1999

1999.

I have now completed the root and branch review of Chuffy for 1999.

This is the first review since I started this site and I will look back at the whole of 1999 where as normally I would only be reviewing the last 6 months. The review will look first of all at Chuffy as an overall structure and then each Portfolio separately.

Chuffy

1999 has been an incredible year for Chuffy, it started the year with £172,228 and finished with £433,746. If only every year could be that good! The growth engine has been the Acorn Portfolio, as usual, but the Spartan and Pensions Portfolios have also turned in credible performances. The addition of the Fixed Portfolio has seen the first major move into a non equity based investment and the early signs are quite promising. That's enough back slapping, now down to business.

Publishing this site has enabled me to take a good hard look at every aspect of my work on Chuffy, which is exactly what I needed. I am not happy with the poor method of valuation used in the selection of companies, the rough, "back of an envelope", calculations employed leave a lot to be desired. Also I propose to include a return on capital employed, ROCE, principal as part of my research criteria. Another area which will need to be addressed is the lack of measurement of performance, MOP. I propose to separate money paid in from actual growth or decline and publish the change next to each total. The management  of Chuffy is unfocused, lacks direction and needs tightening. Chuffy has out grown my meandering management method. I am still wrestling with what to do and I know I can't just leave it, but all I have come up with is a move towards "Focus Investment" which will require greater explanation later on, that is once I am clear in my own mind what direction Chuffy will take.

Acorn

There has only been one transaction to report this year, which was the sale of the remaining holding in Psion PLC. This released a total of £96,484. The portfolio has retained the holdings in Imagination Technologies and Chorion, both have performed extremely well. I would like to add more companies to this portfolio and will continue to seek out suitable businesses.

IMAGINATION TECHNOLOGIES: The company changed its name this year from Videologic and changed its fortunes at the same time. The management are progressing well with their 3 phase plan to extract the full potential from their graphics chip technology. The accounts reflect the change in direction with a £1.8m profit for the year. Costs have been reduced although their will be an increase in R & D spending next year. The sales of the Sega Dreamcast have been breaking all records in the US and Europe so the revenue flow looks good in the short to medium term, the only fly in that ointment is the poor showing in Japan. The same chips have been used in the Sega NAOMI which drives arcade simulator machines, of which Sega have a dominant position. The company signed a new partnership deal with ST Microelectronics to produce chips for  set top boxes, an area where STM have a good slice of the market. This move is part of the second phase of IMG's progression. The Digi Theatre speakers system appears to be selling well along with a few other PC related cards. The release of the Neon 250 graphics card has been at best a disappointment, it was held up by a lack of chips due to the Dreamcast launch and is a poor competitor against existing products.

The business is moving in the right direction, this has been rewarded by the Stock Market with a re-rating of the shares in the second half of the year. Profits should be around £4m for next year. The set top box market should begin to see some movement next year with revenues beginning at the end of 2000 or early 2001. The company has recently taken on another 20 graduates thereby continuing the commitment to keeping IMG at the forefront of graphics chip design. The ending of production and the change over to development work at the Kings Langley site is now largely complete. The third phase for the business will be the market for mobile, hand held and home networking products, but this will is some way off. IMG is a company which is hard to value but Acorn has taken the decision to retain the shares and should there be any fall backs in the share price then more will be purchased.

CHORION: The company is performing very well and the management has built on the success of the previous year and the left over problems from the Trocedero era have almost been cleared. The accounts show an increase in profits to £1.9m and there is still £8.3m cash in the bank. The business is now firmly structured into 2 divisions, Bar Nightclubs and Intellectual Property. The Bar Nightclub division has proved more successful than anticipated and the Tiger Tiger concept is to be rolled out to other locations. This will entail a major investment program and recruitment drive which will drive up running costs in a very competitive market. The Intellectual Property division has made great strides towards exploiting the full potential of the 2 main brands, Agatha Christie and Enid Blyton. The revenues from these brands should increase significantly by the end of 2000 onwards.

The company is on course to realize the managements ambition to create 2 strong businesses and increase shareholders value. They are working to realistic targets and achieving them. The company plans to move from the AIM to a full market listing in 2000. I personally feel that somewhere along the line that a demerger will occur to highlight further the attractiveness of both businesses, but that won't be for some time yet. I believe the company is in great shape for the future and Acorn has taken the decision to retain the shares and should there be any fall backs in the share price then more will be purchased.

Spartan

There has been an above average amount of activity in this Portfolio in 1999. I have started to build holdings in the Aberdeen Technology Unit Trust and the TU European Trust, which have produced returns already. This year also saw the rollover of the Prudential 1 fund and M & A activity in the Scottish Widows fund. All the funds produced gains but I was disappointed with at least one performance.

PRUDENTIAL 1: This with profits policy came to the end of its term in October and the terminal bonus was added, this produced a total rate of return of 12% pa. I took the decision that Spartan should roll this money over and increase payments to £50 pm. The fund is now an open ended with profits policy.

PRUDENTIAL 2: This with profits policy still has 19 months to run. I propose that Spartan makes no changes with this fund.

SCOTTISH WIDOWS: This with profits policy has been running for two and a half years and now the company is subject to a take over bid from LloydsTSB. I have read the documentation from SW but until the payout arrives I am not sure how much I will receive. Even without the takeover I propose that Spartan makes no changes to this fund.

TESSA: This account is held at First Direct and currently pays 5% tax free. With hindsight I should have been more selective in choosing this type of long term account because with a bit more common sense I could have got a better rate elsewhere, but it only has just over a year to run. I propose that Spartan makes no changes to this fund.

FAMILY ASSURANCE: This fund consists of the Sovereign unit trust and a small amount of life insurance. Any gains made are tax free. The fund has year on year produced a decent return, this year has been no exception with 12%. I propose that Spartan makes no changes to this fund.

ALLIED DUMBAR: This fund is a maximum investment plan made up of 3 funds in the Gen4 group, Far East, Managed and American Managed. All three funds produced gains with the Far East fund doing the best. This is another policy I would have been better placing elsewhere, the returns have been at best average and the charges too high. The policy is a couple of years from expiry and it certainly will not be renewed. I am unhappy with it but I propose that Spartan makes no changes to this fund.

IVORY & SIME ISIS TRUST: This investment trust is held in a PEP and now an ISA. I have paid into it since it started in 1993. I receive a free warrant for every 5 shares purchased through the regular savings plan, which have to be held outside the tax free plan. I contribute the maximum allowed each tax year. The fund has performed well yet again and the warrants also add to the gains. There will be a vote on the continuation of the fund next year and a reorganization of the share capital, also the warrants will have to be exercised. I propose that Spartan make no changes to this fund.

FIDELITY AMERICAN: This fund is one of the top performers in the North American funds sector. I started late in investing in this exciting market but intend to build up substantial exposure to it. I am not worried by the high valuations on Wall St and see any falls as good buying opportunities. I propose that Spartan makes no changes to this fund.

MANEK GROWTH: I like this fund, it has come from behind to beat all but one of its competitors. The manager, Jayesh Manek, has a great attitude to fund management. His reports are a breath of fresh air and should be heeded by others in their honesty and straight talking. Even though I increased contributions to £400 earlier this year I propose that Spartan increases the payments to this fund by another £300 pm.

SOCIETE GENERALE GROWTH: This fund has produced decent gains but I have lost patience with it. The reason I started paying into it was to compare the performance of its high profile managers with that of the Manek fund. The Soc Gen team spend too much time dealing and chasing the market producing average results. I propose that Spartan stops payments and looks to sell its holding in this fund.

TU EUROPEAN: This fund is a new addition and has already produced a return. I want to build up exposure to the "Euro Zone" because of the possibilities that cross border activity will bring and now that the major European economies are beginning to grow. I chose TU because of their excellent record and that they also include UK companies in the portfolio. I propose that Spartan makes no changes to this fund.

ABERDEEN TECHNOLOGY: This fund a new addition and has also produced a return. It is still early days and the fund has benefited from the surging markets both here and in the US, which could easily drop just as fast as they have risen. I propose that Spartan makes no changes to this fund.

Pensions

The Pensions portfolio is in need of focusing, I am not happy with the performance of two of the funds and major surgery is required. This year saw the first direct equity investment which has transformed the performance of the portfolio.

PRUDENTIAL: This pension was accumulated "free of charge" because I chose to opt out of the SERPS pension scheme. I no longer contribute to this fund so it relies purely on the growth generated by the managers at Prudential who have produced decent returns averaging 8% pa. I propose that Pensions make no changes to this fund.

ALLIED DUMBAR: This pension was started when I first went self employed, looking back now I should have continued to contribute to the Prudential pension, even though this fund has produced slightly better results. The downside to this fund is the charges and transfer value. Until I want to bite the bullet and swallow the charges I propose that Pensions makes no changes to this fund.

NATIONAL MUTUAL: This company oversee the self select pension scheme which will eventually be the whole Pensions portfolio. I had to take out a pension plan with NM and contribute £2000 pa, this leaves the remaining allowance to be invested as I direct. The NM fund is an average performer and there is always the chance that they might demutualise. I propose that Pensions make no changes to this fund.

AIG BONDS 1 & 2: These two funds have been a disaster from the start. The idea was that they would give me exposure to the FTSE 100 and carry an element of safety against drops via futures hedging. Unfortunately they attract high charges and perform badly at the same time. I should have done something earlier to put a halt to their abysmal performance so I will delay no longer. I propose that Pensions discontinue with both bonds as soon as possible.

HANSOM GROUP PLC: This is the first direct equity investment the Pensions portfolio has undertaken and it has proven to be a profitable one already. Hansom Group is a cash shell looking for a business to reverse into it. I purchased at just above net cash value. The management are looking at some possible opportunities and an announcement should be forthcoming within the next 3 months. The CEO has a very good record this type of operation and holds a substantial amount of the equity. I have allocated £13,000 for any fund raising exercise which is my entire pension allowance available for 1999/2000.

Fixed

1999 saw the creation of the Fixed portfolio. It took a lot of thought to move in this direction but I am pleased with the results. The purpose was to find a home for profits from Acorn which could not be invested in Pensions and where I was unable to find a business worth backing through Acorn. It is a long term, safety first, portfolio concentrating on with profits bonds and property.

PRUDENTIAL: A total of £56,500 was placed with this with profits fund and I expect a 7% pa return. I chose Prudential because of a size and record of their WP fund.

COMMERCIAL PROPERTY: I purchased a 50% share of an industrial property located locally. The property is in the process of being modernized and was purchased at below the market value. The rental income is to be reinvested for the next 3 years to cover further refurbishment. I chose commercial property as opposed to residential because I wish to keep my involvement down to the minimum. 

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