Changes

‘They always say time changes things, but you actually have to change them yourself’ – Andy Warhol

I am not sure if Andy Warhol was much of a stock market investor but his words above make a lot of sense in the world of money management too.  Sometimes you need to make changes due to share price shifts and new research insights and the time to do so is right here, right now.

Reflecting this, during the last week we have made a number of shifts in our portfolio composition for the Dynamic Opportunities Fund involving the complete sale of four positions and the addition of five new positions.

First the sales.  Three of the portfolio removals were undoubted successes with good profits being booked in three UK holdings (Royal Mail, Easyjet and Kingfisher) sourced from our identification of opportunities back in the autumn of too much fear in shares with UK consumer exposure.  Whilst in these names – with respectively consumer exposure in parcels, low cost flights and DIY home improvement – prospects are now more reasonably priced other UK consumer facing names continue to play an important role in the portfolio.  The slow grind forward in the sentiment among (international) investors towards UK opportunities we believe will continue in 2018 and we hope to announce more profit-taking occurrences in the months to come.

The other complete sale was of the US company Campbell Soup.  We had bought the position a few months ago from the perspective that the company had some strong brands across both its canned soup as well as its burgeoning other foodstuffs businesses. However the announcement, just before Christmas, of a large acquisition in the snack foods area concerned us as we felt the company not only overpaid but also had built up their balance sheet debt levels materially. These concerns induced our sale. As always if the facts change, it is often wise to change your mind.

Our new portfolio acquisitions encompass three geographic zones.  In the UK we have added a position in Saga the travel and insurance provider to the growing older demographic believing that the share negatively over-reacted to a trading update back in December.

Three names were added in Europe.  Thematically we believe that the improving economic performance in the Eurozone aligned with a building political confidence in the reforms of the French President Emmanuel Macron will buoy international investor confidence.  Building construction materials supplier Saint Gobain looks well-positioned to benefit from this and – unlike many other sector peers – this does not appear to be factored into the share price.  We also bought a position in the Belgian-listed beer behemoth Anheuser-Busch InBev whose brands include Budweiser and Stella Artois.  We do not share the prevailing sceptical global financial community view of the company’s management team to fully fulfil hopes on their recent acquisition of SABMiller (which significantly boosted their beer sales in Eastern Europe and Africa) given their strong historic track record of doing just this. Finally in Europe we also added a position in ENI the Italian oil giant as they should be a big beneficiary of higher oil prices – and have an attractive 5% plus dividend to boot.

Meanwhile in the US we introduced a position in IBM due to the company’s strong cash flow and underappreciated return to growth after many quarters of decline.  A little bit of growth and a strong cash flow can be a beguiling combination for a share that is not aggressively priced.

Changes…sometimes it is just time to take some profits and use the receipts to invest in some new positions.  And given the likely more volatile nature of financial markets in 2018 we would expect both profit-takings and new ideas to continue to flow as the year progresses.

Chris.bailey@danielstewart.co.uk Chief Investment Officer Dynamic Opportunities UCITS Fund

www.dynamicopportunitiesfund.com