Rotala runs out of time

It has been another good month for the market, but one of the best ever showings from the Ethical Portfolio. This has been produced by across-the-board gains for portfolio constituents, some of which have been very significant.
 
The Portfolio is now up 129.2% (98.7% up last time we reviewed it). The FTSE 100 (UKX) is still down since inception, but coming very close to showing a positive return for the first time in a long while. It is now down 2.4% since the Portfolio's inception in April 2002 (last time round it was down 9.4%). This seven percentage point improvement pales into insignificance beside the better than 30 percentage point gain in the Portfolio, which has also occurred without any contribution from dividend income this time round.
 
Once again, in response to the rise in the general market over the period, the total return index is now up 30.3% (up 21% last time) since inception and the FTSE4Good UK50 index, which we use as our ethical benchmark, is now down just 6% since the Portfolio's inception.
 
The best gains have been seen by System C Healthcare (SYS) and by RPS Group (RPS). In the case of System C, there is no obvious reason in terms of company news. In the case of RPS, there has been a contradictory pull in the shares, with Cazenove recently recommending them as a "buy", or words to that effect, and Charles Stanley just recently reported as downgrading them. While I have every respect for Charles Stanley, who have been my own broker for the last 20 years or so, it is only being realistic to suppose that Cazenove's views probably exert more influence in the market.
 
The other big gainer over the course of the month has been the Co-operative Bank PIBS stock, now more accurately described as a 'perpetual subordinated bond'. This has now risen almost 40% in price since we bought it prior to its conversion from the equivalent Britannia Building Society stock. We have yet to receive a dividend from it.
 
The next dividend will be paid in December, but on the basis of our 53p entry price, we are looking at an annual yield of about 10.5% on top of the capital growth we have seen so far. This capital appreciation may or may not go much further. In theory, the stock could be repaid at 100p in 2015, or simply remain an undated 'perpetual'. Either way, I see no reason whatever to sell this stock for the foreseeable future.
 
The disappointment in the Portfolio continues to be Rotala (ROL).
 
The bus operator has not really participated in the general jollity in the market and ticked up only by a couple of pence in the course of the last month. Interim results were satisfactory enough and the company looks on course for another decent year of pre-tax profit growth, although improvements at the earnings level may be more muted.
 
I had expected Rotala's share price to take greater comfort from the recent Office for Fair Trading referral relating to the competitive practices of the large bus operators. In theory, these should favour Rotala, by shaking out some interesting acquisitions of new routes and depots, but as always changes like this - if required - will take time to implement.
 
I have decided to cut our losses here, partly to free up some cash in case the market takes to a turn for the worse, and also to top up our holding in United Utilities (UU-) to a round 1,000 shares. The cost of this latter exercise is approximately £1,656 to purchase a further 350 shares. Selling Rotala at 40.5p releases £4,040 after dealing costs, so this process adds a net £2,384 to our cash, taking the figure up to £3,542 in round numbers. This leaves us with four sizeable holdings and around 15% of the Portfolio in cash.
 
Given that United Utilities and the Co-operative Bank bond are relatively defensive high income generators, I think we have a reasonable balance in the Portfolio even with just four constituents. I will be looking to add another somewhat more speculative equity in the fullness of time, but I think we can perhaps await a pause for breath in the market before jumping in with both feet.