Shares to buy, hold and sell: John McClure
Here are the latest stocks he has bought and sold and the one he's holding on to.
BUY: ARBUTHNOT BANKING GROUP
Arbuthnot is a group of banking services, including private bank Arbuthnot Latham & Co. It has a 70% stake in Secure Trust Bank, which provides hire purchase-style loans and current accounts to non-prime UK customers.
"It is a retail bank valued at £135 million that provides products to customers, but it doesn't have a high street presence," says McClure. "With Arbuthnot, we're getting another good-quality bank for free. We bought the company at around 300p
a share, and it is now trading at around 485p.
"We were quite nervous about the group at the beginning, but it has plenty of opportunities to grow its core business. We hold no mainstream UK banks, as we think all the bad news from the economy hasn't come out yet."
McClure adds that Arbuthnot is well-financed and holds no inter-bank debt. All of its money comes straight from depositors.
HOLD: JAMES HALSTEAD
"We've held James Halstead for about 10 years and won't be selling for another decade. Our portfolio turnover is very small, and we like to hold good-quality companies for as long as possible.
"The company makes anti-slip floor coverings that are used in a wide range of properties. For example, its floors have just been installed in the new air-conditioned London Underground trains," says McClure.
"It's a UK business but it exports to the rest of the world – the Olympics in Australia and Greece have used its flooring," he says. Despite the UK focus of the fund, McClure likes companies that generate the majority of their earnings from abroad, as he is very bearish on the UK at the moment.
"The £500 million business has been run by several generations of the Halstead family, which owns the majority of the shares," he adds.
"It's a stable business, pays a decent dividend of 5p a share and boasts 35 years of dividend growth. James Halstead is now worth around 500p a share, and we bought at around 180p 10 years ago, although that price has been diluted due to the company issuing various types of share class.
"If I could own a portfolio of 40 businesses like James Halstead, I'd be a very happy fund manager," he concludes.
"The main stock we've been selling out of recently is Stobart Group," says McClure. "It's a haulage company, but at the end of February, it purchased a second property business that led us to sell out of it completely."
The property acquisition is a collection of UK industrial, commercial, retail and residential property owned by two directors of Stobart, Andrew Tinkler and William Stobart.
"We bought Stobart when it floated about five years ago. It was primarily a transport business, with some interest in trains, tracks and airports (it owns Southend and Carlisle airports).
"We sold out of the stock for two reasons – it all felt a bit cosy, and we didn't like the main transport business being diluted. But with this property business, we couldn't see how it would create value for shareholders.
"It suited the directors to get the property off their hands, but it wasn't clear how they arrived at the valuation of the property," says McClure.
"It felt irrational, and we didn't understand it. I have to understand a business to invest in it, so we sold our holding at 120p, which meant we just about broke even.
"With only 40 stocks in the portfolio, each company has to deserve its place in there, or we just find another good quality business.
"As a result of selling Stobart, we have since upped our exposure significantly to UKMail, a solid courier company," he adds.
Total expense ratio
Most investment funds levy an initial charge for buying the units/shares and an annual management fee but other expenses also occur in running the fund (trading fees, legal fees, auditor fees, stamp duty and other operational expenses) which are passed on to the investor and so the TER gives a more accurate measure of the total costs of investing. The TER is especially relevant for funds of funds that have several layers of charges. Unfortunately, investment fund companies are not obliged to reveal TERs and many only publish the initial charges and annual management charge (AMC).
A catch-all phrase that can range from assessing the price of a property or vehicle before offering it for sale or the net worth of assets in an investment portfolio to the prices of shares on a stock exchange.
The general term for the rate of income from an investment expressed as an annual percentage and based on its current market value. For example, if a corporate bond or gilt originally sold at £100 par value with a coupon of 10% is bought for £100 then the coupon and the yield are the same at 10%, or £10. But if an investor buys the bond for £125, its coupon is still 10% (or £10) and the investor receives £10 but as the investor bought the bond for £125 (not £100) the yield on the investment is 8%.
The tax levied on the total value of your estate after you die. IHT has to be paid by the beneficiaries of your estate before they can receive any of the money from it. The money can’t be taken from the value of the estate _– it has to be paid before any money can be released. There is an IHT threshold – known as the “nil-rate band” – below which no tax is levied (£325,000 in 2011/12). Any amount above the nil-rate band is subject to tax at 40%. If your estate totals £600,000, there is no tax on the first £325,000; however your estate will pay 40% tax on the remaining £275,000, a total of £110,000. Prudent tax planning can reduce your IHT liability, so always consult a specialist solicitor.
If you own shares in a company, you’re entitled to a slice of the profits and these are paid as dividends on top of any capital growth in the shares’ value. The amount of the dividend is down to the board of directors (who can decide not to pay a dividend and reinvest any profits in the company) and they will be paid twice yearly (announced at the AGM and six months later as an interim). Dividends are always declared as a sum of money rather than a percentage of the share’s price. Although dividends automatically receive a 10% tax credit from HM Revenue & Customs (HMRC), which takes the company having already paid corporation tax on its profits into account. Dividends are classed as income and, as such, are liable for personal taxation and so shareholders have to declare them to HMRC.
An individual employed by an institution to manage an investment fund (unit trust, investment trust, pension fund or hedge fund) to meet pre-determined objectives (usually to generate capital growth or maximise income) in prescribed geographic areas or investment sectors (such as UK smaller companies, technology or commodities). The manager also carries the responsibility for general fund supervision, as well as monitoring the daily trading activity and also developing investment strategies to manage the risk profile of the fund.
Alternative Investment Market
AIM is the London Stock Exchange’s international market for smaller companies. Since its launch in 1995, 2,200 companies have raised almost £24 billion listing on AIM. The market has a more flexible regulatory system than the main market and can offer tax advantages to investors but its constituents are a riskier investment than bigger companies listed on the main market.