Rise to the challenge of building a stronger portfolio


When reading the late Stuart Wheeler’s autobiography, Winning Against the Odds: My Life in Gambling and Politics, I was greatly amused by the comments about how casino owners viewed gamblers with a “system” they think will enable them to beat the odds.

“We send limousines to collect people with systems!” was the collective response of those running the house (which almost always wins).

Then I mused on the parallels with the world of investment. I am not convinced that to be a successful investor one needs a “system”, however I do believe that having a particular approach or focus makes investing a lot easier and likely to deliver greater rewards.

By contrast, those who construct what I term a “Noah’s ark” portfolio — a couple of former privatisation stocks and funds, a few tips from City columns (“well worth a punt!”) plus favourites from 19th-hole golf club gossip, together with, say, a mining stock, your partner’s favourite retailer, and a holding in a company where you met the finance director on holiday last year — is unlikely to perform.

Usually, this type of portfolio will also have widely differing amounts in individual stocks. Those of us who are more focused are still likely to have greatly differing strategies — some favour “momentum” stocks, others go for particular sectors or funds focusing on emerging markets or perhaps recovery situations.

It was against this alternative strategy background that I suggested “The Richmond Challenge” to Philip Swatman, a retired investment banking friend. (The challenge was thus called because we both reside in the London borough of Richmond upon Thames.)

His thrust is very much on technology and tomorrow’s companies, either through collectives or individual stocks whose business models can be rolled out globally without heavy capital investment.

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My preference has always been for established, profitable, conservative, dividend-paying small-caps, ideally (but not exclusively) trading globally.

Our competition is to compare his five selections with my five for a case of fine wine over a three-year period, and for two cases over five years. I hope I am still around to enjoy the results!

Additionally, he has challenged me to “The Richmond Bowl” — another five-stock selection over the same time periods with the loser paying for a slap-up dinner.

His selections for the Richmond Challenge are: Blue Whale R class (GBP) income units, Fundsmith T class income units, Polar Capital Technology Fund, Scottish Mortgage Investment Trust and Smithson Investment Trust.

For the Richmond Bowl, he has chosen Games Workshop (the war games retailer), Softcat (IT infrastructure), Team 17 (video games), Temenos (banking software), and Ten Entertainment (a ten-pin bowling operator).

My selections for both competitions represent the pick of my holdings — Anpario (animal feed additives), Cerillion (global telecoms services), Concurrent Technologies (defence-led tech); Lok’nStore (self-storage) and finally Treatt — my largest holding — which produces ingredients for the flavour and fragrance industries, particularly in the beverage sector.

The rules of both competitions take dividends into account, allow one change to be made at any stage, and for a replacement stock to be chosen in the event of any takeover or similar. I genuinely have an open mind as to the outcome of our two competitions.

My five picks have grown significantly in recent years and are capable of becoming much larger businesses. All have not only paid dividends this year but actually increased them! I fervently hope they all continue to develop as great independent businesses, but I suspect they will not have gone unnoticed by larger potential predators.

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In my wider portfolio, most shares have rallied well from pandemic lows. Air Partner (which provides air charter services) has flown strongly, benefiting from heavy repatriation and PPE activity. Although trading is returning to more normal levels, interim figures should be excellent with dividend resumption a real possibility. Quality contract wins by its security arm, including a seven-year CAA contract, should provide growing recurring revenue balancing its more variable broking income.

My large-cap holdings — the “three sisters” of Aviva, Legal & General, and M&G — are gently climbing. It will be particularly interesting to see what Amanda Blanc, Aviva’s new chief executive, delivers in terms of shareholder value given her initial comments which clearly indicate her intention of shaking things up and leaving her mark.

Three of my holdings, all hit hard by the pandemic, are still bumping along near their lows — Appreciate (which sells gift vouchers and experiences), Christie (provider of professional and business services) and Vitec (which supplies products to the film and broadcast industries). As we move out of lockdown, I’m hoping the outlook for all three should steadily improve.

When I visited Appreciate’s Liverpool HQ last December, I was taken by the board’s optimism, and its increasing emphasis on digital products. I thought the shares were cheap then and bought at 48p — I had paid up to 75p in 2019 — however, last month I was able to buy more at an incredible 29.4p. Chief executive Ian O’Doherty recently updated: “We have a solid financial position and are confident that we will emerge strongly from this crisis.”

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With property transactions coming to an abrupt halt and most retailers closed, Christie’s two main divisions — business broking and stock taking — were hard hit. However, Christie’s new buyer registration index shows a 70 per cent increase since the initial easing of lockdown restrictions.

It is a similar story with Vitec. The cancellation of so many sporting events, including the Olympics, and the virtual cessation of film production delivered heavy blows, but there should now be a significant upswing on both fronts.

My trading activity has been very limited as I am pretty fully invested, and the curtailment of dividend income provides little liquidity flow for new investments.

However, I have also added more to my holding in Anpario, one of my Richmond Challenge runners, and also to specialist engineer Goodwin. Its burgeoning order book includes an exciting long-term deal (its largest ever) to manufacture machine storage boxes to assist with nuclear waste clear-up. This is a great example of this company’s unique capabilities. I’m confident it can survive any Covid-19 related “fallout” on the stock market.

And finally, a harbinger of better times — Vimto-maker Nichols has resumed paying a dividend. Hopefully, more of the companies in my portfolio will soon follow.

Lord Lee of Trafford is an active private investor and author of “Yummi Yoghurt — A First Taste of Stock Market Investment”. He is a shareholder in all the companies indicated.



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