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It’s International Worker’s Day, a day dedicated to those who innovate, the skilled, the employed and those who earn a living. Cheers to that! Happy Monday and the week ahead! Welcome to this 25th post of investing, not rocket science! Investing Doesn't Have to Be Rocket Science: this is our Non-Expert Guide to Portfolio Management.
Today is also called May Day (being the first day of May) but I suppose it’s more like “May Day!” for those who are have been holding a bearish view on equities as the indices continue to grind higher (that was another attempt at finance humor).
Portfolio Review:
1. Since inception of this series (14th Feb 2023), the portfolio is Up +3.62%, while the benchmark is up +0.90%. The annualized return on the portfolio is 18.1%.
2. Risk measures: The portfolio has a Sharpe Ratio of 2.13, Sortino of 3.16 and a Standard Deviation of 0.39%.
3. The biggest gainers on the portfolio are Alphabet (+20%), Glencore (+17%), Vodafone (+9%), Swire Properties (+6.5%) and BMW (+5%).
4. Deutsche Bank (-12.5%) continues to remain the largest detractor, followed by JD.com (-6%).
5. All asset classes (Equities, Fixed Income, Real Estate and Cash) have contributed to the positive performance of the portfolio.
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 blog series (investing, not rocket science) 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, which includes details of the portfolio and actionable evaluations (Mondays and Fridays).
From posts 2 to 20: I have evaluated 67 stocks and 4 potential bond additions.
Posts 21 onwards have been focused on the Q1 2023 earnings announcements, particularly of stocks in the portfolio and in the watch-list. The portfolio is long 16 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).
There were 15 companies from the portfolio and the watch list that have announced earnings last week (Monday to Thursday, 27th Apr 2023) including Alphabet, Microsoft, Amazon, Meta.. You can read about it in the previous post here. You can read about the expectations from analysts about growth in earnings and revenue among the companies listed in the S&P500 in the US and Stoxx 600 in Europe in post 19 of this series here.
You can read about the significance of quarterly earnings and some of the terms used to assess corporate earnings in post 22 of this series here.
Continuing Portfolio Review
Allocation:
1. Regional allocation: Europe 53%, North America 39% and Asia 8%
2. Asset Class allocation: Equities (40%), Fixed Income (30%), Real Estate (5%) and Cash (25%) See illustration below for details.
Portfolio Transactions last week:
1. Added to existing short position of NVDA
2. Added new long position in TSLA
You can read about the thought process behind these transactions in post 23 here.
Portfolio performance last week:
1. Portfolio closed flat for the week, lower by -0.27%.
2. The benchmark index was up +0.46%
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 Infineon, AP Moeller, Emerson and Citi.
4. Gains in the portfolio were led by Swire Properties, Vodafone, Tesla, Alphabet, Aviva and BMW.
A key risk in hedging long positions is a rising market / stock price. While the hedge in this portfolio hasn’t moved up by much, it could rise by another 5%. However, at this time, only 45% of my long equity exposure is hedged.
Financial Markets last week
US Indices ended the week and the month of April with gains as market participants assessed a wave of corporate earnings. Gains were led by the Mega Caps with Meta adding 12% for the week, followed by Microsoft with a weekly gain of +9%, Apple (+2.6%) and Alphabet (+1.5%). Amazon closed slightly lower (-0.9%) for the week despite beating analyst expectations on earnings. Sector performance: Communications services (+3.8%) was the top gainer followed by IT (+2.4%) and Real Estate (+1.5%). Utilities (-1%) and Industrials (-0.6%) declined for the week.
In Europe, LMVH becomes the first company to hit US$ 500 Bn in market cap. Stocks from the Communication sector such as Vodafone, BT Group and Orange gained between 3.6% and 6.5% for the week.
North America Economic Data:
US GDP Q1-2023 expected to rise 1.1% QoQ. This would be a decline from the 2.6% growth in the previous quarter but up from the -1.6% in Q1-2022.
US Personal Consumption Expenditure (PCE) price index rose 0.1% MoM in March’23, easing from a 0.3% rise in Feb’23.
Core PCE price index rose 0.3% MoM in March’23, remains unchanged from a 0.3% rise in Feb’23.
U.K and Europe Economic Data:
Projections for GDP growth in the Eurozone at 0.3% QoQ, from a -0.1% in Q4 2022.
Asia Economic Data:
Singapore CPI for March’23 at 5.5% YoY from 6.3% YoY in Feb. Australia CPI in Q1’23 at 7% YoY from 7.8% in the previous quarter.
Economic Data This Week:
FOMC Interest rate decision and press conference (3rd May’23)
ECB Interest rate decision and press conference (4th May’23)
Eurozone projections for CPI data in April’23
German Factory orders in March (MoM)
A look at CPI data from around the world: in Europe, US and Singapore – headline CPI data has peaked out, is around 6% and is trending lower. In China, headline inflation is heading to 0. In Japan and Switzerland, inflation is likely to stabilize around 3% to 4%. In UK and Australia, inflation is yet to show convincing signs of falling to the 5% to 6% zone. While interest rate decisions from the US and EU are expected this week, core inflation in both areas are just under 6% in a rising trend with no signs of cooling off yet. (see graphs below).
Q12023 – Earnings – Stocks in the portfolio and watch list
Mercedes Benz announced revenues in Q1 of Euro 41.35B, beating analyst estimates. The company raised its forecast for the year. The stock was up 1% for the week.
Schneider Electric announced revenues of € 9.32 Bn for Q1 2023, beating analyst estimates. The company raised its EBITA forecast for the year.
Deutsche Bank posted earnings of €0.61 per share (up 10% YoY) and Revenues of € 7.7B (up 5% YoY). According to a company statement, corporate banking revenues were up 35% YoY at €2 Bn, private bank revenues were up 10% YoY at €2.4B, investment bank revenues were lower by -19% at €2.7B and asset management revenues were lower by -14% at €589 million.
Trends in Financials (TTM): the bank sees improvements in shareholder yield, earnings yield, operating income margin and revenue, revenue growth and net income. Free cash flow also sees improvements although negative.
US Steel posted earnings of 0.77 per share and revenues of US$ 4.47B, beating analyst estimates on both. Revenues falls -15% YoY and EPS has declined -75% YoY. Total steel shipments increased 4% YoY.
Trends in Financials (TTM): US Steel sees declining trends in revenues, revenue growth, net income, shareholder yield, operating income, earnings yield and free cash flow.
Rockwell Automation posted earnings of 3.01 per share and revenues of US$ 2.27B, beating analyst estimates on both. According to a company statement, revenues were up 6% YoY and EPS was up 61% YoY. The company also raised its outlook for the year and revised its guidance on revenues and eps upwards.
Trends in financials (TTM): the company sees rising trends in revenues, revenue growth, operating income margin, shareholder yield, earnings yield, net income and free cash flow.
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This series is for information purposes only without regard to any particular investment objective, financial situation, suitability or means. It is not be construed as a recommendation, or any other type of encouragement to act, invest or divest in a particular manner (whether explicit or implicit). We recommend that you are familiar with the terms of use.
Q12023 – Other Earnings This Week
Exxon Mobil posted results of 2.83 per share and revenues of US$ 86.56B, beating estimates on both. Revenues declined 1% YoY while net income rose 108%.
Chevron posted earnings of 3.55 per share and revenues of US$ 50.79B, beating estimates on both. Revenues declines 6.4% YoY while net income rose 5% YoY.
Summary of this post:
The portfolio continues to outperform the benchmark and move towards meeting its long term objectives. I do not see any concerns at this time to make changes to the Asset Class or Individual Holdings. While this is only a summary of corporate earnings, there will be a deep dive into select stocks future posts.
posted earnings of 3.55 per share and revenues of US$ 50.79B, beating DRAFTJS_BLOCK_KEY:c8qh3estimates on both. Revenues declines 6.4% YoY while net income rose 5% YoY.
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Thanks for your time! See you in the next post!
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