The Greek scenario is getting a bit softer and finally markets are taking a break from the loosing streak that monopolized the scene in June/July. This opened up some opportunities to buy in some companies that constitute the backbone of the portfolio, this time the averaging was not so much done on the prices (more or less I have bought at similar if not higher prices), but rather on the exchange rate.
This is a feature of the PF that I have been working on recently, as it does make a LOT of difference when you look at numbers closely. With my bank when I buy a foreign stock, the bank register the exchange rate at which the transaction was carried on. This means that the exchange rate that I have used to buy Dollars or Pounds from Euro is not really recorded.
To give a practical example, if I change 100 euro at 1.2 USD I get 120 dollars. Let’s say that I invest this money when the exchange rate is 1.15, the bank records the transaction at that exchange rate.
Let’s assume that I sell the stocks for no actual price gain/loss (so I get back 120 dollars) when dollar is at 1.10, the bank will consider the difference between 1.15 and 1.10 as capital gain and will tax me for it. (104 Euro@1.15 vs. 109 Euro@1.10, it’s a 5 euro Capital Gain, on which I will pay around 1 euro of tax).
If I am to exchange my 120 dollars back to euro at 1.10 exchange rate I get 109 Euro, but I need to take away the tax paid, for a capital gain of 8 euro total.
This is a very simple example, but the situation that I am facing is that there are some stocks which have been bought at 1.24 and now rates are in the 1.09 area. Even if the stock is loosing I still have to pay a lot of taxes. Under this point of view reducing the stocks in which I am investing opens up an opportunity to buy in some more positions in the stocks that I really want to keep and at the same time lowering the exchange rate that the bank uses to tax me.
In short these are the transactions that I have done:
SELL – Royal Dutch Shell A – (LON:RDSA) – 80 @ 18.31 GBP
BUY – Royal Dutch Shell B – (LON:RDSB) – 80 @ 18.51 GBP
BUY – 3M (MMM) – 7 @ 157.6 USD
BUY – Unilever (LON:ULVR) – 34 @ 29.14 GBP
NEW POSITION – BUY – HSBC Holdings (HSBA) – 260 @ 5.755 GBP
Unilever and 3M are core stocks in the portfolio, I managed to lower the exchange rate average and increase holdings in these great companies. Yes they are “expensive” as P/E ratio goes, but they are part of the backbone of the PF, I am not planning to sell them anytime soon.
RDSA and RDSB are really just the correction of a mistake that I made (another one!), as I sold off the Dutch positions during the first cleanup of the portfolio but bought the wrong stock when re-positioning on LSE. RDSA is taxed, RDSB is not (as it is a British company). Although all these movements were done with minimal losses the increased costs for commissions and taxes are not nice, but it’s the price I have to pay for being too hasty.
Lastly the new kid in town is HSBC. I was missing a Financial stock on the GBP investments, all the options were quite expensive and so far I did not enter the segment. That was until the Chinese crisis appeared. HSBC is a huge multinational bank, with a very good exposure on the Asian markets. Because of the crisis in China the stock is under pressure, has a P/E of 13.6 and an hefty 5.7% dividend with a 1.39 cover (this is not great as I prefer higher values here). P/B ratio is below 1 (0.8) this could mean that the stock is undervalued or that they are loosing money. Surely the last year has been quite dire for Asia, and China in particular, so this is reflected in the stock too. But growth in the region is not under scrutiny there, so I believe that we are in one of the first downwards cycles that the region suffers since it entered the “more open” market place (China is still pretty close for our standards). Once the cycle changes the stock will surely benefit.
That’s it for the month, I have invested the excess capital that I saved and did some cleaning. If all goes to plan there are 3/4 more stocks that will be sold during this year to streamline the PF a little.
In terms of new positions from August I will start looking at the European market once more, as I mentioned in a previous post I need to consider Italian stocks more seriously for tax reasons. Hopefully from September I can finish off the first part of this adventure, and will have less movements per month, lowering costs that have been quite high in this first phase.