This is a very late review, coming two-thirds into the third quarter and all, but better late than never. UK equities posted a decent quarter in Q2, albeit not as good as the S&P 500. I’m using Vanguard’s FTSE U.K. All Share Index Unit Trust as a proxy, with the investment management firm putting Q2 total returns for that vehicle at around 5.6%. Now, I did mess up slightly with the Micro Portfolio last quarter, forgetting to manually execute the trades in May and June (and July too), so buys were only one-third the amount that they should have been. I have made up the difference this quarter. That isn’t an issue that extends over to the Halifax Sharebuilder, which does execute trades automatically on a set day of the month.
Starting with the latter, Royal Dutch Shell, which is the sole investment there at the moment, performed roughly in line with the All-Share Index if my numbers are right. Oil prices had a strong quarter in Q2, meaning Shell also had a better quarter in terms of financial results. Profits were duly up both sequentially and year-over-year. Management also undid some of the impact of last year’s dividend cut by increasing the quarterly payout almost 40% to $0.24 per share. A $2bn share buyback plan was also announced. The stock remains way below my estimates of a fair value, with that position valued at £1,428.23 at the end of Q2, up from £1,073.92 at the end of Q1.
As for the Micro Portfolio, Diageo and BP were the best performers last quarter. Diageo shares rose around 15-16% over the period as vaccine rollouts boosted hopes of improved on-trade activity. The shares are richly valued in my view, trading for around 26-27x forward earnings. BP obviously experienced a similar dynamic to peer Shell – higher oil prices leading to rising profit and cashflow. There are big question marks hanging over BP (and Shell too) – namely ESG concerns and its business transformation plan – but I still think it is cheap. BP stock trades on a high single-digit PE ratio and offers a 5.3% dividend yield.
It was a bit of a mixed bag elsewhere. Reckitt Benckiser fell in Q2 – the only holding to do so I think – and it is down significantly thus far in Q3 after warning on margins amid cost inflation. The other household goods giants, Unilever, is also seeing significant cost inflation. The stock had a solid Q2 – roughly in line with the All-Share Index give or take – but has fallen significantly since then. A sub-20 PE ratio based on current year earnings is a good long-term deal for such a high quality firm, notwithstanding the current macro weakness. The value of equities in the Micro Portfolio was £894.69 at the end of Q2, up from £770.76 in Q1.