Wednesday, January 29, 2014

Our 2014 Model Share Portfolio

It's time to reveal our 2014 model share portfolio!

We have retained many shares from our 2013 portfolio. In total we have retained 8 shares and replaced 4 (Barclays, Exxaro, Samsung and Sasol). Again our share portfolio consists of 12 shares. This year we still lean towards global large caps. The shares are: AIG (American Insurance Group), Apple, Bank of America, BHP Billiton (world’s largest mining company), China Construction Bank, Coca-Cola, Google, Microsoft, Nestle, Pinnacle (IT),Toyota (Japan) and Volkswagen (Germany).

AIG: We expect AIG to continue the path of recovery of profits this year.

Apple: It faces ever increasing competition from Google, Samsung and Chinese rivals. It will be difficult for it to maintain profits this year, but we retain it in our portfolio as it is one of the largest technology companies with the ability to continue to innovate and stay relevant.

Bank of America: One of the largest banks in the US, its profits have steadily recovered after the 2009 global financial crisis, and we expect its profits to increase this year.

BHP Billiton: The world’s largest mining company, it will benefit from a global economic recovery and a weak rand.
China Construction Bank: One of the largest banks in the world, it has been trading at multi-year lows. At low PE, it presents value, although the shadow banking in China presents dangers.

Coca-Cola: One of Warren Buffett's long-term holdings, we also like the stock for its global reach, quality products and strong brands. In particular, its defensive nature as a stock.

Google: A world technology giant, its technological advances bring about lifestyle changes. Its driverless car development and other technological advances will hopefully enhance its future revenue streams.

Microsoft: Last year it bought Nokia smartphone business, with the hope of consolidating its market share of mobile devices. It may be playing lots of catch-up to Apple and Google, but it continues to have an entrenched business office software market.

Nestle: A global food and beverages company, it is renowned for quality products. Blue chips stock.

Pinnacle: An IT solutions provider, it has been growing quickly over the last few years. Although the weaker rand means higher import prices, which will depress its profit margin, this company has lots of room for growth. Also its management has proven itself in terms of management, strategy and making the right acquisitions.

Toyota: A weaker Yen will continue to help its competitiveness in terms of exporting vehicles.
Volkswagen: Its car sales should continue to benefit from a growing global middle class.

Monday, January 27, 2014

Review of our 2013 Model Share Portfolio

Since 2002, we have been publishing our model share portfolio at the beginning of each year. It has now been 13 years. Last year our share portfolio of 12 shares consists of AIG (American Insurance Group), Apple, Barclays (UK), BHP Billiton (world’s largest mining company), Exxaro (Coal Miner), Google, Nestle, Pinnacle (IT), Samsung, Sasol, Toyota (Japan) and Volkswagen (Germany). Let’s see how this portfolio has done in 2013.

AIG: After the 2008 / 2009 global financial crisis, AIG was on the brink of bankruptcy. It was taken over by the US government, which became its largest shareholder. After restructuring, it focused on its core insurance business. Its profit margin recovered. It started the year at USD35.30 per share, closed at USD51.05. It declared a dividend of 10 US cents. The return is 79% in South African Rand terms.

Apple: One of the leading technology brands in the world, it faces fierce competition from Samsung and Google Android phones. It is also overtaken by Chinese brand smartphones in China. However it continues to innovate, and it has lots of die-hard fans around the world. It started the year at USD532.17, closed at USD 561.02. Total dividend USD11.80. The return is 33% in South African Rand terms.

Barclays: A global commercial bank, it has a major presence in Africa through ABSA / Barclays Africa. It started the year at GBp 2.62, closed at GBp 2.72. It paid a dividend of 7 pence. The return is 33% in South African Rand terms.

BHP Billiton: The world’s largest mining company, its profits have been impacted by the lower metals prices as a result of slow global economic recovery. It started the year at R292.89 per share, closed at R323.89, total dividend R11.24. The return is 14%.

Exxaro: The laggard in our portfolio. Lower coal prices, coupled with ever increasing operating costs, lead to lower profits. It started the year at R169, closed at R146.46, dividend R3.85. The return is -11%.

Google: A world technology giant, its technological advances bring about lifestyle changes. It started the year at USD707.38, closed at USD1,120.71, no dividends. The return is 95% in South African Rand terms.

Nestle: A global food and beverages company, it is renowned for quality products. It had a stable growth in turnover. It started the year at 59.60 Swiss Francs, closed at 65.30 Swiss Francs, dividends 2.05 francs. The return is 43% in South African Rand terms.

Pinnacle: An IT solutions provider, it has been growing quickly over the last few years. Last year it has entered the software solutions arena. It started the year at R18.37, closed at R23.15, dividend R0.41. The return is 28%.

Samsung: A leading global technology and home appliance brand, it had to cut into its profit margin to remain competitive. As a result its share price has fallen, from 1,522,000 Korean Won at beginning of year to 1,372,000 Won at end of year. Dividend 8,000 Won. The return is 13% in South African Rand terms.

Sasol: It has benefited handsomely from a weaker rand and a stable international oil price. It started the year at R362.80, closing at R514.50. Total dividend R19. The return is 47%.

Toyota: A weaker Yen increased the competitiveness of the Japanese car manufacturing sector, which benefited Toyota. It opened the year at 4,005 Yen, closed at 6,420 Yen. Dividend 90 Yen. The return in South African Rand terms is 65%.

Volkswagen: Its car sales has been increasing thanks to a growing global middle class. It started the year at EUR162.75, closed at EUR196.90. Dividend EUR3.50. The return in South African Rand terms is 58%.

Based on our Company’s internal share weightings, our model share portfolio has returned 41.9% in Rand terms. This compares favourably against JSE’s return of 21.1%. In other words, our portfolio has outperformed the JSE by 20.8%!


We will announce our 2014 model share portfolio in our next newsletter.