The first half of 2026 was less about discovering new investment opportunities and more about developing my approach to the stewardship of capital. I exited several long-term positions as my conviction deteriorated, reallocated capital towards higher-quality compounders and introduced a more deliberate framework for portfolio construction. Some of these decisions were prompted by changes in the underlying investment case. Others reflected a growing recognition that even a perfectly respectable business may no longer deserve a place in my portfolio. In this half-year review, I examine the principal changes I have made and how they are helping me build a portfolio that is more coherent, more resilient and more representative of the investor I aspire to become.
Reallocating towards Quality Compounders
As outlined in this article, I completely exited my housebuilders and related exposure in May, selling Taylor Wimpey (LSE:TW.), Persimmon (LSE:PSN), Vistry Group (LS:VTY), and Michelmersh Brick Holdings (LSE:MBH). This was fundamentally a behavioural decision for me, with my confidence in the sector weakening, management commentary becoming increasingly cautious, unfavourable macro economic conditions, and an investment case that increasingly relied on “hope”.
I also took a decision to move away from legacy financial holdings in M&G (LSE:MNG), Phoenix Group (LSE:PHNX), OSB Group (LSE:OSB) and Aviva (LSE:AV.), as well as selling out of my holding in Barings Europe Select Trust after a highly disappointing five years. These were difficult holdings to sell as none were showing particular weakness or signs of distress and were all in aid of my focus on simplifying the portfolio rather than business quality decision
As a result of these moves, I have made efforts to tilt the portfolio towards businesses with recurring revenues, strong returns on capital, niche market positions and cash generation. These include Experian (LSE: EXPN), Gamma Communications (LSE:GAMA), Judges Scientific (LSE:JDG), Alfa Financial Software (LSE:ALFA), and Concurrent Technologies (LSE:CNC). Five years ago, I would have struggled with the valuations of some of these businesses, which include lofty price to earnings rations, but all show strong economics, returns on capital and more predictable cashflows.
In addition, I’ve rebuilt my infrastructure exposure after an awful investment into Digital 9 Infrastructure Trust (LSE:DGI9) by adding to my holding in International Public Private Partnerships (LSE:INPP). The position supports my objective of generating reliable income with lower volatility and has positive inflation-linked characteristics.
Enhancing my tranche-led approach
Historically, I ran my portfolio on a “three tranche” approach – 50-55% in my top ten holdings, 30-35% in my mid-tier holdings, and a small 5-10% tail of developing or low-conviction positions. Whilst this provided a useful guide to position sizing, it didn’t explain why each investment was present. As a result, I decided that I wanted to take a more sophisticated approach to my portfolio management, and have developed a “sleeve” strategy, where each position is categorised into Quality Compounders, Income Holdings, International Diversification, Infrastructure & REITS, Cyclicals, Patient Capital and Cash. The change may initially appear administrative, but it materially sharpened my decision-making by moving the portfolio away from being a collection of individually interesting ideas and towards being a deliberately constructed system in which every holding has a defined purpose.
This framework also makes duplication easier to identify. Two companies might each be attractive investments in isolation, but owning both may add little if they provide the same economic exposure and depend upon the same underlying conditions. Equally, a modestly sized holding may deserve its place if it contributes something that the rest of the portfolio cannot.
Formalising Patient Capital
Of particular interest has been my development of the Patient Capital sleeve, with new investments in IP Group (LSE:IPO) and Oberon Investment Group (LSE:OBE), formalising the allocation of a small amount of capital to potentially asymmetric opportunities without allowing speculative positions to overwhelm my portfolio’s performance. These positions are deliberately contained. The objective is to retain exposure to businesses where the eventual upside could be substantial without allowing speculative or highly uncertain investments to determine the overall performance of the portfolio.
Previously, smaller and more speculative positions risked becoming an untidy tail of unrelated ideas in my portfolio. Placing them within a defined allocation forces me to consider both their individual merits and their aggregate weight.
Geographic Diversification
Although the portfolio remains heavily weighted towards the UK, I have continued to diversify geographically through holdings covering the S&P 500, Switzerland, Asia-Pacific, India and Japan. This is deliberate rather than an attempt to replicate a global index. The UK remains my primary market because it is where I possess the greatest familiarity, informational advantage and confidence in assessing individual companies. Nevertheless, geographic concentration creates its own risks. International holdings broaden the portfolio’s exposure to different economies, currencies, sectors and sources of corporate growth. Over time, I’d like more of this international exposure to come from exceptional businesses with durable competitive advantages rather than diversification for its own sake.
Cash Balance
The portfolio is currently overweight cash following a reduction the overall number of holdings in the portfolio. Historically, I’ve found it difficult to leave capital uninvested. Cash can feel unproductive, particularly while markets continue to rise. That discomfort can create pressure to accept weaker opportunities simply to remain fully invested. Maintaining a larger reserve is therefore a deliberate decision. It gives me the ability to respond when attractive valuations emerge and reduces the temptation to manufacture investment ideas where none are sufficiently compelling.
The first half of the year involved a significantly higher volume of transactions than has been normal for me in recent years. This reflected the final stages of a broader programme to simplify and restructure the portfolio, a process I now regard as largely complete. My intention is for activity to return towards its historical level: no more than approximately ten material purchase or sale decisions each year. The objective is not inactivity for its own sake, but to ensure that each decision is sufficiently consequential and well considered.
Looking to H2
As I look towards the second half of the year, my priorities are not to own more companies, but to continue improving the quality of the portfolio I already have. The most significant change over the last six months hasn’t been the individual holdings themselves, but more the framework through which I manage them. One of the most powerful questions I ask myself is “if I didn’t already own this business, would I be excited to buy it today?”. Where the answer to that question is no, I’m finding that sentiment and the “sunk cost” fallacy have increasingly little sway over my decision over what to do.
The portfolio remains deliberately heavily weighted towards the UK, and I would like to continue increasing exposure towards exceptional business whose competitive advantages are rooted in intellectual property and specialist capabilities. Although many businesses make grand claims in this area, I continue to focus on fundamentals to validate these and remain cautious about “jam tomorrow” businesses.
Thankfully, my patient approach to investing remains with me. I’m comfortable holding a higher than usual percentage of cash in my portfolio rather than chasing valuations as they climb ever higher. My objective isn’t just to maximise activity, but to maximise the quality of my decisions around individual investments and their valuation.
If there’s one lesson I’m looking to carry forward, it’s that successful investing is less about finding the perfect company than about having a sensible framework to deploy capital over the long-term. Markets will always fluctuate, narratives will come and go, but my task is to constantly pursue a portfolio that’s more resilient, more coherent, and more aligned to my philosophy with each change I make. As I’ve reiterated in many of my reviews, my approach to portfolio management and investment remains a long-term endeavour. I don’t expect every decision to be perfectly timed (or even successful), but I do expect that by continually refining both my portfolio and the my process of managing it, I will become a better steward of capital over time.