Beginners’ Portfolio Ahead, Despite Being Held Back By BP plc, Rio Tinto plc And GlaxoSmithKline plc

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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.

As of market close on 12 November, the Beginners’ Portfolio is up 34% since inception including all costs — the FTSE 100 is up approximately 27% over the same period, including dividends. When I started out, I went for a mix of what I saw as safe blue-chip stocks, together with some riskier high-tech growth ones — and ironically, it’s these “safe” ones that have held us back and we have the growth stars to thank for our outperformance.

Oil crunch

When I added BP (LSE: BP) to the portfolio in August 2012, the big risk I saw was that the Gulf of Mexico disaster could hang over the company for some time, and things actually turned out worse than I expected on that score. But that’s not the reason behind the 20% share price fall since purchase, to 366p.

No, it’s the oil price crash, of course. Back then, Brent Crude was up over $110 a barrel, while today it’s down around $45. BP has offloaded assets, shelved expensive developments, and essentially entrenched to sit out the storm. The big saving grace is that BP has managed to maintain its dividend, and that has offset the share price fall — and we’re down only a couple of percent overall.

The dividend won’t be covered by forecast earnings this year or next, but BP seems very keen to keep the annual payment going, and I’m reasonably confident we’ll get the 6.5% on offer.

Commodities crash

The Rio Tinto (LSE: RIO) story has been a worse one, with the shares down 31% to 2,238p. In this case dividends have helped a little, but we’re still looking at an overall loss of 21%.

The commodities crisis has simply gone on much longer than I feared and has bitten much harder, and what started as a relatively small oversupply of things like iron and copper has been exacerbated by slowing Chinese demand. And the analysts don’t see any end to it yet, with a 50% fall in EPS forecast for this year and a more modest single-digit drop to follow in 2016.

What to do now? I’m just gritting my teeth and hanging on. The cycle will come back, demand will one day exceed supply once more, and metals (and miners) prices will rise again. I’ve no idea when, mind, but I reckon I’d be mad to sell now.

Pharma rebound?

One of my big early hopes was GlaxoSmithKline (LSE: GSK), and I thought I was adding it to the portfolio at a period of serious pessimism back in June 2012 as patents were expiring and generic competition was hotting up. The firm’s financial clout and its beefed up investments in rebuilding its drugs research pipeline would, I was confident, get the pharmaceuticals behemoth back to growth before too many years were out.

I still think that, although the market seems to have lost its patience with Glaxo — at 1,330p, the share price had fallen 12% since purchase (and it’s further down as I write, the day after my valuation snapshot was taken). In this case, dividends have actually turned that loss into a modest 5% gain, so it’s the least disastrous of these three.

And forecasts are still on for a return to EPS growth next year — a year sooner than many were thinking just a couple of years ago. And you know what? On a forward P/E of 16 based on 2016 forecasts, Glaxo could even be a takeover target!

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended GlaxoSmithKline. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.