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Happy Monday and the week ahead! Welcome to this 27th 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 this post with a portfolio review:
1. Since inception of this series (14th Feb 2023), the portfolio is Up +3.41%, while the benchmark is up +0.60%. The annualized return on the portfolio is 15.6%.
2. Risk measures: The portfolio has a Sharpe Ratio of 1.62, Sortino of 2.27 and a Standard Deviation of 0.42%.
3. The biggest gainers on the portfolio are Alphabet (+17.9%), Glencore (+15.6%), BMW (11.36%), Vodafone (+8.7%), ICBC (+8.4%), Tesla (7.4%) and the UK Gilt (+6%).
4. Among the long positions, Deutsche Bank (-14.8%) continues to remain the largest detractor, followed by Citigroup (-7%). Rise in the stock price of Nvidia, a short position (used as a hedge to equity exposure – read about it in post 14 here), contributed to a downward pull in portfolio performance.
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).
Continuing Portfolio Review
Allocation:
1. Regional allocation: Europe 45%, North America 45% and Asia 10%
2. Asset Class allocation: Equities 50%, Fixed Income 36%, Real Estate 5%, Cash 9%.
3. See illustration below for details.
Portfolio Transactions last week:
1. Reduced exposure to AP Moeller Maersk from 5% to 1%
2. Increased exposure in Industrial and Commercial Bank of China from 1% to 5%
Reason for the change in weights:
1. AP Moeller has seen a rise in its revenues in the last two years due to rising container costs, which have now normalized. While the company is still undervalued, it will be interesting to see how lower revenues impacts EPS. Hence, reduced exposure to the company before it announced its Q1-2023 interim results this week.
2. ICBC is a the largest bank in China, has good valuations and distributes regular dividends. You can read about a non-comprehensive assessment of its financials in post 10 here. Increasing exposure to the stock also increases exposure to Asia in the portfolio.
Portfolio performance last week:
1. Portfolio closed flat for the week, lower by -0.20%.
2. The benchmark index was lower by -0.30%
3. Portfolio detraction 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 AP Moeller and Deutsche Bank.
4. Gains in the portfolio were led by ICBC, BMW, TESLA and JD.COM.
Discussion about risk to this type of hedge: There are many methods to hedge long equity positions in a portfolio. Some of them are: derivatives (futures and options – buying puts), inverse Etfs (which rise when the price of the underlying falls) and there is the method seen here (hedge by selling a single stock or a basket of stocks). Each of these have specific downside risks.
As discussed in the last portfolio review, a key risk in hedging long positions in a rising market is the rise in value of the hedge (in this case Nvidia). To counter this (as much as possible), the hedge covers about 63% of the long equity exposure in this portfolio. (Long equities US$ 520,734, Short equity US$ 329,820). However, it is difficult to estimate how high a stock could rise (even if it is perceived to be overvalued) and continues to remain a downward pull on the portfolio. It may even require an exit from this strategy and look at other alternatives to hedge the long equity positions.
Financial Markets
After spending most of the week in the red, equity markets pulled back on Friday, after results from Apple and strong labor market data alleviated concerns of economic recession, closing flat for the week. Bond yields fell, the Dollar index closed -1% lower, Gold rose +1.8% in the week that was.
Economic data last week
The ECB and FED announced their interest rate decisions last week, which was covered in the previous post (you can read post 26 here).
North America Economic Data:
US ISM Manufacturing PMI (APR) at 47.1 compared to 46.3 in Mar’23
ISM Non-Manufacturing PMI (APR) at 51.9, up from 51.2 in Mar’23
JOLTs Job Openings in Mar at 9.59 million, down from the 11.5 million Job vacancies last year.
ADP National Employment Report: monthly change in non-farm employment at 296K in Apr compared to 142K in Mar’23. Highest reading since June 2022 (380K).
Non Farm Payroll (from the Bureau of Labor Statistics) for the month of April at 253K from 236K in March’23.
U.K and Europe Economic Data:
UK Manufacturing PMI (APR) at 44.5 compared to 44.7 in Mar’23, Services PMI (APR) at 55.9 compared to 52.9 in Mar’23
Eurozone Manufacturing PMI (APR) at 45.8, lower than the Mar’23 reading of 47.3. Services PMI higher at 56.2 in APR from 55 (Mar).
Eurozone CPI in APR expected to rise 0.7% MoM compared to 0.9% in Mar’23. Headline CPI expected to be 7% YoY and core CPI at 5.6% YoY
German Factory orders in March falls -10.3% MoM
Asia Economic Data:
China Manufacturing and Non-Manufacturing PMI (APR) lower than Mar’23. The PMI is an early indicator of economic activity in the Manufacturing and Services sector.
Economic Data This Week:
BoE Interest Rate Decision
UK Manufacturing Production Mar’23 (MoM)
UK GDP data (Q1 2023)
India Inflation data (Apr’23)
US PPI (Apr’23)
A snapshot of US and German Factory orders for the last 5 years (Base 100 in Dec 2017).
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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 – Earnings Summary
According to data from Refinitiv, 417 companies of the S&P 500 index have announced results so far. 77% have beaten expectations on EPS and 74% on Revenues. You can read about analyst expectations for revenue and eps growth before the earnings announcements began in post 19 here.
In Q12023, the EPS for the S&P500 index is expected to grow -0.7% from Q1 2022, this is an improvement from the -5.2% that was expected before the earnings season began. Estimates for the current quarter earnings (Q2 2023) are for a -4.7% fall in EPS compared to Q2-2022 and flat QoQ.
The Earnings dashboard from Refinitiv for the S&P500 and Stoxx 600 are given below.
That’s all for today, thank you for your time! See you in the next post!
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