My personal portfolio:
Comment of the Day

July 01 2011

Commentary by David Fuller

My personal portfolio:

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

David Fuller's view This really is a long-term portfolio which I do not wish to change very often, not least as I also have an active trading account in futures. With my investments I tend to err on the side of buy-and-hold rather than active management. After all, unlike investment managers I am not under any competitive pressure, other than from myself. Consequently, I neither attempt to participate in every momentum move, although Fullermoney certainly comments on them, nor do I sell due to less favourable seasonal factors or an anticipated correction, although the markets have experienced both recently. Instead, I attempt to recognise and participate in the big themes that are occurring around us.

The main reasons justifying an occasional culling in my personal long-term equity portfolio occur when positions have either done so well that I feel retention would be a more speculative decision than I wish to take, or the fundamental background has changed due to events which appear to have materially affected prospects adversely.

Although I often mention individual positions in my personal investment portfolio, in the context of sector reviews or occasional events, my last full top-10 (by weighting) review occurred on 8th February. And just as a reminder, my subsequent portfolio changes were the sale of China Mobile which was underperforming and held by too many funds at a time when many western investors we reducing exposure to China. I used the proceeds to buy three approximately equal-sized positions in the speculative but very interesting rare earths sector: Lynas, Avalon and Quest. I also bought the JPMorgan Chinese Investment Trust.

Market circumstances warrant another personal top-10 holdings review at this time because a predictable technical rally is turning out to be very good indeed. There are several potentially tricky seasonal months still to negotiated, not to mention inflationary concerns. Nevertheless this rally continues to improve the odds in favour of Fullermoney's "best-case scenario", which Eoin and I have commented on almost daily in the Audios.

So how does my own portfolio look? Well, it is something of a curate's egg because in my vulgar contribution to the English language, I was Fukushimaed. Here are the current top-10 positions by weighting:

1. JPMorgan Indian Investment Trust (JII LN) (monthly, weekly & daily) has been in my portfolio since 1Q 2003 when most of my purchases occurred. At today's levels this position has appreciated approximately 400 percent, despite the 2008 crash and the recent market correction. Nevertheless, JII has had a torrid time since its clear overextension relative to the 200-day MA, when it was also testing the January 2008 peak. I chose to ride out that mean reversion but this was another questionable decision given the mini bear market of over 20 percent, caused by India's corruption scandals and inflation problems, in addition to the global stock market correction. The latest technical action is encouraging, provided the lows near 400 continue to hold and I would much rather be a buyer than a seller even though JII and India are currently underperformers. I am holding for the long-term potential detailed by Standard Chartered recently, suspecting that India may be close to a more accommodative shift in monetary policy, now that prices for many commodities have experienced corrections, not least crude oil. Meanwhile, a sustained break above the April high is required to reaffirm support near 400. My best-case scenario is that we will see a test of 500p in 4Q 2011 as investors regain confidence in India. If so, that psychological level is likely to provide less resistance on the third test. Significantly, India's Bombay Banks Index is consolidating above its 2008 peak. JII currently sells at a discount to NAV of 9 percent. Aberdeen's NII, recently mentioned by a subscriber is currently outperforming JII, has a similar discount to NAV and a smaller market capitalisation. Plenty of other India funds are listed in the Library.

2. Royal Dutch Shell (B) (RDSB LN) (monthly, weekly & daily) has approximately half the weighting in my family portfolios of JII. I purchased it for yield shortly after the BP oil spill disaster last year and remain pleased with the performance. RDSB still yields 4.7 percent, has a PER of 9 and this week's upward dynamic has reaffirmed support near the rising MA. RDSB remains a major player in energy, particularly regarding natural gas. I am hoping that the 10-year trading range is a platform capable of supporting higher levels over the medium to longer term.

3. Atlantis China Healthcare Fund (ATCHLTH ID) (weekly & daily) continues to demonstrate that it is possible to perform in China despite the higher interest rates, squeeze on property speculation and IPO supply issues. I do not 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.

4. Rio Tinto (RIO LN) (monthly, weekly & daily) has been in my portfolio almost as long as JII. I like its world-class portfolio of assets in the ground, mostly in politically stable countries, but still have reservations about the management which I hope will make acquisitions following market declines, not runaway uptrends. Rio has found support where one would hope and upward dynamics over the last two weeks suggest that it is in the latter stages of a mean reversion consolidation which should support a test or the 2008 bid high over the medium term.

5. BlackRock World Mining Trust (BRWM LN) (monthly, weekly & daily) has also been in my portfolio for a long time. If I could only have one exposure to the mining sector, this would be it, for the diversification and experienced management. Historically, mining has been a cyclical industry but if you believe in the GDP growth supercycle led by emerging (progressing) Asia, which I do, mining is now a growth industry. Subject to support near 700p holding this also looks like a mean reversion consolidation in its latter stages prior to another upward break.

6. BHP Billiton (BLT LN) (monthly, weekly & daily) is another very long-term holding and 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.

7. Denison Mines (DML CN) (monthly, weekly & daily) was one of my two investments (bets?) in the nuclear renaissance last year. At least I did it with my eyes open, including this opinion in my summary for last February's review:

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.

A 'rule of thumb' at Fullermoney: If you are going to panic… panic early. With hindsight, I should have sold DML and other uranium shares on the first news of Fukushima's tsunami damage but I did not. Fortunately, most of my purchase was in or just above the base and the strong CAD has cushioned downside risk. Nevertheless, I feel it could be years before we see C$4.50 again, let alone the 2007 peak. Therefore I am thinking about an eventual exit strategy during the next period of sustained market strength. Canada is closed today but yesterday's upward dynamic suggests that at least a short covering rally is likely.

8. Rare earths: Avalon (AVL CN) (monthly, weekly & daily), Lynas (LYC AU) (monthly, weekly & daily) and Quest (QRM CN) (monthly, weekly & daily) are combined as one position - a liberty, I know - because I bought them at the same time to diversify risk somewhat within a highly speculative, albeit interesting sector. All three are at interesting levels, having experienced mean reversion corrections to their MAs and at a time when global mining shares are firming once again. However, there are developmental problems at Lynas' Malaysian plant, which I reported in some detail yesterday.

9. Geiger Counter Ltd (GCL LN) (weekly & daily) is a small investment trust (down to £58.7m) which gave me additional diversification in the nuclear industry. It is a good vehicle for the sector, and trading at an 18 percent discount to NAV. However, following Fukushima nuclear is understandably very out of favour. That is often a good time to buy, but under the circumstances, only for the most patient investors.

10. JPMorgan Chinese Investment Trust (JMC LN) (monthly, weekly & daily) is a more recent discovery which I have high hopes for. It's benchmark is the MSCI Golden Dragon Index and here are JMC's top-10 holdings.

Best of the rest: Aberdeen New Dawn Investment (ABD LN) (monthly, weekly & daily) has been in one of my family portfolios for a long time and I really should have more of it. ABD is conservatively managed by the very experienced and highly regarded Hugh Young.

I will be diverting more cash towards my long-term investments in coming months.

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