In the 12 months ending 30 September the S&P 500 gained 15.66%. In the same time frame the Optarix US portfolio gained 17.33%. This represents an active return of 1.67%. This means that our portfolio performed better in nine of the ten rolling 12-months period from 31 December 2017. The active return is somewhat lower than for the 12-months ending 31 August 2017 which was 1.81%.
The index representing just the dividend aristocrats - SPDAUDP - gained 12.53%. The Optarix US portfolio yielded an active return of 4.80%. Compared to this index our portfolio performed better in all ten rolling 12-months periods from 31 December 2017.
Our intention is to keep our portfolio as close as possible to these two indexes in terms of performance. Since we started to publish results at 01 January 2018, this has worked out as planned. Keep in mind the usual caveat: Past results are no indicator for future results.
We had a couple of changes in the portfolio in September. We sold some of the Atlassian (TEAM) shares. Shares of Exxon Mobil (XOM) were added. Both transactions served the rebalancing the portfolio and spreading the risk further.
In light of the increase of the yield of 10-years US government bonds from 1.5% in Q2/2016 to about 3.2% as of writing we continue to be concerned about the relatively high evaluation of the US share market. While there are still high-quality companies that currently have a PE-ratio of less than 10, most are above 15, some even above 20 or 30. And that does not account for high-tech companies that have PE-ratios that are even higher. If a company has a sustainable growth rate of 50% year-to-year then PE-ratio of 50 may be justified. No all companies with that high of a valuation will have that kind of sustainable growth rate.
In addition the US labor market continues to be very strong. The unemployment rate is now at the lowest level since 1969. Increasingly employers find it harder to find suitable staff or they may have to pay significantly higher wages or salary. If some of the new trade barriers result in even more jobs being created in the US while at the same time immigration is decreasing, then this will result in even more pressure to improve compensation packages.
As the workforce has more money to spend and as manufacturers or service companies have to pay more for their staff, prices will inevitably increase. With more tariffs in effect, imported goods become more expensive as well.
All of these factors, we believe, will cause continued upward pressure on interest rates. The Federal Reserve has just indicated that they are far from taking a neutral stance. This suggests that they may increase interest rates more and faster than the market may have anticipated so far. And following suit we believe that the share markets won't do as well in the next 12 months as they did in the previous 12 months. In particular the next few months leading up to the mid-term elections in the US could bring quite a few nasty surprises.
By spreading risk further and by choosing shares of high-quality companies we believe the Optarix US portfolio should continue to do quite well in comparison to stock market in general.
Happy Investing!
Disclaimer: We are merely sharing our experience with investing our own money. You are responsible for your own investment decisions. Always do your own due diligence and consult your certified financial advisor before making a decision regarding your financial assets.
The index representing just the dividend aristocrats - SPDAUDP - gained 12.53%. The Optarix US portfolio yielded an active return of 4.80%. Compared to this index our portfolio performed better in all ten rolling 12-months periods from 31 December 2017.
We had a couple of changes in the portfolio in September. We sold some of the Atlassian (TEAM) shares. Shares of Exxon Mobil (XOM) were added. Both transactions served the rebalancing the portfolio and spreading the risk further.
In light of the increase of the yield of 10-years US government bonds from 1.5% in Q2/2016 to about 3.2% as of writing we continue to be concerned about the relatively high evaluation of the US share market. While there are still high-quality companies that currently have a PE-ratio of less than 10, most are above 15, some even above 20 or 30. And that does not account for high-tech companies that have PE-ratios that are even higher. If a company has a sustainable growth rate of 50% year-to-year then PE-ratio of 50 may be justified. No all companies with that high of a valuation will have that kind of sustainable growth rate.
In addition the US labor market continues to be very strong. The unemployment rate is now at the lowest level since 1969. Increasingly employers find it harder to find suitable staff or they may have to pay significantly higher wages or salary. If some of the new trade barriers result in even more jobs being created in the US while at the same time immigration is decreasing, then this will result in even more pressure to improve compensation packages.
As the workforce has more money to spend and as manufacturers or service companies have to pay more for their staff, prices will inevitably increase. With more tariffs in effect, imported goods become more expensive as well.
All of these factors, we believe, will cause continued upward pressure on interest rates. The Federal Reserve has just indicated that they are far from taking a neutral stance. This suggests that they may increase interest rates more and faster than the market may have anticipated so far. And following suit we believe that the share markets won't do as well in the next 12 months as they did in the previous 12 months. In particular the next few months leading up to the mid-term elections in the US could bring quite a few nasty surprises.
By spreading risk further and by choosing shares of high-quality companies we believe the Optarix US portfolio should continue to do quite well in comparison to stock market in general.
Happy Investing!
Disclaimer: We are merely sharing our experience with investing our own money. You are responsible for your own investment decisions. Always do your own due diligence and consult your certified financial advisor before making a decision regarding your financial assets.
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