My portfolio of UK shares has been going gangbusters. It’s climbed around five times faster than if I’d simply bought an FTSE All-Share tracker. That vindicated my decision to go all-in on direct equities when populating my Self-Invested Personal Pension (SIPP) in 2023.
That said, it hasn’t all been win-win. I’ve picked some strugglers, mostly due to one flaw in my strategy. I made a thing of buying FTSE 100 companies whose shares had crashed after issuing a profit warning. I figured I was snapping up quality at a discount.
Bargain buys
I’ve written about them before so I’ll quickly name and shame ’em. Diageo, JD Sports Fashion, Glencore, Ocado Group and Aston Martin are the worst offenders, down between 20% and 40%. BP and GSK have underwhelmed too.
That’s a lot of red across just 23 holdings, and I’m not impressed with myself. But I think I’ve pinpointed the issue. A profit warning isn’t always a blip. Sometimes it’s the first crack in a deeper rift, and it takes time to close. In future, I’ll take my time.
I invested between £2k and £4k in each, and I’m currently down about £6,235 in total. It stings, but I believe I’ll recover the losses with time.
Happily, I bought a good few winners. One in particular has made a big difference: FTSE 100 private equity investor 3i Group (LSE: III). I had high hopes and put £6,000 into the stock. My stake’s now worth £12,475, including reinvested dividends. So I’m up £6,475. One big winner has wiped out seven sizeable losers.
It’s a good illustration of why stock-picking can beat index-tracking. The most I can lose on a single stock is my full stake. But if it takes off, there’s no cap on the gains.
3i shares are winning
3i Group’s earned its place as my star performer. In full-year results published on 15 April, it reported a total return of £5.05bn, a 25% return on opening shareholders’ funds.
The company’s star holding, Dutch discounter Action, delivered a return of £4.55bn with revenue growth of 22%. In an update on 26 June, 3i said like-for-like sales at Action grew another 6.9% in the first 25 weeks of this year, while 111 new stores were opened.
3i managers also completed the £400m sale of pet food brand MPM, representing a 3.2x money multiple.
There’s no guarantee 3i will continue to fly in the shorter run. These are tough times for growing companies. The timing of purchases and exits can lead to bumpy profits. Action makes up 65% of the portfolio, concentrating risk. But 3i’s been doing the business since 1945, so has bags of experience.
Some of my flops are stirring too. JD Sports’ showing more oomph. Glencore has bounced a little. Plus of course, I’ve got a heap of winners, big and small, not mentioned here.
Those impressed by 3i Group might consider buying but it’s pricey, trading at a premium of 60% to underlying assets. There are other great FTSE 100 winners out there too. Aim for a spread of stocks to minimise the impact of a few losers. And beware profit warnings.
