The Awful June Value Portfolio Update

LONDON -- Here's my quarterly update on the value portfolio.

Since my last review in March, dividend cash was received in the quarter amounting to 2,517 pounds. As you'd expect, most of this is from FTSE 100 stalwart Aviva, although BP and Molins both paid out as well. Today, I have used this to buy a further 1,087 shares in RBS at 231.5 pence, including costs, bringing the average price per share down to 318.5 pence. Apart from these items, there have been no other changes.

RBS vs. Aviva
The reason I added to RBS now with this cash was to take advantage of a spate of recent poor news that has hammered the price. This hapless company has been hit by computer failures, ratings agency downgrades, and, possibly, the wash from the Barclays (LSE: BARC.L) LIBOR manipulation case -- all of which, in my opinion, is just about irrelevant to the underlying merits of the share which make it an asset play. However, the lowered price on the back of this adverse sentiment increases its attractions for those prepared to take a longer view.

The addition to RBS slightly reduces the proportion of Aviva, which stands now at about 61% of the whole portfolio. But I didn't add to RBS in order to achieve a reduction of Aviva's position or to mollify those nannying critics who bang on about the risks of farm or near-farm betting; I added to RBS because I saw it as attractive in itself. It is only incidental that this has the side benefit -- if you see it as a benefit -- of reducing Aviva's big influence here.

I should add, just to annoy the agriculture critics, that I did consider using this dividend money to increase the Aviva stake even further. It was a toss-up between it and RBS. The latter won because, although it is probably the riskier of the two, I see it as having massive upside potential -- though the lack of dividend is a sore point, which is not the case with Aviva. Dividends are important to value investing.

Overall value
The overall value of the VP has fallen a fair bit since March, when it was worth 73,658 pounds. Since then it has shed 11,706 pounds, or 15.9%. The principal culprit is the heavily overweight Aviva, down 10,111 pounds, or 21.1% -- although RBS was no mean contributor either, down 18.7% prior to today's further purchase of the share.

In fact, all four current shares are down over the quarter, and the only positive news is the receipt of the dividend cash. So we're seeing an atrocious performance at the moment, and I'm not one to mince words: It is awful. Readers following the series will know of the great volatility of this portfolio, depending largely as it does for the time being on my two big financials, Aviva and RBS. So whatever the performance at any point, it tells us little about how it will pan out later.

To illustrate this, at the last review in March, the VP was 22.8% up on its 60,000 pound cost, and now that is down to a rise of only 3.3%. When you bet big on just one or a small number of shares, expect a pretty bumpy ride.

Some may question whether I have lost faith in it, given today's lousy showing. The short answer is "No." Since I started the VP over three years ago, there have been quite a number of profitable trades of which long-time followers will be aware, and these well outweigh the few losers. You can't win them all -- even value sometimes doesn't work out.

The reason for the low value now is that most of the money from these trades, plus all the dividend money -- which is sizable -- was reinvested in Aviva and, to some extent, RBS, but as it happens, both are showing substantial losses on their average cost at present. Despite those unrealized losses, the portfolio is still marginally ahead of cost.

I will tell you if and when I lose faith in this. But if you don't have the patience of a corpse and can't ride out the big moves, then you shouldn't be in the value game.

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