't BHP bid for Potash in 1H 2009, when the Canadians might have accepted? BHP should increase the dividend because mining is much more of a growth industry than a cyclical one in a commodity supercycle.

8) Geiger Counter Ltd (GCL LN) (monthly, weekly & daily) - This small investment trust (£75m) gives me additional diversification in the nuclear industry. It too is not for elderly widows and orphans, but its current discount to NAV is over 16%. For those inclined, GCL and other uranium investments are best purchased on pullbacks.

9) China Mobile (941 HK) (monthly, weekly & daily) - This is my one disappointment from last year's purchases and it seemed so promising - a big base (or so I thought), low valuations, a decent yield and a top-10 holding in just about every diversified China fund, including Anthony Bolton's. Perhaps that is the problem. According to reports, including the company's website, China Mobile is sorting out its 3G problems and gaining customers once again. I am normally patient but currently fighting the temptation to jump ship, not least because big cap China Mobile is a bit of a supertanker to turn around.

10) Cameco (CCO CN) (monthly, weekly & daily) - The biggest and most conservative of the almost pure uranium plays, Cameco has worked its way back into my top-10 by performance, including the strong Canadian dollar. It has some of the world's largest and highest grade uranium properties, although the supplies under Cigar Lake remain elusive and will be expensive to mine.

Conclusion - With the exceptions of Royal Dutch Shell and China Mobile, this is an aggressively growth oriented portfolio, particularly with the overweight position in uranium miners. I can justify this while I am still working. However, retired and more conservative investors may prefer their portfolios to be overweight in dividend aristocrats, leveraged to the global economy.


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