Top 5 Positions as of 16 Nov 2018 - Nvidia

Again, no change in the Optarix US Portfolio in the last four weeks. The market volatility in October and in particular the bad performance of high tech stocks has had quite an impact on the top 5. Apple (AAPL) has left the group, so did Aflac (AFL). New entrants are Wallgreen Boots Alliance (WBA) and Stanley Black & Decker (SWK).

The updated top 5 list contains these positions. The percentage values is the change since we started the position:

1. Vanguard Total Stock Market (VTI) +27.29%
2. Emerson Electric (EMR) +23.18%
3. Wallgreen Boots Alliance (WBA) + 26.75%
4. Johnson & Johnson (JNJ) +25.74%
5. Stanley Black & Decker (SWK) +20.79%

Technology stocks got quite a hammering in October. Nasdaq's decrease by about -9.20% in Oct 2018 is an indication as it's still considered to be tech heave. By comparison, the S&P 500 lost only -6.94% and the Dow Jones -5.07%. November so far saw the S&P 500 increase by 0.9% and the Dow Jones by 1.18% while the Nasdaq is down -0.79%. It almost looks as if there is a "crash" spread out over several months. The still increasing interest rates don't help. The trade conflicts don't help. 

The tightening job market doesn't help either as companies find it increasingly hard to find people to expand their business. If the measures of the current administration in fact lead to more (manufacturing) jobs being created in the United States, then this begs the question: Who will fill those jobs? And at the same time there is a trend towards reducing immigration which puts a limit on the labor pool as well.

Quite a few stocks are now in correction territory with more than 10% off the top. Some have suffered even more (see below). Going forward we believe that the volatility in the stock markets will continue for some time. Increasing interest rates will continue to put a downward pressure on share prices. The pressure may decrease as soon as there are noticeable signs that the Federal Reserve sees an end to the current cycle of increasing interest rates and assumes a neutral position.

Nvidia

The shares of Nvidia (NVDA) are now down about 42% from their top on 02 October 2018. While we agree that at levels of USD 292 per share the valuation of the company is quite ambitious, we equally believe that the current levels may represent buying opportunities. Our position in NVDA is down about 34% which we often use as a trigger to assess if we should close our position or to add to our position.

In this case we believe that main factor for the stock crash - minus 18% on Friday 16 Nov 2018 alone - is that there was a lot of speculation in this stock. People expected the company to grow at 30%, 40% or even more year-over-year. It turned out that there is still a lot of inventory in the sales channels for the gaming range of products which represent a little more than half of all revenues. Nvidia won't sell a lot this quarter which often is one of the more important quarters each year. 

However, the extreme level of inventory in the channels is an aftermath of the hype around crypto currencies and mining of Bitcoin and similar. Taking a step back, we believe this is a one-off situation, nothing permanent. The fundamental business model of Nvidia works. They have good growth rates for their three other business areas, namely data centers, AI and autonomous vehicles.

Disclaimer: We hold shares in all companies mentioned in this post. We have no intention to change or initiate positions within 48 hours of this post. This post is not financial advice. Consult with your certified financial advisor before making any financial decisions.

Top 5 Positions As Of 26 September 2018

Because of the changes in the Optarix US portfolio in September 2018 as well performance of individual positions, the top five positions in our portfolio has changed. As of 26 September 2018, the five positions with the highest weighting are now:

1. Emerson Electric (EMR) +36.6%
2. Vanguard Total Stock Market (VTI) +36.9%
3. Stanley, Black and Decker (SWK) +38.5%
4. Aflac (AFL) +29.5%
5. Apple (AAPL) +76.9%

The position that dropped from the last list is Atlassian Corp Plc (TEAM). We reduce that position earlier this month. It was the 4th time that we reduced TEAM to reduce our risk exposure and rebalance our portfolio.

Apple (AAPL) has re-appeared in the top 5. We started this position in July 2015 at a share price of USD 125.00. We sold some shares in December 2017 at USD 174.89. As of writing AAPL is traded at about USD 222.00.

While we like it a lot when shares gain in value, we use the right opportunity to reduce larger positions and to either add to smaller positions or - more likely at the moment - we start new positions altogether. At the moment the portfolio is still in a very early stage. By that we mean it has only 35 positions. We are aiming for about 50 to 100 positions in total, most likely a combination of dividend aristocrats and high-tech growth companies.

We see high-tech growth companies as a higher risk. However, at the moment they also tend to produce gains faster. Effectively we are accepting the higher risk for better returns. At the same time we also take money of the table at the right time to generate cash for starting new positions in either dividend aristocrats or other high-tech stocks.

Happy investing!

Disclaimer: We own shares in all companies mentioned. We have no plans to start or change a position in any of the stocks mentioned in this post in the next 48 hours. This post is not financial advice. You are responsible for due diligence before making financial decisions.

Top 5 Positions As Of 16 August 2018

To give you some insight into which companies our Optarix US Portfolio is invested in, here are the top 5 positions in terms of value as of 16 Aug 2018:

1. Emerson Electric (EMR): +30.86%
2. Vanguard Total Stock Market ETF (VTI): +33.24%
3. Atlassian Corp Plc (TEAM): +211.36%
4. Stanley, Black and Decker (SWK): +30.06%
5. Aflac (AFL): +26.23%

Note that there are some caveats. This list represents the status at of 15 August. By the time you read this, the top 5 positions in the Optarix US Portfolio are likely to have changed. Any of the positions may have been increased, reduced or closed, i.e. we may have sold all shares of that position. Equally it is possible that we may have started a new position that has become a top five holding.

The percentage changes shown in this list are the gains in relation to the unit costs at the time of starting the position.

What this list shows you, though, is that at that time we had a mix of three elements in the top five.

Firstly we have VTI which is a passive index fund representing the entire US stock market. We have this position as a remnant from when we started this portfolio. To increase the spread of risk, we decided to just buy the entire market at the beginning. Over time we then added individual stocks for this portfolio.

The second element are three companies that are dividend aristocrats. These are companies who have increased their dividends every year for at least 25 years. SWK, EMR and AFL are dividend aristocrats.

Finally, we have a high-tech value in the top five, TEAM. Atlassian has a very interesting business model and exciting products which we have used in a former live for many years. We started this position shortly after they were listed at the stock exchange. Their share price has been growing very nicely since then. Their products are used by some of the best brands on this planet to manage their software engineering and other projects. We continue to believe they have a bright future. That's why we have this position. It's also worth noting that despite having sold some of our TEAM shares on two occasions to realize some gains and to re-balance the portfolio, they have re-appeared in the top five once again.

Happy investing!

Disclaimer: Please be aware that past results are no predictor for future results. Posts on this blog and elsewhere do not constitute investment advice. You are solely responsible for your investment decisions. Please consult with your financial and/or tax adviser before making any investment decisions.

April 2018 Result: 2.41% Active Return TTM

April 2018 was yet another month where our US portfolio performed better than the S&P 500 in the trailing twelve month period (TTM). This time it was 2.41% which is noticeable lower than for the 12-month periods ending in Dec 2017 and Jan, Feb and March 2018. With raising interest rates dividend aristocrat behave a little bit more bond-like, that is as the interest rates go up the share prices will have some downward pressure. As a result the dividend yield for the dividend aristocrats tends to move somewhat in parallel with the yield on interest-free investments like for example the 3-months US treasury bills in the secondary market. Our US portfolio has allocated about 80% of its funds to dividend aristocrats at the moment.

We have previously discussed the rising interest rates. We continue to believe that these represent the biggest threat to gains in the share market for the time being. Unless the US Federal Reserve indicates that interest rates have reached the desired level, we believe the rising interest rates will continue to put downward pressure on share prices.

Taking a much longer timeframe such as 10 years or more, history tells us that interest rates fall and rise. After each rise there was a fall in the past. After each fall there was a rise. At the moment we are in a longer period where interest rates are trending up. At some point this will come to a halt. Nobody knows yet when that will be as it would require to predict the future.

If you buy shares with the intention to keep them indefinitely the current share prices doesn’t really matter at all. All that matters is what you think the earnings are doing which in turn feed dividend payments. Companies like Stanley Black & Decker (SWK) have paid dividends for 140 years and have increased their dividend each year for 50 consecutive years. It looks as if at least for SWK the ups and downs of the interest rate over the last 50 years didn’t really matter when it came to increasing the dividend. It just was more each year. We don’t expect this to change any time soon for SWK but also for a few more positions we have in our US portfolio.

Obviously we like a higher active return over a lower. Still, we are happy with 2.41% over the S&P 500 over the last 12 months. We are also prepared that until the interest rates in the US stop rising our portfolio may not return as much as in scenarios where the interest rates are flat or even falling. We’ll see. We cannot predict the future either.

Happy investing!