Tuesday 17 February 2015

The Swan Portfolio (Portfolio Sales and Buys)

The DIY Income Investor portfolio continues to recover from the recent market jitters and is currently only about 1% below its all-time peak value. The average yield - as well as I can measure it - is around 6.1%. And the sun is shining (for the time being).

The portfolio is apparently sailing calmly towards its ultimate destination, which is (potentially) a nirvana-like state of automated tax-free cash generation. But, like the proverbial serene swan, the webbed feet are paddling like crazy underneath the water - because I still like a bit of a flutter.

Regular readers will be aware that I am currently holding a lot of APF (Anglo Pacific Group), an unusual company that invests in mining royalties - payments related to the funding of mine development and whose level of payment is (usually) linked to the level of mine production. (It's my fourth biggest current non-ETF holding, after BKG, CLIG and HNT.)

This is not for the faint-hearted as the share price has been hammered in the recent past - quite rightly, in the sense that the market is fearful of the effects on APF income of the apparent worldwide economic slowdown. Reduced economic activity = low mine output = low royalties.

And also quite logically (to my mind, at least), the management of APF has identified the current market opportunity: if most people think that mining is currently a bad deal, then it's probably time to buy some more mining royalties. So they have launched a fund-raising open offer (to institutions and existing shareholders) to raise capital to buy some more (hopefully underpriced) royalty rights.

Here's where the problem arises: if you are fully invested (like me), then there is no cash available to take up the rights issue. So the dilemma becomes: should I sell something I shouldn't sell (according to my own rules) in order to buy something that the market thinks I shouldn't buy? (I know the market thinks that because the yield is an outrageous 11.6%.)

Looking back, I did the same for RBS (i.e. numerous rights issues) - and that did not work out at all well. Be warned that this can end badly.

However, once in a while I see something that makes sense (to me at least) and seems to be worth going against the crowd. So I've taken up the rights offer - in three different brokerage accounts! (An unusually intensive feat of portfolio management, I can tell you.)

The portfolio sales (both of which I would normally keep on holding) were:
  • RSAB which has done OK but doesn't seem to be going anywhere fast: sale price £1.037; profit 22%
  • CLIG another chunk of rule-breaking profit-taking: sale price £3.56; profit 37%

Any cash left over after the dust settles will go into ETFs - that way I can convince myself that I'm still a defensive investor, Black Swan events excluded!

I am not a financial adviser and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.

1 comment: