Imagine the following scenario: you’re a UK investor and would like to own as part of your portfolio some ETFs that diversify the heavy US and UK exposure caused by your separate investments in individual stocks. You’d like the funds to have been trading for at least a few years, be run by a reputable provider, come with a low total expense ratio (TER) and maintain a decent level of trading volume to ensure you can enter and exit a position with relative ease. Filtering for these characteristics on JustETF.com, so far, so good.

However, you’d also like any Asia-specific ETFs to avoid Chinese and Taiwanese holdings due to the geopolitical risk, any European ETFs to avoid oil and gas majors due to environmental concerns and to eschew commodity ETFs altogether for similar reasons. If you were a US-based investor, these restrictions would still leave plenty of options to diversify your portfolio. Unfortunately for those of us on this side of the pond, UK regulations prevent investment in the plethora of US ETFs on the market (aside from those that have UK-listed equivalents (UCITS)) which leaves a few less-than-ideal choices:

  1. Accept the lack of suitable options and decide to invest in the above ETFs, also accepting the resulting cognitive dissonance.
  2. Decline to invest in ETFs altogether and continue to sit on an uncomfortably large cash position.
  3. Combine both of the above: pick and choose the ETFs that are the ‘least worse’ options and leave the rest in cash.

With the rise of ESG (environmental, social and corporate governance) ETFs, you’d think they offer a neat 4th solution to this problem. Unfortunately, the reality is that ‘green’ ETFs are often anything but, as demonstrated by this ‘sustainable’ Fidelity ETF that lists Shell and TotalEnergies in its top 10 holdings by weight.

So, slightly uneasily, I chose option number one and went on an ETF buying spree for the first time since getting started with investing in 2018, with the (self-)justification that I don’t intend to hold these positions over a prolonged period, swapping them out for individual stocks over time once I’ve identified suitable candidates for the portfolio. By comparison, in the shorter-term ETFs allow me to diversify and reduce my cash position without requiring nearly as much deliberation. For now, they’re the right choice at the right time.

Business Updates

It was a quiet month on the earnings front, with the only significant updates provided by Howden’s for their first half of 2023 and Alphawave for their second quarter.

Howden’s

Howden’s delivered a solid update, with revenues growing 1.5% year-on-year despite the difficult macro backdrop (UK mortgage rates are close to the highest they’ve been since 2008, whilst savings are being drawn at record levels). While operating profit margins fell by 20% compared to the year prior, international revenue grew 34% with ‘strong growth in France’.

Our strong sense is the market is down somewhere between 10% and 15% in volume in the first half. It’s not a well recorded market, but we take a strong sense from what our key suppliers are doing with us and others in the market, and we get a sense from our manager where we’re at. That’s our best guess around 10% to 15%. So we are definitely picking up significant market share versus our competitors - Andrew Livingston, CEO, H1 23 Q&A

The interim dividend was raised slightly to 4.8p/share and full year expectations remain unchanged (30 new depots in the UK, 10 in France, 5 in Ireland).

Alphawave

Alphawave’s story since I began my investment has been a rollercoaster ride, with shares suspended due to a delayed audit and the subsequent resignation of their CFO in May but July’s Q2 update steadied the ship somewhat, with the reaffirmation of full year revenue guidance (£340-£360M). There was also news of expansions of their relationships with both TSMC and Samsung across their 3nm processes and their strong market position was restated:

Alphawave Semi has more than half of the top twenty semiconductor device companies as customers, a reflection of its continued strength in the data infrastructure markets that require the world’s most advanced connectivity technology. - Q2 23 Trading Update

YTD return vs benchmarks

(Index source: Yahoo Finance)

Portfolio Nasdaq S&P 500 FTSE 100
42.7% 38.1% 20.0% 1.9%

Portfolio

Holding Ticker Weighting (%)
Cash - 26.1
Alphawave IP Group plc AWE.L 11.8
iShares Core UK Gilts UCITS ETF GBP (Dist) IGLT.L 10.5
Xtrackers NASDAQ 100 UCITS ETF XNAQ.L 8.8
Twilio Inc. TWLO 5.4
iShares VII PLC - iShares MSCI EM Asia UCITS ETF USD (Acc) CEA1.L 5.4
Invesco Bloomberg Commodity UCITS ETF CMOD.L 4.9
Snowflake Inc. SNOW 4.6
Datadog, Inc. DDOG 4.2
iShares Core MSCI Europe UCITS ETF EUR (Acc) SMEA.L 3.8
Howden Joinery Group Plc HWDN.L 3.6
CrowdStrike Holdings, Inc. CRWD 2.9
Amazon.com, Inc. AMZN 2.7
Advanced Micro Devices, Inc. AMD 2.7
Team17 Group plc TM17.L 2.6

Adjustments

As discussed, adjustments this month largely consisted of ETF purchases: I increased my position in IGLT and added new positions in CEA1, CMOD and SMEA.

The only sales made were in XNAQ, to reduce my tech exposure (and more evenly weight my ETF holdings) as well as Crowdstrike for the same reason.

Closing Remarks

A shorter update this month, before the onslaught of earnings in August, which will cover:

  • AMD
  • Amazon (not this month, as incorrectly stated last month!)
  • Datadog
  • Twilio
  • Snowflake

Until then!