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The Beginners’ Portfolio is a virtual portfolio, run as if based on real money with all costs, spreads and dividends accounted for. Transactions made for the portfolio are for educational purposes only and do not constitute advice to buy or sell.
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I looked at some of the sun that has shone on the Beginners’ Portfolio a couple of weeks ago, checking out how well Barclays, Persimmon and Apple have done for us in the past 12 months. But into any portfolio a little rain will fall, so today I’m looking at a few poorer performers and pondering what went wrong:
No mining turnaround
I’ve been convinced for some time that a turnaround in the cyclical mining sector has been coming. But it hasn’t happened yet, and Rio Tinto (LSE: RIO)(NYSE: RIO.US) shares are down 22% in the past 12 months, to 2,563p. We have had 135p per share in dividends, which would give us a 4.3% yield on the 3,133p price at which Rio was added to the portfolio. And overall, we’d be down 13% overall on Rio since purchase if we sold today. The company seems to think its shares are cheap and has been buying them back, but it hasn’t halted the slide.
What’s perhaps ironic is that production volumes remain high, but global commodities prices remain low as uncertainties surrounding China continue — the price of iron ore has blipped up a little in the past couple of months, but it’s still selling for only around a third the price it fetched back in February 2011. With the Chinese stock market also in a slump (and still overpriced in my view), we could have more pain ahead before Rio turns round.
The oil price slump has hit BP (LSE: BP)(NYSE: BP.US), coming right after the Gulf of Mexico disaster, and BP’s shares have fallen 15% in a year to today’s 429p. Our overall loss on the share price is modest at 5.7%, but once we include dividends we’re up 10% — not great over the timescale, but actually not too bad. A mistake I made was underestimating the costs of the oil spill, and I reckoned the bad news was over far too soon.
BP has said it expects the era of cheap oil to continue for at least two to three years, and with a renewed fall back to $52 levels it could well be right. But how does it look as an investment? Well, with dividend yields of around 6% forecast, I reckon it’s not unattractive — the cash wouldn’t be well covered by earnings over the next couple of years, but BP has the means to keep it going in the meantime.
The picture at GlaxoSmithKline (LSE: GSK) is similar — we’re down on the shares after a 12-month fall of 12% to 1,386p, but with dividends we manage a 7.7% gain. The thing with Glaxo is I don’t think anything has fundamentally gone wrong. The firm is still in its turnaround phase as it recovers from the patent cliff that hit the sector (protection on some key drugs expired), and we’re not expecting a return to growth before next year. But a P/E of around 16 at the bottom of the earnings cycle doesn’t look expensive to me, and although the dividend is likely to be cut a little, analysts are still predicting a yield of around 6% — which, again, the company should be able to sustain.
The portfolio overall? Up 43% since first purchase in May 2012, including dividends and all costs and spreads — with the FTSE 100 up 27% excluding costs, spreads and dividends.