Sell Signal for FRT; Started VGT

Sell: Federal Realty Investment Trust

On 3rd June 2020 our systems created a sell signal for Federal Realty Investment Trust (FRT). We started this position in 2019. In March and May of this year we increased our position after prices dropped and our systems created buy signals at USD 74.78 and then again USD 67.95 respectively.

This week a sell signal was create and we reduced our position slightly at an average price of USD 93.5745 per share. Based on an average price of USD 71.3645 for the buys in March and May, this represents a gain of 31.12%. Here, too, we are quite satisfied with this result.

We continue to have a long position in FRT. While we see this as long-term investment, we may increase or decrease our position based on the signals created by our systems.

Buy: Vanguard Information Tech ETF

Also, on 3rd June 2020, we decided to increase our exposure in the technology sector. We started a position in this sector in May with "SPDR Select Sector Fund - Technology" (XLK). Our post back then already explains some of the reasons for the step back then. With adding the ETF "Vanguard Information Techology" (VGT) to our portfolio we have increased our technology holdings further. The technology sector currently represents about 8% of our US portfolio.

Both, XLK and VGT, have a quite different structure.

XLK has about 86% of assets in technology plus a further 12% in financial services. The remainder being about 2% in industrials. In total XLK consists of about 71 stock holdings.

In contrast VGT has 88% of assets in technology plus a further 10% in financial servicess. The remaining 2% are in industrials. The main difference is that VGT has 316 holdings which reduces the stock specific risks even further.

The past performance of the two ETF's is in the same ballpark. Both funds pay cash distributions typically once per quarter, so both are generating some cash (1% to 2% per year).

We started the VGT position with an average price of USD 267.15.

Disclaimer

Keep in mind that we do not accept any responsibility for your investment decisions. Do your own research and due diligence and consult with your financial advisor before making decisions. Any investment vehicle mentioned on this site is used for illustration purposes only and does not constitute investment advice.

Trading out of boredom?

A Bloomberg article that we found on Yahoo finance caught our attention today and we would like to share a few remarks.

Trading vs Rebalancing

This is not the first time that we've heard about retail investors placing a higher number of buy and sell orders since the coronavirus lockdown started. Most (if not all) of the online brokers serving retail investors have a note on their website along the lines that they are experience a much larger number of customer service requests. In some cases we observed that brokerage websites also showed signs of stress, e.g. some data not updating as quickly as it used to.

So there is some evidence that there are more orders being place, whether that is for stocks or options or other derivatives. We believe that trading, in particular day trading where you start and close a position on the same day, does not fit our investment preferences.

Having said that, we also observed an increase in the number of orders we placed since beginning of the year. All of those orders, however, were to rebalance our portfolio. Based on our data, there were more positions requiring rebalancing due to the significant fluctuation of the stock markets. There were days with declines or increases of 10% and more.

Not all stocks that we own moved to the same degree, though. Throughout the last few months and this is still ongoing to a lesser degree, there is a high uncertainty as to the effect of the coronavirus on particular companies and sectors. Because of this uncertainty, it appears as if "favorites" change within days.

As a result there was an increased need to rebalance our portfolio and keep all positions closer to the target allocation. The upside was that the vast majority of these adjustments resulted in additional gains due to buying at lower prices (the stock was "out of favor") and selling at higher prices (the stock was "in favor"). All of those buy and sell signals were created by our algorithms, so all we had to do was approve the suggested orders.

This kind of "trading" can help to improve the portfolio performance. Our data shows that without those short-term trades the performance would be lower. Still, this is no day trading. There was not a single cases where we started a position then closed it within the same day. Equally there was no case where we traded the same ticker symbol twice on a given day.

Therefore in our view rebalancing helps with performance. However, we are staying away from day trading.

Technology Sector

The Bloomberg article also quotes a co-head of derivatives strategy at a trading firm, referring to "message board trading" when people buy or sell based on whatever they read at a given point in time. He mentioned Apple Inc (AAPL), Stitch Fix Inc (SFIX) and TripAdvisor Inc (TRIP) as affected by this type of "trading".

For day traders it may make sense to look at individual stocks. However, if you take a longer term view then looking into the technology sector may make sense as long-term position in a portfolio. So instead of trying to make money as an amateur day trader with individual stocks it might make more sense to just buy into a basket of companies and keep that investment for a very long time.

Buying a basket can be achieved with exchange traded funds (ETFs). For the technology sector low-costs funds include SPDR Select Sector Fund - Technology (XLK) or Vanguard Information Tech (VGT). There are others more but these are good starting points for further research. In all cases you should seek independent advice. And before making a decision you should definitely also find out the ETF's portfolio, i.e. which companies do they invest in.

Using an ETF also helps reducs the risk that is associated with a direct investment in an individual stock. If the company you pick gets into trouble then your investment is likely to loose quite a lot. That same stock in an ETF is only one of many, at times hundreds of companies, so the risk that is unique to that company has only a very limited impact on the ETF portfolio and therefore price.

As always, do your own due diligence and seek independent advice before making decisions.

References

Article: "Bored Day Traders Locked at Home Are Now Obsessed With Options": https://finance.yahoo.com/news/bored-day-traders-locked-home-152732093.html

Note that we do not receive any compensation for mentioning any product, e.g. ETFs, in this post.

Rebalancing 21 May 2020

For almost all decisions regarding increasing or decreasing a position in our US portfolio we use a proprietary software. Today, this resulted in the following changes.

We reduced our position in Lowe's (LOW) at a price of about USD 120.79 per share. The average unit costs for the shares was USD 96.45. This represents a capital gain of about 25%. This is a satisfactory result for a position that we started in August 2019 only.

Again, we also reduced our position in Carrier Global Corporation (CARR) at a price of about USD 19.29 per share. The average unit costs for these shares was USD 14.465, so this is a capital gain of a little over 33%. This, too, is a very good result given this position started only on 03 April. The CARR position is quite interesting in that between 03 April 2020 and 28 April 2020 our software suggested increasing this position several times at price up to about USD 16.90. From 30 April our systems started to create several sell signal with prices starting at USD 17.68 and then increasing to USD 19.29 today.

One of the position swe increased today was Technology Select Sector SPDR Fund (XLK). We started this position on 15 May and increased it several times including today. As of today the average unit costs are at about USD 95.70. As always we intend to hold this position for at least 10 years if not longer, although we may increase or decrease over time based on our algorithms.

Hormel Foods Corporation (HRL) was the other position we incresed today at a price of about USD 46.10. This is also an interesting position in that our systems created several sell signals between 19 March 2020 and 02 April 2020 at prices between USD 46.70 and USD 48.50. Today our algorithms changed its mind and send a buy signal.

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.