June 2018 Result: +3.64% Return over SPDAUDP

The past month was a roller coaster. The tariffs on steel and aluminum that the US imposed came into effect. Canada, Mexico and the European Union responded with tariffs of similar quality and quantity. The G7 summit ended without a joint communique.

We use two benchmarks for the Optarix US Portfolio: The first is the S&P 500 and the second benchmark is the S&P 500 Dividend Aristocrats index. With our portfolio selection we aim at matching these indices.

For our portfolio it means that it didn’t beat the S&P 500 in the 12 months ending 30 June 2018. The result was an active return of minus 0.47%. While disappointing it’s not unexpected that occasionally the performance of our portfolio is slightly less than the benchmark. We have allocated a significant percentage to dividend aristocrats which as a group underperformed by about 0.5% compared to the S&P500.

The average active return is still +2.96% which is not a bad number. However, as the graph shows the average return had its high point in Feb and has been in decline since then. With increasing rates and yields, dividend aristocrats – which at times tend to be have a little bond-ish – are out of fashion. This will end at some point, though. Long-term (i.e. last 10 years) dividend aristocrats delivered an average return of about 10.32% per annum, which is higher than the S&P 500 over the same time frame which had a return of about 8.31% per annum.

Since the Optarix US portfolio has a majority allocated to dividend aristocrats our second benchmark might be a bit more useful at this point. The S&P 500 Dividend Aristocrats index (SPDAUDP) tracks all of the dividend aristocrats in the S&P 500. The active return of our portfolio for the 12 months ending 30 June 2018 was +3.64%, so the picture looks better when compared to that second benchmark. On average the active return of the Optarix US portfolio over the SPDAUDP was +5.49% for the 7 months Dec 2017 to Jun 2018.

We believe that the Fed’s rate increases will continue to put downward pressure on dividend aristocrats when compare to the overall market. However, we are in it for the long-run, selling shares only to rebalance the portfolio or when a position took a bad turn.

We believe that the Fed’s rate increases will continue to cause dividend aristocrats to perform worse than the overall market. However, we are in it for the long-run, selling shares only to rebalance the portfolio or when a position took a bad turn. Rates increase will come to an end at some point. And we believe that dividend aristocrats – as a group – will continue to raise their dividends each year like clockwork. Eventually they will perform in line with or better than the market again.

The trade issues will continue for some time, perhaps even years. However, we remain optimistic that reasonable negotiation and solutions will prevail. We do not believe that any country will benefit from long-term protectionism. Where there are tariffs or other trade barriers they should be removed, even if that happens only gradually and may take many years.

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Happy investing!