Portfolio: 3Q20 Review

by The U.K. Income Investor

The Micro Portfolio has now notched up its first full quarter. I recently published an update on the American version over on The Compound Investor, and so it is time for one here too. As a brief re-cap, this whole thing is inspired by the rise in commission-free investing. I get the impression that one thing holding young people back from investing is a perception that it requires large sums of starting capital. In the past, that was certainly true to an extent. These days? Not so much. Anyway, you can read about all that in the introduction piece.

Let’s head onto the review, where it looks as though the third quarter was a muted one for domestic stocks. I note the Vanguard FTSE All Share Index Unit Trust shows a 3% loss in 3Q20 including reinvested dividends. I note that underperformed both the S&P 500 ETF and Emerging Market Index Fund. The outsized hit from COVID-19, plus the domestic index’s exposure to bank and energy stocks, may help explain that difference.

On that basis, I fear the Micro Portfolio is also off to poor start. I am about to tot up the numbers, but it is relatively very heavy in laggards Royal Dutch Shell and BP. Those two names represent 40% of the monthly contributions to the Trading212 account, while there’s another small chunk invested each month into Royal Dutch Shell via the Halifax ShareBuilder account. Although oil prices held steady at circa $40/bbl in the quarter, industry stock prices did not. Indeed, the energy sector had a rotten 3Q20, so nothing good will have happened to those positions!

3Q20 Review

Okay, time for some numbers. You will recall the general set-up: $100 (circa £80) monthly contributions to the Trading212 account, plus another £100 into the Halifax ShareBuilder. The contributions to the former remain allocated to the starting five names: BP, Diageo, Reckitt Benckiser, Royal Dutch Shell and Unilever. Combined with the starting month of June, that means roughly £720 of invested capital across both accounts as of the end of 3Q20. It’s not a fortune, but we have to begin somewhere.

As expected, we have not got off to the best of starts. Let’s start with the Halifax ShareBuilder account because there’s no foreign currency conversion involved there. The quarter saw another £300 worth of capital invested in Royal Dutch Shell, with the £100 from June giving us a total book cost of exactly £400 inclusive of commission and stamp duty. In return, we now hold just over 33.157938 shares in the energy giant in that account. That position was worth £311.75 at the end of 3Q20, while cash dividends amounted to another £1.85 last quarter.

The commission-free Trading212 account has fared only a bit better. Total invested capital stood at $400.00 at the end of September, which worked out to just over £310.00 after the various foreign exchange translations. (If you are wondering why the account is priced in dollars it is because it holds the US portfolio too). The market valuation of its holdings, however, only clocked in at £286.10 at the end of 3Q20. The account also collected its first dividends; only around £1.10 in the period, but it’s a start.

The oil majors have clearly had a terrible few months, but they strike me as absurdly cheap right now. Royal Dutch Shell, for example, currently sports an enterprise value of circa $180B. I have that equivalent to just 3x FY19 EBITDA of circa $60B. They continue to look like bargains, notwithstanding their issues, and so I’m happy to continue putting cash to work there; it looks like both will stay cheap a while longer too, so I expect their respective per-share book costs to come down a touch. Remember to check back in at the end of the year for the next quarterly review.

Note

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