Looking back, I can’t say that 2018 was my finest year in terms of new investment ideas. Three suggestions stand out for their awfulness. The first was my decision to invest in the C issue of reinsurance fund CatCo. On paper, this sounded like a great idea for diversification away from either equity markets or central bank balance sheet risk. In practice, it was a terrible idea. I lost more than 60% of my investment in this dismal outfit in the space of just a few months.
My other enormous investment turkey, in the short term at least, was my heavy bet on oil stocks and a resurgence in the price of oil. Wrong, wrong and wrong! We all know what happened next. Oil prices have plummeted and my investment in energy-focused private equity fund Riverstone has promptly gone nowhere. As I’ve mentioned before in this blog, this year and next are show and tell time for this North American focused private market investor.
Last but by no means least one could have timed the implosion of the cryptocurrencies around my decision to invest in an Ethereum tracker. Within a week or two, the share price started heading south and basically hasn’t stopped since. To be fair, this clearly wasn’t a big investment bet and was mainly a bit of fun, but I am still astonished at my immaculate BAD timing.
What about ideas for a more positive 2019? In Money Week I’ve already identified one idea – spread betting firm Plus500. I’m no fan of CFDs and such like but I recognize that it is an insanely profitable business and largely involves consenting adults (who perhaps should know better). This Israeli firm is a master at digital marketing globally and it made an absolute killing off the back of cryptos, all of which has promptly come back and bit it in the proverbial. Very few people are making any money out of cryptos now I would guess! But Plus500 is a great business and I think its shares are fairly cheap, especially given its preference to redistribute profits through big dividend payouts. The forecast Pe ratio is down at 6 and it is quite possible that the forward dividend yield will be around 10% per annum. Crucially it’s also likely to be a big beneficiary from any increased equity market volatility. I’d be a big buyer under £13 a share.
Next up I think that many smaller cap financials are looking cheap, especially those associated with the – how can I put this – less ‘desirable’ end of lending. It is I think fair to say that investing in payday lenders and deep subprime is equivalent to investing in leprosy. But someone respectable, legitimate and well-regulated needs to do the dirty job unless the government is going to set up a huge credit union (a better fit for a National Investment Bank possibly except that the return wouldn’t be great would it?). I quite like Morses Club which strikes me as a smart lender but on balance I think I’d probably prefer H&T. Very conveniently Jeremy Grime just this morning nicely summed up the rationale for investing in this gold-focused pawnbroker. Here’s Jeremy’s sum up…
H&T Group PLC – Share Price 272p – Mkt Cap £102m
- Value – Trades at book value with an underleveraged balance sheet. PER 9.8X, yield 3.9% with 8.2% EPS growth forecast having delivered 13% over the last 3 years.
- Outlook – Around half the earnings are gold price sensitive which may appeal to the doomsters
If we are in for a more volatile market environment – although it has to be said that my core view is that 2019 could end more positively than we all expect – then its worth paying close attention to the gold miners. Over here in the UK three mid to large caps stand out and I’d be happy with any of the stocks below although my slightly adventurous side also has an interest in Zimb based gold miner Caledonia. Anyway, the three big profitable gold miners are as follows:
- Centamin market cap £1.392bn, forecast yield 3.7%, market consensus: outperform, forward PE 20.5, ROCE 15.7%
- Fresnillo market cap £6774m, forecast yield 2.5%, market consensus: outperform, forward PE 20, ROCE 15.6%
- Polymetal market cap £4042m, forecast yield 4.1%, market consensus: outperform, Forward PE 12.3, ROCE 18.2%
Sticking with the play on volatility, I’d also be relatively bullish about the big listed hedge funds run by Brevan Howard, namely BH Macro and Global. I think both, could, arguably, be good alternatives to holding too much cash. And if low risk really is your thing, then why consider any of the bond ETFs in the big bow below – all of which are large enough to be very liquid in trading terms, offer low TERs and invest in either ultra-short duration bonds (mostly government ones) or equivalent money market instruments. My own slight preference is for ENRS iShares Ultra Short vehicle which has a very low TER and is sterling denominated. For those worried about any possible Corbyn effect – massive selling of gilts – my alternative favorite is from Pimco, namely their US Dollar Short Maturity fund, which has a higher TER at around 0.35%.
Ultra Short ETFs
|Name of ETF||Ticker||TER||AuM in £||Returns in 2018|
|iShares Germany Government Bond UCITS ETF GBP Hedged (Dist)||DEGH||0.22%||NA||NA|
|iShares Germany Government Bond UCITS ETF GBP Hedged (Dist)||IGLS||0.20%||1212m||0.14%|
|iShares GBP Index-Linked Gilts UCITS ETF||INXG||0.25%||853m||-0.83%|
|iShares GBP Ultrashort Bond UCITS ETF||ENRS||0.09%||588m||0.67%|
|iShares USD Treasury Bond 1-3yr UCITS ETF (Dist)||IBTS||0.20%||3272||8.07%|
|PIMCO US Dollar Short Maturity Source UCITS ETF A||MINT||0.35%||1911||7.93%|
If all this strikes you as much too cautious, I do have my favorite shortlist of growth-orientated stocks. The first bunch is purloined from the recent buy list of Edinburgh Worldwide, the smaller cap investment trust run by BG. Having done some digging around I really like the look of CyberArk, Evolent Health and Yext.
Over in the UK, I’d keep an eye on Allied Minds if it slips below 50p (again), Globalworth (East European property is a great place for valuation reratings), Schroders European Real Estate (especially if below 108p), and Shearwater Group.