The Regular Investor’s Share Portfolio was started in November 2009 with a €1,000 contribution. Each month since then an additional €1,000 has been contributed bringing the cumulative contributions to €181,000 by late-November 2024.
At the 22nd November 2024, the portfolio value was €393,023. The same monies invested in bank deposits would today be worth €196,046 demonstrating in real time that equities generally beat bank deposits by a wide margin over time.
The chart above is the unitised value of the portfolio and is compared to both the FTSE World Index and the FTSE World (x-US) Index.
Since inception in November 2009, the Regular Investor’s Share Portfolio has grown by 9.9% compound per annum after annual portfolio charges of 0.9%. This performance lags the FTSE World Equity Index which delivered a 12.5% compound per annum return (the index bears no costs) over the same period. However, it is ahead of the 7.1% compound per annum returns from the FTSE World x-US Index.
In other words, since 2009 stronger returns from the key US equity markets have boosted the performance of the FTSE World Index (US equities make up circa 65% of the FTSE World Index).
The lack of exposure to US equities in the Regular Investor’s Share Portfolio (just 22% of the portfolio compared to circa 65% in the FTSE World Index) is the principal reason for the lower returns. But there were also growth stocks that we covered over the years and that we failed to invest in, like Kingspan and Alphabet (Google).
However, the portfolio is in good shape. The table below highlights the growth statistics of the portfolio. Over the 18-year period from 2006 to 2024, the stocks in the Regular Investor’s Share Portfolio have grown earnings by an average 8.3% compound per annum, which compares to 5.6% compound per annum for the S&P 500 Index.
Note: 2006 was chosen as the starting point for the comparison as corporate earnings peaked in that year ahead of the upcoming Global Financial Crisis.
If you add on the dividend yield to that level of earnings growth for the S&P 500 Index, total returns to shareholders over that 18-year period might have been 7.0-7.5% compound per annum. They were higher than that (9.8% c.p.a.) as investors today are paying 27.5 times current S&P 500 earnings compared to 17.2 times in 2006. US equities are considerably more expensive today compared to history.
Investors often make the mistake of equating a fast-rising market with faster earnings growth. In the case of the S&P 500 Index, this is simply not so. S&P 500 earnings have growth by 6.1% compound per annum since 1950, so that the more recent 2006-2024 rate of growth (5.6% c.p.a.) is close enough to the long-term average.
It’s a legitimate question to ask, then: why are investors paying 27.5 times today’s earnings – some 50% higher than the 1950 to 2024 average – when the future rate of earnings growth on the index is more likely than not to mirror the past? Lower interest rates perhaps!
Contrast this with the Regular Investor’s Share Portfolio. Earnings growth has been better than the S&P 500 Index over the 2006-2024 period at 8.3% compound per annum, yet this collection of companies can be bought for half the valuation at which the S&P 500 Index trades (13.9 times earnings compared to 27.5).
Note: Berkshire, Markel and Fairfax in particular don’t have meaningful price-to-earnings ratios because accounting convention forces them to add their share portfolio gains into earnings (which, of course, mixes apples with oranges). So, the growth for Berkshire, Markel, Fairfax and Tetragon is the growth in the balance sheet value (or Book Value – BV) which is a good proxy for earnings growth over the medium- to long-term.
This analysis explains why we have been arguing for several months now that US equities look expensive relative to history. And they now also look expensive against US risk-free 10-year bonds given that the earnings yield[1] on the S&P 500 Index (3.64%) is now below the 10-year bond yield of 4.40%.
A key question, of course, is: can the companies in the Regular Investor’s Share Portfolio continue to deliver decent earnings growth over the medium- to long-term from here? We think so!
DCC has a 30-year track record of consistent growth and its announcement this week to focus solely on energy and renewable energy solutions generating high returns on capital suggests there is a high probability that the group will continue to deliver above average growth in the years ahead. Ryanair, Associated British Foods (owner of Pennys/Primark), Irish Continental, Howden Joinery, Reckitt and Diageo all have strong competitive advantages of one sort or another – be it consumer brands (Reckitt and Diageo) or low-cost advantages (Ryanair, Penneys/Primark, Irish Continental) or dominant network effects (Howden Joinery).
Note: Neither Mincon nor Permanent TSB were listed in 2006, so they have been excluded from the comparison. According to our analysis, both are recovery stories trading at deep discounts to their intrinsic value.
To finish off, then, the Regular Investor’s Share Portfolio has no intention of following the herd when its current holdings are likely to deliver superior earnings growth in the future (as they have in the past) compared to global equity markets and are on offer at much better value.
A Low-risk Approach to Saving & Investing
Regular investing is one of the lowest risk approaches to saving and investing through the stock markets where returns over time are likely to be considerably higher than the returns available from bank deposits.
For those interested in learning more about saving and investing through the stock markets, your options with GillenMarkets include:
- Attending our 1-day investment training courses, which we hold at various times throughout the year.
- We also have an online version of the course, which can be accessed in your own time and from pcs, tablets and mobile phones.
- You can subscribe to Ireland’s only investment newsletter/website offering where the Regular Investor strategies can be followed in real time and more.
You can find out details of both the 1-day seminar and online course at www.gillenmarkets.com/learn-with-gillen/. Alternatively, contact the office by email (info@gillenmarkets.com) or by phone on 01 2871400.
[1] The earnings yield is the inverse of the price-to-earnings ratio (100/27.5 = 3.64%)
