Reducing CARR; Increasing XLK

Rebalancing

As part of the continuous rebalancing of our US portfolio, today we reduced our position in Carrier Global Corporation. The position was started early on 03 April 2020 when Ratheon and United Technologies (UTX) merged into Ratheon Technologies (RTX) and at the same time spun off Carrier Global Corporation (CARR) and Otis Worldwide Corporation (OTIS). Since this spin-off we added more shares in CARR. Today we sold some CARR shares at USD 18.51. With unit costs at about USD 14.46 this represents a gain of about +28%. An excellent yield for a holding period of about 7 weeks.

With the proceeds we increased our position in SPDR Select Selector Fund - Technology (XLK), which we had started on 15 May 2020. The reason we added XLK to the portfolio was the observation that over the last few years growth stocks and in particular technology stocks outperformed value stocks. Dividend Aristocrats are a very solid base investment and represent value stocks.

We picked the technology sector as by and large the age of internet, cloud, Artificial Intelligence (AI), big data and [insert your favorite technology buzz word here] has barely started. Previous technical revolutions such as the industrial revolution or the Age of Steam had what Carlota Perez calls an "Installation Phase" followed by the turning point. We agree with Perez in that we have most likely have reached that turning point for the Age of Information and Telecommunications. We believe that for the next few decades technology companies should be well positioned to benefit from what we think is a long-term trend. Companies such as Amazon, Google or Microsoft are just the beginning. There are many more to follow.

To spread out the risk and only gradually add technology stocks we decided to utilize an Exchange Trade Fund (ETF) to start this position. At some point we may decide to add more direct investments in technology companies to our portfolio. As of writing we already have positions in Apple (AAPL), Microsoft (MSFT), Atlassian (TEAM), Nvidia (NVDA), Texas Instruments (TXN) and similar more.

Do not assume, though, that we are moving away from dividend aristocrats. Instead we believe that those still represent a very sold core investment. Therefore we continue to own shares in all 66 dividend aristocrats. We simply are "spicing up" the portfolio with some investments in the technology sector where we believe we have a sufficient understanding of the long-term opportunities of the company in terms of benefitting from the Age of Information and Telecommunications.

By mixing in some technology stocks to the dividend aristocrats we expect the performance of our overall portfolio to be between dividend aristocrats alone and the S&P 500. In other words, we expect our specific portfolio structure to perform better than the dividend aristocrats alone.

References

For more information about the work of Carlota Perez in particular her book "Technological Revolutions and Financial Capital" see her web site at http://www.carlotaperez.org/

We do not receive any benefits from any of the source listed in references.

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.

Portfolio Changes 12 Sep 2018

The Sell

One of the rules we employ to manage our US portfolio is to reduce positions that have grown much faster than other positions. That point is reached if a position’s share in relation to the total portfolio has become too big.

Our position in Atlassian (TEAM) has reached this point for the second time this year. In May we already sold some shares, and now – on 12 September – we sold some more but will hold on to most of our position. While the share price was USD 62.90 in May, we now received USD 89.65 per share. Because this is also a significant relative increase in such a short term, in our view the risks associated with this position has increased, too.

Here is a list of our trades in TEAM for the Optarix US Portfolio:

Trade	Date	Transaction	Price
1	29 Dec 2015	Bought	30.79
2	02 Jun 2016	Bought	24.91
3	01 Aug 2016	Sold	29.99
4	05 Jun 2017	Sold	36.93
5	05 May 2018	Sold	62.60
6	12 Sep 2018	Sold	89.65

Trade 1 was for starting the original position. Trade 2 added more shares at a reduced price. We did trade 3 when the price allowed selling to break even for the overall position. As you can see, each time the price was even higher. Between Dec 2015 (shortly after IPO) and Sep 2018 the share price almost tripled. Therefore we took more money off the table with trades 4 to 6 and move the proceeds into other existing or new positions. Bottom line we see a gain of 275% at the moment. We continue to participate in future increases with the remaining position in TEAM.

Note that TEAM are investing all cash back into the business and as a result don’t show a profit, let alone pay a dividend. Therefore the only way to generate cash from this position is to sell shares when the price is right. This high-tech company is therefore fundamentally different than a dividend aristocrat. The latter create cash in the form of a dividend that increases once a year.

The Buy

With the available cash from selling some TEAM shares and from dividends, we started a new position in Exxon Mobil (XOM). From the dividend aristocrats in the S&P 500 that we don’t already own, this was the one with the lowest price/earnings ratio (P/E ratio). Exxon has been pay a dividend since 1911. It has increased its dividend for about 35 years. The dividend yield is currently at 3.96% which is quite nice.

We are aware that some investment funds and asset managers are selling assets in the oil industry. To some degree this is a personal decision in our view, in some cases driven by ethical or moral reasons. We respect that. However, we also believe that XOM is a great addition to the Optarix US Portfolio. The dividend yield is great and if XOM continues to raise the dividends each year (as it did in the last 35 years) it represents a good source of cash that we’ll be happy to use in the future to broaden our investments even further.

Summary

This is yet another of how we use the opportunity to reduce a position that has seen substantial gains and start a new position with the proceeds of the sale and the accumulated dividends of the portfolio positions. Both, reducing one position and adding a new position, reduce the point risk each position represents. We review our positions regularly and rebalance our portfolio as needed.

In total the Optarix US Portfolio now has 35 positions plus a small portion of cash. Going forward we intend to eventually have a position in each of the S&P 500 dividend aristocrats combined with a selection of positions in hightech companies.

Happy investing!

Disclaimer: We own shares in TEAM and XOM. We have no plans to change these positions or to start new positions of any company that may be mentioned in this post. This post does not represent a recommendation to buy or sell any securities (mentioned or not). You are responsible for your own decisions. Do your own due diligence and speak to your financial adviser before deciding.

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.

January 2018 Results

January was yet another good month for our US portfolio. It ended with +4.31%, making it the 15^th month in a row with a positive result. At a time the portfolio was almost up even more than the 4.31%. However, looking at how things have developed over the last few years it’s clear that this is not sustainable. Eventually the real economy has to catch up to what the markets do. And if that doesn’t happen or does not happen to the degree required, then the markets will have to adjust. A first taste were the two days with triple digit losses of the Dow Jones on 29 January and 30 January.

We believe that there are three main reasons the US markets made so much progress in January. Firstly, the tax reform helped a number of businesses to take a windfall. They opted for either buying back more shares, increasing the dividend or to pay a one-off bonus to their employees. Or a combination of these. Another factor was that some companies reported results that were better even if you exclude the change in the US tax rules. AbbVie (ABBV) is one such example. Finally, because the US dollar weakened compared to some currencies, US shares looked more attractive. For example the EUR was USD 1.2457 on 31 January 2018 compared to USD 1.0755 on 31 January 2018, a change of 15.8%. Taking this into account the increase of the S&P 500 over the same period (+23.91%) is still a very good value but doesn’t really look as impressive anymore.

As always let’s look at how our US portfolio performed compared to its benchmarks. The portfolio is up 27.87% year-to-year. In the same timeframe the S&P 500 is up 23.91%, so our portfolio is ahead by 3.96%. This figure is down from 4.31% last month, mainly because of how Procter & Gamble (PG), Johnson & Johnson (JNJ) and Atlassian (TEAM) performed. For all three we continue to be optimistic long-term.

Let’s look at another two benchmarks. One is the S&P 500 Dividend Aristocrats (SPDAUD) and the other ProShares S&P 500 Dividend Aristocrats ETF (NOBL). Using 31 December 2016 as 100%, our portfolio is 5.83% ahead of SPDAUD (+4.91% in December) and 6.25% ahead of NOBL (+5.18% in December) as of 31 January 2018.

Note that the S&P 500 had an annualized return over the last 10 years of about 6.93%, SPDAUD of 8.89% and NOBL of 13.89% (NOBL since inception 09 Oct 2013). Over the 12 months ending 31 January 2018 our US portfolio beat all three of these by at least 3.96%.

Please be aware that past results do not guarantee future results. Also, keep in mind that perhaps we were just lucky picking the rights stocks when we started this portfolio in January 2017. The early indicators suggest that choosing a good balance between about 70% to 90% of dividend aristocrats and 10% to 30% of hand-picked other stock might yield good results for the increased risk.

Happy investing!

Disclosure: We own shares of ABBV, TEAM, JNJ and PG. We have no plans to change our position in the next 48 hours after publication for any of the financial instruments mentioned in this post. S&P 500, ProShares, etc. are trademarks of their respective owners.

Atlassian Remains Promising Investment

In a different life we have been using products of Atlassian Corporation Plc (TEAM) for many years. When they went IPO in December 2015 we jumped at the opportunity to own shares of them.

Initially we didn’t get the timing right (who does?). We bought some shares at USD 30.79 in December 2015 only to see the price drop over the subsequent months. So in June 2016 we bought more at a price of USD 24.90 to improve the average costs per share. This worked out nicely and in August 2016 we sold just enough shares so that the amount equaled what we paid for our second buy. As a result we had an unrealized gain (+111% as of writing).

We continue to be very positive about Atlassian. Their most recent quarterly results, published after market on 18 January 2018. Revenues for the quarter were up by 43% year-over-year. Free cash flow improved by over 50%. The earnings per share (EPS) were heavily influenced by the tax reform in the US. Because of a write-down of their deferred tax assets they took a one-time charge of USD 47.3 million for the quarter. This charge is non-cash. Without one-off charges their EPS would have been USD 0.13 compared to USD 0.09 in the same quarter one year ago.

Despite these very good results, the market didn’t like them and as a result next day, on 19 January, the share price declined by 5.29%. We believe this is exaggerated. Long term we believe that TEAM’s share price will continue to improve along with their revenues and earnings.

We still use their products. And we still like them and are happy to recommend them. It appears as if other companies agree. TEAM’s long-term liabilities are USD 8 million. Capital expenditures in the quarter were USD 4.5 million. The free cash flow was USD 72.3 million which easily covers both. Stock holders equity is 69.6% of Total liabilities and equities. This ratio is very healthy.

While their IFRS result for the quarter is still negative we believe that their success story will continue. We don’t expect the switch to a new CFO will have a negative impact.

Bottom line: We believe that TEAM continues to be a very good investment opportunity and therefore we will hold on to this position long term. We may consider selling some of the position if their share in our portfolio becomes too large.

TEAM as of 20 Jan 2018: USD 53.07

Disclosure: We own shares of TEAM. We have no plans to change this position in the next 48 hours.