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Happy Monday and the week ahead! Welcome to this 23rd post of investing, not rocket science! Investing Doesn't Have to Be Rocket Science: this is our Non-Expert Guide to Portfolio Management.
We begin with an overview of the portfolio:
1. Since inception of this series (14th Feb 2023), the portfolio is Up +3.89%, while the benchmark is up +0.45%. The annualized return on the portfolio is 21.5%
2. Risk measures: The portfolio has a Sharpe Ratio of 2.64, Sortino of 4.06 and a Standard Deviation of 0.39%.
3. The biggest gainers on the portfolio are Glencore (+21.1%), Alphabet (+17.7%) and A P Moller Maersk (+8.7%). Deutsche Bank (-13%) continues to remain the largest detractor, followed by JD.com (-3.4%).
4. All asset classes (Equities, Fixed Income, Real Estate and Cash) have contributed to the positive performance of the portfolio.
5. In summary, the portfolio continues to meet its objective of beating inflation and the benchmark index and it does so with good risk measures. (See details of the portfolio below).
A quick recap of this series so far:
In the 1st post: I defined a basic portfolio framework. The objective of this million dollar portfolio is beat inflation and an equity index. The investment style presented here is active portfolio management, without the use of leverage and a time horizon greater than 5 years. The benchmark index is the MSCI ACWI IMI. Typically, there are two posts a week (Mondays and Fridays).
From posts 2 to 22: I have evaluated 67 stocks and 4 potential bond additions. The portfolio is long 15 stocks, 1 Bond and short 1 stock. You can read all about it in the previous posts here: https://www.claritech.app/blog
You can click on the charts, graphs or illustrations to expand or zoom in. There is no remuneration received to evaluate specific companies or to add to the portfolio or the watch-list. The Amazon adverts you see are the source of revenue for this free blog (subject to purchases or subscriptions).
Portfolio Allocation:
1. Regional allocation: Europe 56%, North America 35% and Asia 9%
2. Asset Class allocation: Equities (41%), Fixed Income (30%), Real Estate (5%) and Cash (24%). See illustration below for details.
Portfolio performance last week:
1. Portfolio closed negative for the week, lower by -1.1%.
2. The benchmark index was down -0.4%
3. Underperformance of the portfolio last week was driven by a rise in prices of Nvidia (short position in the portfolio) and fall in prices of long holdings such as Alphabet, JD.com A P Moller Maersk, BMW and Infineon.
Financial Market Update:
Economic news, quarterly earnings and slowdown concerns drove market sentiments last week. Among the Equity indices, the Emerging Market Index fell -2.3% while the MSCI World closed flat at -0.15%. The S&P500 index closed -0.4% for the week while the Euro Stoxx 50 was up +0.94%. The Hang Seng closed lower by -3.8% last week.
Oil Futures closed lower by -4.6% for the week, Gold and Silver were flat (-0.17% and 0.29%). The Dollar Index closed lower as well (-0.34%) as the EURO (+0.5%) and Sterling (+0.51%) rose against the US Dollar.
North America Economic Data:
· Housing Starts declines -0.8% in Mar’23, bringing it to 10 MoM declines in the last 12 readings.
· Existing Home Sales (Mar’23) at 4.44M, this has typically been above 5.1M every month in the last 5 years. Not seen since Aug 2022 reflecting a depressed housing market.
U.K and Europe Economic Data:
· UK CPI (Mar’23) at 10.1% YoY from 10.4% YoY in Feb’23
· UK Core CPI (Mar’23) at 6.2% YoY from 6.2% YoY in Feb’23
· UK Unemployment rate in Mar’23 at 3.8% from 3.7% in Feb’23
· Eurozone CPI (Mar’23) at 6.9% YoY from 8.5% YoY in Feb’23
· Eurozone Core CPI (Mar’23) at 5.7% YoY from 5.6% YoY in Feb’23
Asia Economic Data:
· India WPI (Mar’23) at 1.34% YoY compared to 4.8% YoY in Feb’23
· China Industrial Production (Mar’23) grew at 3.9% YoY compared to 2.4% in Feb’23
· China GDP (Q1-2023) grew at 4.5% YoY compared to 2.9% in the previous quarter
· Japan CPI (Mar’23) at 3.2% YoY compared to 3.3% in Feb’23 and a peak of 4.3% in Jan’23
Economic Data This Week:
· US GDP (Q1), PCE Price Index (Mar’23)
Q12023 – Earnings
The previous post covered the earnings announcements from Bank of America, Goldman Sachs, Morgan Stanley, ASML Holding, Netflix and Tesla. You can read about it in the post (#20) here.
Friday saw the earnings announcement from Procter and Gamble. The company posted an earnings of US$ 1.37 per share and Revenue of US$ 20.1B beating analyst estimates on both. The company raised its forecast for 2023. This was seen as a positive for the stock and it closed up +3.46% for the day.
Trends in the company financials rise in Revenues (TTM) from the previous quarter. However, trends are in decline for Revenue Growth, Operating Income Margin, Earnings Yield, Free Cash Flow and Shareholder yield. You can read more about these terms in this post.
This week has some of the largest companies in the world (in terms of Market Capitalization) announce their quarterly earnings. See illustration for more details.
Summary of this post:
The portfolio continues to outperform the benchmark and move towards meeting its long term objectives. Last week saw relative under performance. However, I do not see any concerns at this time to make changes to the Asset Class or Individual Holdings.
Apart from tracking corporate earnings, two stocks that I am watching this week are Nvidia and Tesla. A couple of points before I discuss why I am watching these two stocks in particular: Growth stocks are generally perceived to do better when the economy is in a growth phase, however in my opinion, it is not necessary that all stocks need to follow this principle. Second, it is tempting to think that investing in Value stocks is a hedge against the downside. This is not true. Value stocks tumble along with the market and sometimes companies halt or reduce dividends during economic downturns. The point I am trying to make is that I should be open to possibilities and not restrict my view based on stock categories.
1. I hold nearly US$ 500K of equities in the portfolio and the hedge, which is a US$150K short on Nvidia (You can read about how I evaluated this strategy in post 14 of this series) does not cover the full equity exposure. As a continuation of the hedging strategy, I intend to add to the short as Nvidia rises towards 290 until I cover atleast 70% to 100% of the long holdings in equities. Risk: the stock could continue to rise on the back of bullish investor sentiment and generate losses in the portfolio.
2. Fundamentally, Tesla looks overvalued. However, this is a growth stock and not a value stock. You can read about it in my previous posts about the stock here (after Q4 2022 results) and here (Tactical Strategy). In continuation from these two posts, the stock may be good for a tactical exposure between 145 and 160. Risk: The stock is currently at 165, is trading below its 50 day and 200 day moving averages (generally considered a negative in Technical Analysis) and may continue to fall in price.
While there is feedback about product quality which needs to be addressed, the fact is Tesla generates its revenues on a single car model (>95% delivered is Model S according to the Q1 2023 earnings presentation), while competition has atleast 10 to 14 vehicle models generating their revenues. Tesla will expand the number of vehicle models which is likely to drive revenue growth for the company. The key question is at what stock price does Tesla’s future valuation come to a similar level as that of its competition?
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Thanks for your time! See you in the next post!
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