The US stock markets had a negative quarter with declines of
-2.49% for the Dow Jones and -1.22% for the S&P 500. The NASDAQ was hit in
February and March as well but was able to hold on to year-to-date gains of
+2.32%. The NASDAQ benefitted from a 7.36% gain in January.
How did the Optarix US portfolio do in this time frame?
Year-to-date it’s down by -1.17% so did better than Dow Jones and more
importantly better than our benchmark the S&P 500. Compared to end of March
2018, the S&P 500 is up +11.77% while the Optarix portfolio is up +15.86%
given our portfolio and active return of +4.09% over the trailing twelve months
(TTM). The S&P 500 gained about 7.89% per years over the last decade. If
our active return would have been 4% of that time period, our portfolio would
have made about +11.9% per year, and that would have been after tax.
The graph shows the active returns for the twelve months
periods ending in Dec 2017, Jan 2018, Feb 2018 and Mar 2018. On average the
active return was +4.36%. Any data we have from periods before Dec 2017 is not
meaningful as our investment strategy change from about mid of 2016 to Feb
2017.
Of course, past results are never a guarantee for future
results. Perhaps we were just lucky with our particular investment style. On
the other hand we believe that our reasoning is plausible and this has so far
been confirmed by the data. We typically invest about 80% to 90% in companies
that have a track record of delivering increasing earnings per share (EPS)
and/or increasing dividends, and combine that with 10% to 20% growth stocks
that we believe have a proven business model with substantial growth.
Frequently this will be well-established high-tech companies.
Obviously we look at other factors as well. For example we
believe that if a company pays dividends, the payout ratio should not be too
high. We prefer companies with a payout ratio of less than 50%. We also look at
figures like the debt level and free cash flow. Typically we review our
position in companies as soon as they become the target of an acquisition. With
a buyer in the picture we think this brings with it a lot of speculation around
the stock price. Sometimes it is just a rumor that doesn’t materialize. At
other times the deal will fall through. We certainly will always do some
research about the potential acquirer. Fundamentally, we are more interested in
long-term potential than short term trading gains. Generally we follow a
buy-and-hold strategy.
We have mentioned in earlier posts that we believe the
increasing interest rates in the US represent a risk to the stock market. We
continue to believe that the climbing interest rates will put at least a damper
on stock prices. Perhaps what happened in the first quarter of 2018 was just an
early taste of how much more negative things in the next quarters. We believe
that the stock market is still a bit overvalued, so are not holding our breath
that we’ll see another 20% or so gain in the S&P 500 in 2018. We are happy to
be proven wrong, though.
Happy Investing!
