Income Portfolio on flying form

The Portfolio has forged ahead again this month, despite one or two missed opportunities.
 
Most constituents have gained, the exception being Ladbrokes (LAD). Income has also been a feature, with dividends from the sterling corporate bond iShare, from British American Tobacco (BATS) and from Legal & General (LGEN). Even though we sold this latter share last month, it was sold on an 'ex dividend' basis, which means that we get the dividend rather than the new owner of the shares.
 
So it has been another period of the Portfolio outpacing the market quite comfortably. Indeed, the Portfolio has now returned almost to its previous high point reached in December 2007.
 
It is currently up 123% since inception (up 116.5% since inception last time round). The 'Footsie' is down 1.8% over the period since inception (down 3.8% last time). In total return terms the index is currently 31% up since inception (27.8% up last time round). Dividends income has added a total of around £190 to our cash balances.
 
Hansard Global (HSD), the new stock we added last time round, has performed creditably, rising around 9p. I was, however, a little early in selling Legal & General. It has spent the last few weeks being the subject of vague bid rumours and is currently at around 85p, 12p more than our selling price of 73p.
 
Bids are always possible, but stories like this emanating from the market are often the result of someone with a large position in the shares 'talking their book'. It would not surprise me to see the culmination of this little flurry of activity being a major shareholder exiting from the company.
 
The other very good performer has been Local Shopping REIT (LSR), now almost 50% up on our purchase price of a few months ago. There has little in the way of company-specific news on the stock, but several commentators, some companies and some specialist lenders, are now calling the bottom to the commercial property market, which is probably further good news for Local Shopping REIT.

For an alternative look on Local Shopping REIT check out our iBall episode on the company
 
From a portfolio strategy standpoint, however, we need to watch this share very closely. What has gone up rapidly can fall away just as quickly if the market goes into reverse or another financial crisis erupts. The fundamentals are starting to look better, but this very small company is now almost the portfolio's biggest holding.
 
I have cast around for alternatives to the sterling corporate bond iShare in the bond exchange traded fund area. It is hard, however, to find alternative investments that would give us the same yield on book cost as we have with this stock, without adding an unacceptable level of risk. The JP Morgan emerging market bond index iShare, largely invested in sovereign and quasi sovereign bonds from a wide range of countries, has a yield approaching 7% but in terms of portfolio quality is arguably less good than the fund we already own.
 
It looks undervalued nonetheless, not least because emerging market equities have risen sharply, far more so than government bonds, which offer rather lower levels of risk and greater security.
 
But, even so I don't want to have two bond funds in the Portfolio and though the price action in our existing bond fund has probably run its course, I don't want to sacrifice its generous yield for something riskier.
 
Finally, Canada is proving the latest country to jump on the anti-tobacco litigation bandwagon. Quebec and Ontario are both pursuing the tobacco companies.
 
It is a measure of the degree to which the companies and their shareholders have become immune to action of this sort, that the share price of BAT has hardly wavered this past few weeks as news of the new lawsuits was announced.
 
Whatever you might think about the morality or otherwise of selling cigarettes, the cash flow that these products generate trumps legal argument and health warnings, and has been doing so in one country or another for over five decades.