The Odeboyz* Behemoth Fund

INTRODUCTION 10th JULY 2017
I made five recommendations in 2015 and I felt it only fair to return to what was written then. As I noted the objective was income plus the possibility capital growth. That objective has been achieved. None of the companies selected have cancelled or reduced their dividend. Two of the five have seen a reduction in their share price:

They are BP (minus 3.5%) and Vodafone (minus 6%). This paper loss has been more than covered by their dividend policy.

The three successes in terms of capital growth were HSBC (14.8%), Unilever (45%) and GlaxoSmithKline (9.6%.

Below is the original article

Timing is impossible for making investment decisions in the Stock Market. The recklessly conservative investor takes this as a signal that successful investments can’t be made. They invest in 4% Pensioner Bonds. Fund managers have created ‘Tracker Funds’ for this sort of person. These funds are passive investments, which replicate the FTSE**. The Odeboyz Behemoth Fund has these features as well. As there are hundreds of funds covering every possibility why would anyone offer another one (except to earn fees)?

Tracker Funds are a vital part of the investment scene. By virtue of diversification of the total investment a sudden downturn in any one investment will only have a marginal impact. A recent (2014) example is the 33% decline in the price of Tesco (a British supermarket chain). This took place in a year following over-statement of annual profits and the cancellation of the bi-annual dividend. The oil company BP halved in price following a disaster in the Caribbean. They too cancelled their dividend (now restored, see below). Having undiversified holdings in these companies would have been a severe blow, holding them amongst other companies is far less damaging.

As there are 100s of Tracker Funds how do you select? This is where the Odeboyz Behemoth Fund wins. It is simultaneously a developed economy fund (USA, Europe, Japan), a developing economy fund (Brazil, Russia, India and China) and an emerging economy fund (everyone else, including African ‘basket-case’ nation-states).

The Big Five are world companies and are huge by British standards. They are:

HSBC (International banking)         Dividend 5.71%           Operates in 75 countries Capitalised at £111.53 billion

Unilever (Consumer goods)             Dividend 3.16%           Operates in 190 countries
Capitalised at £86.6 billion

BP (Oil and retail)                                Dividend 5.6%              Operates in 78 countries
Capitalised at £80.33 billion

GSK (Pharmaceuticals)                       Dividend 5.1%              Operates in 115 countries
Capitalised at £76.35 billion

Vodafone (Telecommunications)     Dividend 4.98%           Operates in 30 countries
Capitalised at £58.9 billion***

(The US company Apple is currently valued at £500 billion, which is more than these five companies put together.)

All five are in different sectors of the world economy, which offers protection against external shocks. Shocks could be technological, environmental, political, natural disasters, or even sabotage and therefore having diversity helps to protect your capital. Investing in this Fund implies an equal amount of capital placed in each company: using Pensioner Fund figures let’s say 5 x £2,0000.
Why you should invest in these five companies
(1) It’s exciting,
(2) They pay decent dividends, which might grow.

Why you shouldn’t invest in these five companies
(1) It could be stomach churning,
(2) They might cut (or delete) their dividends.
*Odeboyz is an Intellectual Entertainment Enterprise unregulated by the FSA (or our wives).
** The FTSE is a league table of all the British companies represented on the stock exchange. A Tracker Fund is a weighted average of that list: so if a company represents 10% of the total FTSE then tracker funds will buy 10% of that company and so on down to fractions of a percentage point. Funds might be the top 100 companies, the entire stock exchange or any other combination. Fund Managers use no judgement in buying these companies it’s all on relative size.
*** Data correct as of 2nd April 15

(Chris)

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