Jenny Lowe looks at the achievements and strategy of the Hertfordshire-based Black Squirrel investment club.

Formed in 2000, the 13-strong Black Squirrel investment club perfected its strategy throughout the boom years, helping it successfully ride out the past 18 months. The club concentrates on investing for long-term growth and good dividends so its preferred companies tend to have long track records of profitability.

With these criteria in mind, the members of Black Squirrel invest across a wide range of sectors, from energy to insurance.

They are also keen on general retailers, as well as an array of different-sized companies, from behemoths like GlaxoSmithKline and BP to smaller, lesser-known organisations like PV Crystalox Solar, a manufacturer of components used in solar power systems.

The club invests in a vast spectrum of companies, from AIM to the FTSE 100, but it is mid-cap stocks that are particularly suited to the club’s aims due to the benefit of these companies’ profits to shareholders, mostly in the
form of dividends.

What’s the appeal?
Hunting Plc is a British-based supplier to the oil and gas industry and a constituent of the FTSE 250 Index. Black Squirrel bought holdings in Hunting four years ago and has since made between 25 and 30 per cent on its initial investment, excluding dividends.

Paul Johnson, secretary of the club, says this is just one example of a number of successful investments made by the club.

‘Another is Ultra Electronic Holdings Plc,’ he says, ‘a British aerospace and defence company that designs, manufactures and supports electronic and electro-mechanical systems. Our interest in Ultra Electronic Holdings
really sprang from a small defence contractor called Chemring, which went on to become our most successful investment to date.’

The club, which meets once a month in the members’ hometown of Letchworth Garden City, bought shares in Chemring in 2004 at 375p and saw their value rocket in a fairly short space of time. In just a year or so, the shares were valued at £13, prompting them to sell part of the holding. The remaining shares were sold about 18 months ago at £17.50 each.

While Ultra Electronic Holdings has not performed quite as well as Chemring, since the club bought shares in October 2007, Johnson is confident that the defence sector still presents good opportunities for many investors. One stock in particular is FTSE 250-listed Mitie Group, which provides facilities, property and asset management for some of the biggest public and private sector businesses.

‘This firm has grown its revenue, profit and earnings per share for over 21 consecutive years and continues to expand,’ he explains. ‘Since first buying into the company in 2004, we’ve seen our investment increase by about 30 per cent, excluding dividends.’

Protecting against losses
Unfortunately, not all the FTSE 250 companies in which the Black Squirrel club has invested have performed so well. PV Crystalox Solar, for example, despite coming highly recommended by several analysts, has been slow to impress, although the club remains hopeful that it will prove profitable in the long term.

Elsewhere, British retailer Debenhams, whose performance has been mixed during the past year, has shown a small loss of around 0.5 per cent for the club since it bought into the company in April 2009.

Fortunately for Black Squirrel, the impact of any losses incurred by FTSE 250 companies is often cushioned by investments in large-caps listed on the FTSE 100 Index. By keeping a hand in both markets, the club is far better positioned to spread risk and minimise potential losses.