Our 2021 Picks: How did we get on in September?

September saw investors returning to the market, having taken the opportunity to catch some beach time. Volumes were back, including into small caps, and we saw some nice moves in our portfolio. This was despite the FTSE dropping from around 7187 on 6 September to 6903 0n 20 September. It was back up at 7086 by the end of the month.

Two key themes in September were the ongoing worry about inflation in the UK and the start of concerns about energy prices, including natural gas and the knock on impact on electricity prices. This somewhat mitigated the boost to UK stocks from the opening up after the third wave of the pandemic. We have flagged the long natural gas trade twice now over the summer months and that will have paid substantial returns, either with Exchange Traded Funds or using leveraged long CFDs or spread bets.

We don’t like the look of the inflation numbers, either in the UK or indeed in the US. Central banks seem tasked with keeping the markets calm rather than curbing inflation, and we have yet to see any significant moves from them on this. Discussions with hedge funds over the course of September revealed that many were not buying the ‘nothing to see here’ narrative coming out of the Federal Reserve.

It was also gratifying to see our First Rand trade starting to move. This one is a bit outside our comfort zone, but we identified it as a great proxy for South Africa if that country could somehow get a handle on the pandemic there. Also now moving is S4 Capital, yet another trade where it pays to stick to your guns, and if the stock does not breach downside limits, keep it and wait for it to come good.

Net Zero Infrastructure

We have added a new cash shell to the pick list in September. This replaces Pineapple Power, which regular readers will know has now exited the market via an RTO with Irish-based eco fund manager BVP Investments. Net Zero Infrastructure [LON:NZI] is another London-listed cash shell, this time focusing on potential acquisitions in the UK clean energy infrastructure market. The company is looking to buy one or more firms that work in the provision of the nuts and bolts the UK will need to join up the dots for its clean energy strategy. As with other cash shells, investors cannot expect to hear much from Net Zero Infrastructure until it has identified its first acquisition.

Morgan Sindall Group

We added Morgan Sindall [LON:MGNS] in September as another play on the anticipated UK post-pandemic construction boom. It is more than just a housing play, with some other strings to its building bow, but like our other pick, Bellway Homes, it has exposure to the affordable housing story, which we think will be an important one in the next few years. The company also has plenty of cash on its balance sheet, which we like. It is likely to start paying higher dividends, always good in the current environment, and the share price was up over 17% in three months. In the last set of results Morgan Sindall reported a secured work load worth over £8bn as well.

Spectris

Spectris LON:SXS was the third stock we added to the portfolio in September. We liked the share buy back program which was already pushing the share price, and on top of that the news that it would be increasing its dividend. It had decided to sell its NDC Technologies unit in August to Nordson, not a big surprise, as this was a sale flagged up in 2019. We see this as a very high quality momentum stock with the return on capital employed to fuel further growth. On the downside we thought it already looked a bit expensive and the analysts are a little divided on the stock, with two still rating it a sell. The analysts had a consensus price target of 370p when we wrote it up originally.

Removed from the Venture Portfolio was Tombill Mines.

Tactical trading portfolio

These are shorter term equity and commodity trades which we can see playing out within one to three months. We will sometimes keep these on longer if the trade is still quite range bound but we are anticipating further upside. These trades have the tightest risk parameters.

*Prices as of close of play on 3oth September 2021

Longer term buy and hold portfolio

These are positions where we see a longer term growth scenario, usually in the small to mid cap space, but sometimes larger companies. We will typically be keeping these stocks on the list for at least six months and often longer. Consequently our risk tolerance is higher for these positions than for the trading list.

*Prices as of close of play on 3oth September 2021

Venture portfolio

These are companies which we see as having long term and considerable growth prospects. Due to their size and the nature of the business they are in, we feel that our normal risk management constraints should not be applied to these stocks.

*Prices as of close of play on 3oth September 2021

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