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.

August 2018 Results: +1.81% Active Return vs S&P 500

The twelve months ending 31 August 2018 showed another good performance of the Optarix US Portfolio with an increase of 19.20% versus 17.39% for the S&P 500. This represents an active return of +1.81% of our US portfolio. The active return is the excess return over a benchmark.

Compared to the dividend aristocrats index (SPDAUDP), the second benchmark we use, the performance of the Optarix US Portfolio was +4.24% over the benchmark. This, too, is a satisfying result.

The trailing twelve-month (TTM) period ending 31 August 2018 was also the 9^th consecutive TTM period with gains in excess of 10% after tax and fees. Note, though, that we are not after absolute gains. Markets can go down, for example during the Global Financial Crisis (GFC) in 2008/2009.

The more important view is how the portfolio performs compared to benchmarks. In terms of this latter metric, the Optarix US Portfolio performed better than the S&P 500 in 8 of 9 twelve-month periods and better than the SPDAUDP in 9 of 9 twelve-month periods since December 2017. We started this portfolio in January 2017 only.

These results are water under the bridge if you like, the past. What is ahead of us?

What's Ahead?

There are the still unresolved issues around global trade and tariffs. In particular the measures taken by the Trump administration can potentially have a significant impact on the US economy and consequently on the US share markets. If history can tell us anything then we’d expect these things to be resolved eventually, if needed by a new administration. Alternatively, the mid-terms could result in a congress with a democratic majority in the House and – less likely – a majority in the Senate, which could help with resolving the problems, too.

Another challenge could be the increasingly tight labor market in the United States. Unemployment – regardless how it is measured – has been falling since the GFC. Employers find it increasingly difficult to attract and retain staff, at times only at the price of offering better compensation packages. Wages are on the rise.

With bigger paychecks retailers will be able to keep prices on similar levels or perhaps even increase them. Results from companies like Walmart or Target also indicate that the retail sector may have found a way to counter the market presence of Amazon to at least some degree. However, the upward pressure for prices can lead to higher inflation. This in turn leads us straight to the interest rates.

The Federal Reserve is poised to continue their measured approach towards increasing the interest rates as well as reduce their balance sheet from the quantative easing (QE) they used in the aftermath of the GFC. Increasing interest rates and at the same time an increasingly stronger US Dollar makes it harder for countries and companies that have debt denominated in US Dollar. Their financing costs increase, and some may even default. Turkey is an example where an increasing number of companies struggle due to the devaluation of their currency compared to other currencies.

Where does that leave us? We believe that there are significant risks ahead. However, we also believe that there have always been times with significant risks or actual bad events, including wars. And still, the markets recovered eventually, and there were always companies which got through downturns better than others. Dividend Aristocrats are just a few examples.

Bottom line: We believe that there is no need to rethink the rules we employ for the Optarix US Portfolio. We continue to be fully invested in about 80% dividend aristocrats and about 20% technology. Overall, we’ll continue to reduce the point risk by spreading the portfolio over an increasing number of positions. And of course, we take a long-term view, which means we intend to keep all positions indefinitely unless there is a significant change that impacts our assessment of a position.

As always, we only share our experience and thoughts. None of this represents a recommendation to buy or sell securities of companies mentioned or unmentioned. You need to do your own due diligence and make your own decisions. All we can be is a source for inspiration.

Happy investing!

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.

July 2018 Result: +2.37% Active Return TTM vs S&P 500

After June was a bit disappointing when comparing the Optarix US Portfolio to the S&P 500, July result was much better. While June had a negative active return of -0.47% for the 12 months ending 30 June 2018, the 12 months period ending 31 July 2018 resulted in an active return of +2.37%.

The results in comparison to the S&P 500 Dividend Aristocrats index (SPDAUDP) were also better in July than in June although still not on the same level as in the months December to May. Compared to the SPDAUDP our portfolio produced an active return of +4.20%.

This is certainly welcome news. Obviously there is no guarantee that future performance will be similar or even near to these past results. We can’t promise any results for that matter. All we want to do is sharing our experience by describing how we allocate our funds to different asset classes and positions. If our asset allocation leads to good results, that’s great.

More important, however, is that based our experience, your do your own research, talk to your certified and trusted financial advisor, perhaps to your tax accountant as well and then form your own opinion. It’s important that you also consult other sources. Also, your individual situation plays a very important role when it comes to investing. For example, the scenario is quite different if your save for your retirement which is like 10, 20 or more years away, or if you save for buying property or a car in a couple of years’ time.

Happy investing!

Rebalancing July 2018

On 20 July 2018 a couple of our positions reached the point where their share in the overall Optarix US Portfolio became too large for our taste.

We sold some of our position in VF Corp (VFC). We started the position at a share price of USD 53.12 in February 2017. We now sold some of our shares at a price of USD 93.44. This represents a realized gain of 75.9%.

We also reduced our position in S&P Global Inc (SPGI). We bought our shares in February 2017 at USD 126.40 per share. We sold them at a price of USD 212.37, a realized gain of 68.0%.

As a result of these two sells and combined with the accumulated dividends we started a new position in Walgreen Boots Alliance (WBA). We use is picked the company with the lowest P/E ratio from the list of dividend aristocrats that we don't own yet. This was WBA this time. The share price for the buy was USD 64.90. As always when we start a position the intention is to keep it indefinitely.

This post highlights two of the rules we use. The first rule is reducing positions that have appreciated in value to a point that their share becomes too large in relation to the overall portfolio. When that happens, we want to take some of the gains off the table while at the same time reducing the exposure and risk to some degree. At the same time, we keep the majority of the position and participate in potential further increases in value.

The second rule we used in these transactions was to look at the list of all dividend aristocrats in the S&P 500 that we don’t already own. We then picked the one with the lowest P/E ratio to add to our portfolio. In total this added one more position to portfolio, reducing the average risk that any of the existing positions represents.

Note that past performance is no guarantee for future performance. We cannot look into the future. In particular the performance of VFC and SPGI described in this article doesn’t include any major bear markets like the Global Financial Crisis (CFG) so are not representative for the long-term performance of these and other shares.

Happy investing!

Disclosure: We have positions in VFC, SPGI and WBA. We have no intention to change these positions in the next 72 hours.

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.

We also share interesting news on Twitter about once a day.

Happy investing!