Shares to buy, hold or sell: Karen Robertson
BUY: GLENCORE XSTRATA
Robertson bought into the world's largest producer of commodities, Glencore Xstrata, in March this year at a price of 337p per share.
Since then she has been steadily adding to her position and the stock now accounts for 2.3% of her total portfolio.
Robertson has already enjoyed a 4% uplift in the share price since purchase, due in large part to the completion of the merger between previously separate entities Glencore and Xstrata, while the miner's 3.5% dividend yield has provided a nice boost to the fund's income stream.
Robertson insists there are plenty of reasons to like the firm, which, along with the other big global miners, is implementing a significant restructuring programme. It is cutting back on capital expenditure and returning more cash to shareholders. Robertson claims that the firm will have returned £1 billion by March 2015 through its share buyback programme.
In addition, the manager believes that as global growth picks up, the outlook for the firm's production line is increasingly positive.
"We like Glencore because it has a great metal mix; it's the most diversified of all the UK miners. We are particularly bullish on its exposure to zinc copper and nickel. Supplies of these metals are currently quite low, which would suggest that global demand is picking up, so prices should rally," says Robertson.
She adds that there may still be a number of cost savings to come out of the merger between Glencore and Xstrata, which should further support earnings, while the firm's balance sheet is in particularly good health.
Pepsi distributor Britvic has had a profitable couple of years. Since Robertson bought the stock in November 2012 the share price has risen from 390p to 706p, representing an 81% gain for the manager.
This is despite a failed merger between Britvic and Scottish drinks manufacturer AG Barr, which Robertson also owns. Initially blocked by the Office of Fair Trading, the merger was eventually cleared in July last year; however, by this time the two firms could not agree on new terms and the deal collapsed.
Since then, Robertson claims that Britvic has cut costs, which has been driving large earnings upgrades, while a duff marketing move by Coca-Cola – changing the size of its bottles – has helped Pepsi to win market share.
Other positives have been a reduction in price for both EU sugar and the material used to make Britvic's plastic bottles, which has boosted margins, while the launch of the Fruit Shoot brand in the US is gaining momentum.
However, all this success has led Robertson to be a little cautious on the stock, which is why she is currently holding rather than adding to her position.
"I have 1.5% of the fund in this stock so it's a big overweight, but I wouldn't be buying more right now as it's performed really well over the past two years and the valuation is about 15 times now. However, it's certainly the kind of stock we would look to add to, should we see any weakness in the share price," says Robertson.
SELL: BRITISH AMERICAN TOBACCO
Currently trading on a price/earnings (p/e) ratio of around 16 to 17 times, British American Tobacco is not a cheap stock, yet many investors have been happy to pay a premium for what they perceive as a steady earnings stream that is resilient to global economic shocks.
However, according to Robertson, tobacco stocks such as BAT may not be as defensive as people believe, as the industry is facing a number of significant structural issues that are already impacting sales volumes.
"Tobacco companies are still seeing revenue growth, but that's because they are increasing prices. Fundamentally volumes are declining due to global smoking bans, display bans, plain packaging policies, the rise of e-cigarettes and illicit trade, which can account for up to 30% of some cigarette markets," explains Robertson.
In Australia, where 'dull, sludgy brown' plain packaging has been introduced, Robertson says tobacco consumption has seen its biggest decline in 20 years.
Robertson has been selling out of her holding in BAT since February, but it remains a top 10 holding for the fund at 3% of the port- folio, due to its 4.5% dividend yield, which as an income manager Robertson says she cannot ignore.
However, she insists that she will replace the stock as and when other high-yielding opportunities come along.
This feature was written for our sister publication Money Observer
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%.
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.
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.
A term applied to raw materials (gold, oil) and foodstuffs (wheat, pork bellies) traded on exchanges throughout the world. Since no one really wants to transport all those heavy materials, what is actually traded are commodities futures contracts or options. These are agreements to buy or sell at an agreed price on a specific date. Because commodity prices are volatile, investing in futures is certainly not for the casual investor.