As an investor, the magnificent moggie has given students and professionals paws for thought
My cat is a genius. Not many moggies can claim to have generated enough investment growth to pay for their own dinner, but in the past nine months Orlando, the fabulous feline, has increased his original stake of £5,000 by nearly £300.
OK, that’s only about 5.84%. But according to figures provided by investment data group Lipper, he has still outperformed a few UK funds in the IMA UK All Companies sector.
It is run by notable fund management groups, including CF Liontrust Macro UK High Alpha (-0.39% over nine months), Henderson UK Alpha (up 2.73%) and two Scottish Widows funds – UK Growth (up by 5.71%) and UK Select Growth (up 3.08%). The latter two together hold more than £1.5bn.
Orlando has been taking part in the Observer portfolio challenge, competing against a team of investment professionals and a group of students from John Warner School in Hoddesdon, Hertfordshire. Each team selected five companies from the FTSE All-Share index at the start of the year. After every three months the teams can exchange any of the stocks, replacing them with others from the index.
While the cat selected stocks by throwing his favourite toy mouse on a grid of numbers allocated to the different companies, the students and professionals used more traditional methods.
The Professionals – Justin Urquhart Stewart of wealth managers Seven Investment Management, Paul Kavanagh of stockbrokers Killick & Co, and Andy Brough, a fund manager at investment firm Schroders – are way ahead with a profit of £497. So how do they go about identifying stocks for their portfolio?
“You’ve got to have a view of the world,” says Brough. “The world population – particularly China – is growing, they are going to be eating, consuming more oil and natural resources.”
This, you might think, would naturally lead to an investment in oil and gas companies, and, indeed, the professionals’ portfolio does include Premier Oil and British Gas. But Brough adds that the cost of getting resources out of the ground is increasing faster than the value of the asset.
Hence his interest in Elementis, a global chemicals company that provides products enabling, among other things, the extraction of shale oil and gas in South and North America, which expect to be self-sufficient in energy by 2030. Likewise, Weir Group, which provides products and services to oil and gas customers in exploration, production, transportation and refining.
These companies can increase their prices regardless of what is happening to the underlying price of oil and gas. As a result, shares in Elementis have increased by 16.9% and Weir Group 15.5% in the last three months – a far better performance than the actual oil and gas producers. Premier Oil has increased by 4.1% while the British Gas share price has fallen by 3.8%.
Brough and Kavanagh joke about seeing themselves as “JR and Bobby”: the only diversification to the professionals’ portfolio is Imagination Technologies, which develops and licences technology for use in mobile devices, in-car information and entertainment systems, games consoles and digital set top boxes.
Ironic, given the professionals were initially quite nervous about competing against Orlando in case his techniques resulted in his choices all coming from one strongly performing sector.
Kavanagh says: “We have diversified as Premier and British Gas are in different parts of the world, while Weir and Elementis do other things as well as supply the oil and gas industry.
“Imagination survives for its clear growth path, despite economic uncertainty – supporting most major consumer technology groups, including Apple. It has re-stated its 2016 target of 1bn royalty units, but we see its ultimate target market many times that number.”
The professionals do not want to change any of their stocks for the final three months. Orlando has selected xxxxxxxx to replace Scottish American Investment Trust, which has turned in a pretty flat performance so far (check).
The students, aware that their selections in the past have been slightly risky or adventurous, have decided to opt for some defensive stocks in the final three months.
They want to replace Mulberry – which, like other luxury brands, has struggled in the past few months – with Aviva, and the online gambling group Betfair with Tesco.
? Learn how to invest with the professionals. Justin Urquhart Stuart, Andy Brough and Paul Kavanagh are holding a seminar on choosing stocks and constructing an investment portfolio at The Observer in King’s Place, King’s Cross, on 20 November at 6.30pm. Entrance is free but the speakers are asking for contributions to Great Ormond Street Hospital.
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