QUALIPORT
Qualiport Beats Market For Fourth Consecutive Year

By Maynard Paton (TMFMayn)
December 21, 2004

The Qualiport looks set to beat the market handsomely in 2004. As at the close of trade yesterday (Monday 20 December), the portfolio has this year surged 33% -- its best ever annual performance. In contrast, the FTSE 100 has gained 9% (with dividends reinvested).

Year summary

This table summarises the performance and changes to the Qualiport during the past twelve months:

Holding	Value 31/12/2003 (£)	Purchases (£)	Valuation change (£)	Disposals (£)	Value 20/12/2004 (£)
Associated British Ports (LSE: ABP)	0.00	2,833.04	357.45	0.00	3,190.49
Carpetright (LSE: CPR)	1,375.31	0.00	187.52	(1,562.83)	0.00
DFS Furniture	896.80	0.00	137.81	(1,034.61)	0.00
Emap (LSE: EMA)	3,188.04	0.00	(152.52)	0.00	3,035.52
Halma (LSE: HLMA)	2,856.00	0.00	177.60	0.00	3,033.60
Johnston Press (LSE: JPR)	7,489.26	0.00	1,169.82	0.00	8,659.08
London Stock Exchange (LSE: LSE)	6,525.80	1,269.79	3,903.77	0.00	11,699.36
Cash	42.83	0.00	44.58	0.00	87.41
Total	22,374.04	4,102.83	5,826.02	(2,597.44)	29,705.45

These are the main highlights:

1. Fourth consecutive year of beating the market: For reasons explained in this article, recording the Qualiport's annual performance started in 1999. After two years of underachieving, the portfolio went on to outrun the market in 2001, 2002, 2003… and now 2004:

Year	Qualiport (%)	FTSE 100* (%)	FTSE All-Share* (%)
1999	6.4	20.6	24.2
2000	(16.0)	(8.2)	(5.9)
2001	(1.6)	(14.1)	(13.3)
2002	(16.0)	(22.2)	(22.7)
2003	22.2	17.9	20.9
2004**	32.8	9.3	10.8

(*With dividends reinvested. **To 20 December)

2. The big bets made the big profits: Entering 2004, the largest portfolio holdings were Johnston Press (representing 33%) and London Stock Exchange (29%). Total gains on both holdings represented nearly 90% of the Qualiport's entire profit for the year. 

3. Winners outnumbered losers: The portfolio continues to exhibit some stock-picking consistency. Of the seven shares held during the year, six increased in value. Emap, the lone faller, declined 5%. In 2003, six of the seven portfolio shares increased in value as well.

4. Two disposals: The Qualiport made two disposals in 2004.

DFS Furniture left in May and made the portfolio a small profit during two years when the market fell 6%. DFS shares last traded at 461p in October, some 4% greater than the Qualiport's 444.75p exit price. Read more.

After part disposals in 2002 and 2003, the Qualiport's remaining stake in Carpetright was sold in June for 950.5p a share. The shares now trade 21% higher at 1,148p. Overall, Carpetright produced a 45% gain for the portfolio in less than three years, during which time the market fell 11%. Read more.

Despite talented management and market leadership, neither DFS nor Carpetright could lay claim to having a true operational franchise. Both companies retail discretionary, big-ticket consumer goods, which may suffer sharp sales falls if (or when) consumer spending takes a knock.

5. Two purchases: The Qualiport made two purchases in 2004.

Funded largely by the DFS and Carpetright proceeds, Associated British Ports entered the portfolio in June. The purchase price was 411.75p and -- mitigating some of the gains subsequently recorded by the portfolio rejections -- the shares now trade 14% higher at 468.5p.

Following purchases in 2002 and 2003, the Qualiport bought another batch of London Stock Exchange shares this year. The purchase was made in October at 357.75p and was funded mainly by a special dividend the Exchange had paid earlier in the year. Following bid developments, London Stock Exchange shares now stand at 579.75p, up 62%.

6. Reinvesting dividends: Including a £1,071.40 special payment from the London Stock Exchange, dividends collected by the Qualiport totalled £1,549.97 in 2004. Save for £44.58, the payments were all reinvested in the aforementioned purchases.

7. Not a smooth ride: The concentrated nature of the Qualiport meant the portfolio's out-performance was not spread evenly through the year. This table outlines the Qualiport's performance on a quarterly basis:

Date	Qualiport value (£)	Quarterly change (QP %)	Quarterly change (FTSE 100 %)*	Quarterly difference (%)
31/12/2003	22,374.04
31/03/2004	24,150.60	7.9	(0.8)	8.8
30/06/2004	24,828.51	2.8	2.5	0.3
30/09/2004	25,017.08	0.8	3.4	(2.6)
20/12/2004	29,705.45	18.7	4.0	14.7

(*Includes reinvested dividends)

Unlike 2001, 2002 and 2003, the portfolio in 2004 managed to outrun the market in more than two quarters. This year has also seen the portfolio extend its run of positive returns in consecutive quarters to seven. Read more.

8. Still beating the tracker long term: For reasons explained in this article, the Qualiport's longer-term comparison with an index tracker starts on 31 December 1998. At that point, the Qualiport was worth £16,809.60, with a further £8,000 being added during 1999 and 2000.

With the FTSE 100 Total Return Index (TRI) closing at 2482.7 yesterday (Monday 20 December), the Qualiport would have been worth £22,859 had it converted into an index tracker six years ago:

Date	Amount (£)	FTSE 100 TRI	QP 'Tracker' 20/12/2004 (£)
31/12/1998	16,809.60	2630.48	15,865.24
01/04/1999	2,000.00	2825.58	1,757.30
01/10/1999	2,000.00	2697.96	1,841.11
01/04/2000	2,000.00	2949.73	1,683.34
01/10/2000	2,000.00	2900.09	1,712.15
Total			22,859.15

At the end of 2000, the Qualiport lagged the tracker by £4,380. Two years later, the portfolio was £564 ahead and by the end of 2003, the portfolio had extended its lead to £1,456. Now the Qualiport leads the tracker by £6,846.

9. No major regrets in 2004: Yet again the Qualiport does not have any costly mistakes to recount. If there was one regret perhaps, it was not buying more Associated British Ports in the summer. The portfolio was a whisker away from buying Vodafone (LSE: VOD) at around 114p (now 137.25p) in the summer, too. Read more.

10. Portfolio transparency: Although a notional portfolio, the Qualiport incurs real-life costs, i.e. dealing commission (at a flat £15), bid-offer spreads and stamp duty. Trades are also pre-announced in articles, executed within the following five trading days and then confirmed on the Qualiport discussion board. Year-end portfolio valuations are based on mid-prices and interest has never been paid on portfolio cash balances. The index tracker equivalent (point 8) includes dividends and excludes all costs. Since its inception in 1997, the total amount invested in the Qualiport has been £24,184.62.

And that wraps up 2004. The next Qualiport article will be published on Tuesday 4 January 2005.

More: Qualiport Beats Market In 2003 | Qualiport Beats Market In 2002 | Qualiport Beats Market In 2001

Maynard's best value share tips are reserved exclusively for subscribers of the Motley Fool's Value Investor newsletter. To enjoy a free no-obligation trial of the newsletter, with access to past editions, click here. Maynard also owns shares in Associated British Ports, Halma, Johnston Press and London Stock Exchange.

Portfolio value

Holding	Number of shares	Closing price 20/12/04 (p)	Value (£)
Associated British Ports	681	468.5	3,190.49
Emap	372	816	3,035.52
Halma	1,920	158	3,033.60
Johnston Press	1,608	538.5	8,659.08
London Stock Exchange	2,018	579.75	11,699.36
Cash			87.41
Total			29,705.45