Buses drive Ethical Portfolio

In a reverse of last month's performance, the Portfolio underperformed the market in the last four weeks, with a couple of constituents, notably Renewable Energy Holdings (REH) and Rotala (ROL), seeing something of a setback. The Portfolio's

reserve of cash has, however, softened the impact of these movements.

Last time round the Portfolio was up around 148.2% since inception. This time it is up 142.7%. The FTSE is now up by 12.7% since inception (last time 11.5%) whilst the ethical index is up 7% (last time round up 4.8%). The total return index is up by 38.5% (37.7% last time) since inception.

Once again there has been no dividend income since we last reviewed the Portfolio. In the past six months and a year the Portfolio has fractionally underperformed the market.

This is, however, the sixth anniversary of the Portfolio's inception. So before we get too depressed about its recent performance, it is worth remembering that the compound annual return since we started is now around 15.9%, a pretty respectable number given the ups and downs in the market over the same period. The market's total return over this period has averaged 5.6% a year.

There has been some interesting newsflow from portfolio constituents. CBG Group (CB-), still by some margin the Portfolio's best performer, results is still in a strong growth phase. Pre-tax profits emerged at £1.61 million for the full year, versus £1.06 million for the prior year, on revenue around 44% higher. This suggests an improving trend in margins. The company has benefited from plugging additional revenue from acquisitions into a cost base that is not increasing anywhere close to proportionately.

Confident about the future

More of the same can be expected. The company says there is strong momentum, work levels in all of the company's business segments are accelerating and there is a strong pipeline of potential acquisitions. The company remains very confident about the future, despite what is described as a challenging insurance industry background. In fact, it looks likely that tougher times for insurance will provide further opportunities for acquisitions and bring down the prices of them.

Both Rotala and REH, after the interest generated in the stocks in the last couple of months, have suffered a little from the absence of further significant newsflow in recent weeks. In the case of Rotala, I think this state of affairs is likely to be reversed when the company announces its full-year results next month. As I noted last time round the company is now profitable, has successfully raised further funds, bought Go-Ahead's West Midlands subsidiary and announced new contract wins, of which there may be more to come. All of this suggests a solid performance in the next few years.

Low or zero emission public transport is an interesting area for an ethical portfolio, with growth dynamics that are underpinned by legislation. I have recently looked at a couple of interesting companies in this area after a talk with the Newcastle-based entrepreneur Roy Stanley. Mr Stanley is the prime mover behind Tanfield Group (TAN), a provider of zero emission vehicles and powered access equipment. These shares have had a strong rise overall in the last couple of years, but have fallen back significantly in the last six months.

Stanley is also the driving force behind Darwen Group (DHP), a recent new issue which is expected to launch a range of hybrid drive buses later this year. These utilise stored braking energy to power an electric motor and substitute for a conventional internal combustion energy, saving on fuel and emissions.

One interesting aspect of the bus business at present is that many operators have underinvested in their fleets and will need to re-equip progressively over the next five to ten years to meet the requirements of new legislation such as the Disability Act, new emissions standards, and to improve fuel economy - currently woefully low. There is strong evidence that bodies such as Transport for London are driving this process along. The success of TfL is causing other local authorities to look at how they operate and to try and encourage much greater bus use.

Conclusion

In normal circumstances, I would be looking actively at Tanfield or Darwen as possible portfolio constituents. I have actually bought some shares in Darwen for my own portfolio. But in this case we already have Rotala in place and I do no want to overcook our exposure to public transport. For the moment, being slightly suspicious that what we are seeing in the market at present is simply a bear market rally, I am sitting on the portfolio's cash and doing nothing.