A review of Questor's share portfolio over six months

The good, the bad and the ugly – a review of Questor's share portfolio over six months

The current Questor editor has been in the hot seat at The Daily Telegraph for six months, so now seems like a good time to review the performance of the portfolio over that time.

By Garry White
Last Updated: 3:46PM BST 26 May 2009

Since the end of November last year, all of the shares recommended as buys in the Questor column are up 17pc, compared with a gain of 4.6pc in the FTSE 100. In aggregate, the portfolio is outperforming the market as a whole.

These figures are in terms of share price appreciation only and any dividends accrued or dealing costs are not included. Questor has pursued a relatively conservative investment strategy in these unprecedented market conditions, with a focus on balance sheet strength and dividends. So the income stream from these shares should also be strong – but that is not accounted for in this review. The accompanying graphic shows the 10 best recommendations and the 10 worst performing recommendations based on closing price on Friday May 22.

Questor aims to continue with the strategy that beat the market in the last six months and improve on the performance so far.

The Good

Questor has had considerable success riding the recovery in mining stocks. Vedanta shares, which are now rate a hold, have considerably outperformed the market – rising 185pc.

Questor recommended buying the shares because of its very strong cash position and its exposure to India. Other miners that have proved lucrative are Centamin Egypt (up 96pc), which is set to mine its first gold at its Sukari project in Egypt within weeks, Mexican silver miner Fresnillo (up 80pc) and Rio Tinto (up 55pc), which is currently battling to slash its crippling pile of debt.

Questor took profits in Fresnillo and Rio Tinto because of uncertain market conditions, although the shares have moved higher since then.

Questor makes no apology for this. The most difficult decision in investing is when to sell and investors do not go broke if they continue to bank gains.

Despite the recovery in appetite for risk, Questor believes a cautious investment strategy is the best way to play these markets and it is good to bank profits when they present themselves.

The bad

Questor's worst-performing tip is Gem Diamonds , which is down 37pc. Questor first recommended buying shares in the group because of its prize asset – the Letseng mine in Lesotho. The mine has produced three of the world's largest 20 diamonds in the last three years alone. In total, four of the largest 20 rough diamonds ever recovered have come from this one mine.

However, diamond prices continued to tumble, although there is some evidence of stabilisation in the market at present. Questor has restrained from closing out of this position because of the conviction that diamond prices will recover.

Perhaps Questor's worst tip so far was the premature recommendation to buy into an oil exchange traded fund, ETF Securities CRUD fund. Questor sold out of this position, advising investors to take the loss on the chin because the oil futures market moved against the investment and the capital investment was being eroded. The resulting loss was 30pc.

Gem Diamonds and ETF CRUD are the only two recommendations Questor regards as duds over the last six months. Shares in Lloyds insurer Catlin are down 18pc and defence group QinetiQ shares are off 17pc, but both shares still have a buy stance.

Catlin shares were hit after a £200m rights issue, but the group managed to post a 17pc year-on-year increase in the first quarter of the year.

QinetiQ, although it is facing some industrial dispute issues at the moment, has ambitious plans for its US unit, where it is forecasting double-digit growth.

The future

Questor remains to be convinced that the recent market rally is the start of the next bull run. A number of market commentators suggest that the weight of money sitting on the sidelines means that share-price gains will be a self fulfilling prophecy.

Questor feels it is best to be cautious and maintains a defensive strategy, while making some long-term strategic plays such as JP Morgan Indian Investment Trust (up 41pc) and BG Group (up 11pc), as well as dividend plays such as BP (up 3pc) and Northern Foods (up 21pc). Indeed, as the appetite for risk returned, defensive sectors such as utilities have been out of favour. Now looks like a good time to buy into these underperforming sectors.

Taking a long-term view, now is a great time to buy into the stock market. However, it is likely to be a bumpy ride as the year progresses.

The UK government has refused a freedom of information request to see the results of stress tests at major banks, which is concerning.

The full effects of the recession have not made their way into the real economy and unemployment is likely to continue to rise. When the property market will bottom out is anyone's guess.

As we move in to the second part of the year, the phrase "sell in May and go away" comes to mind. Questor does not suggest selling your portfolio, just banking good gains and watching out for opportunities to buy good companies at decent valuations when the opportunity arises. Questor aims to bring you the best of these opportunities over the coming months.

http://www.telegraph.co.uk/finance/markets/questor/5383084/The-good-the-bad-and-the-ugly---a-review-of-Questors-share-portfolio-over-six-months.html