June 2019 Update

The market went on a tear this month hitting new records. With several companies attempting to tamp down expectations for the second half, my belief is the inflow of money is due to the lack of relatively safe investment options available as long as the trade truce holds. With earnings season on the horizon, it will be interesting if we see a continuation in July. This month the S&P gained 6.45% (almost erasing last month’s loss) while my portfolio gained a meager 5.56%. For the year, I’m still ahead of the benchmark by 0.45%. You can call it neck-to-neck.


PORTFOLIO UPDATES

  • increased my CL position
  • increased my DGX position
  • increased my EBSB position
  • increased my GNTY position
  • increased my HTH position
  • increased my MSCI position
  • increased my JNJ position
  • increased my ETF positions (VGK, JPMV, EWA, EWW, CUT)

DIVIDENDS

My primary focus resides on dividends with the goal being a rising flow on an annual basis, I’m placing less emphasis on the quarterly numbers as the number of semi-annual, interim/final and annual cycles have been steadily increasing in my portfolio.

  • June delivered an increase of 15.42% Y/Y.
  • June delivered a 1.78% decrease over last quarter (Mar) due primarily to timing issues (a Japanese dividend arrives in July).
  • Dividend increases averaged 9.31% with 50.22% of the portfolio delivering at least one increase (including 4 cuts (two being OMI)). This is off last years’ pace and I believe a new personal record for dividend cuts in a single year since about 1980.
  • 2019 Dividends received were 55.35% of 2018 total dividends putting me on target to exceed last years’ total in late October. The YTD run rate is 107.27% of 2018, slightly under my 110.0% goal.

Note: I updated my Goals page to provide a visual of these numbers.  Based on Mr All Things Money’s instruction set with a conversion to percentages.  My code only updates when the monthly Y/Y number is exceeded.  Otherwise, the prior year actual is used.

SPINOFFs

On Oct 4, 2018 MSG filed a confidential Form 10 to spin the sports business which remains in progress.


MERGERS

XRX merger with Fujifilm cancelled (still being litigated). Pending settlement expected in September.

TSS to merge into GPN (all stock, .8101 sh GPN for each TSS sh) estimated to complete in October – Upon the announcement, I was prepared to sell my TSS position to book almost a triple in just over 4 years as GPN currently pays only a penny per share dividend per quarter. However, page 14 of their slideshow states: Dividend – maintain TSYS’ dividend yield. This would appear to indicate an increase in GPN’s dividend, so for now I’ll hold.

PB to acquire LTXB for 0.528 shares and $6.28 cash for each LTXB share. I plan to vote in favor of the transaction (on both sides), pocket the cash and sell the new shares – retaining the old and perhaps use some of the cash to purchase additional PB shares post-merger.

VLY to acquire ORIT for 1.6 sh VLY to 1 ORIT. This merger will result in a slight dividend cut November forward as the rate will be normalized to VLY’s current rate. In my view, the other positives outweigh this negative.

SUMMARY

Overall, no complaints. The performance isn’t stellar but being ahead – even a little – in this market is no mean feat. Looking forward into the second half sees a little consolidation by migrating to a slightly risk off stance.

Here’s hoping your month/quarter was successful!

 

The Green New Deal

Momentum has been gaining over the past several years over Environmental, Social and Governance (ESG) investing considerations.  Initially reserved for ‘sin’ stocks (tobacco, alcohol and gambling), this movement has evolved to encompass a wide array of ethically questionable, albeit legal, activities including guns and ammunition, farming practices and corporate benefits to name a few.  Notably with the release of the release of the United Nations’ Global Warming of 1.5°C report on October 8, 2018, a renewed emphasis has been heard from some parts of the community, particularly as related to environmental issues.

I first touched on the issue of moral investing last June in concert with the border issues and Paul Tudor Jones’ initiation of the JUST ETF.  Other than a cursory acknowledgement, only one purchase (and no divestments) were performed with ESG in mind. The sole activity being the purchase of Amalgamated Bank (AMAL).  Further deconstruction questioned whether the JUST approach was only a ‘Greenwash’.

Over on the other side of the pond, there has been more angst and soul-searching, my guess as to the cause – a greater formalization of constructive movement towards some of the goals, such as Germany’s coal phase out.  To this end, one of the better posts explaining investing issues and alternatives surrounding ESG is Mindy’s as she performs her due diligence. With the dizzying array of options available, especially when ala carte choices are included, no wonder her “… brain tends to fog over when thinking about investments.

Then again, there’s always the well-reasoned do-nothing approach proposed by Ditch the Cave.  His reasoning follows a similar vein to that of Pitchfork Economics in that the basis of ownership is an event providing no direct benefit to the corporation.  While this is true, I would further add that any ownership stake that most of us could amass would be so minuscule as to be less than a rounding error on the corporate books.

Another school of thought – and more the focus of this piece – comes from DIY Investor (UK) who is currently repositioning his portfolio, in theory, to one less damaging to the climate.  At the very least, it provides comfort that his efforts are doing a small part in contributing to the betterment of society. I have minimal or no debate with his conclusions as we’re dealing with probabilities rather than certainties.  My quibble is with a portion of his analysis – primarily due to the emotional level of the debate on these issues. In my opinion, to present a case inclusive of incorrect – or incomplete – data provides an opportunity for detractors to seize upon and raise questions concerning the legitimacy of the remaining thesis.

Perhaps I was mistaken for a ‘detractor’ when we engaged last week as my comment of:

I applaud your research and investing convictions.  However some conclusions you arrive at may be somewhat flawed.

1) The ‘Green New Deal’ has climate change as only one element. It is too broad an endeavor to gain much traction. A better play would’ve been to select one or two of the contained issues to focus on.

2) The PG&E bankruptcy filing had ‘probable’ equipment malfunction as a cause of the deadly forest fire. Climate change was not listed as a factor, although I would suspect it was a contributor. The article referenced was an editorial (opinion) – not necessarily a factual piece.

3) To take asset managers to task is misguided, I believe. Their growth is largely due to the rise in passive investing (ETFs). Although they are listed as ‘registered owners’ it is on behalf of ‘beneficial owners’, i.e., the vast majority of individual investors with ETFs in their portfolio

The response provided was:

Thanks for your observations Charlie. I may be misguided but I would err on the side of caution with fossil fuel investments. You may have read about the decision by the worlds largest sovereign wealth fund to divest out of 134 of its oil exploration holdings.  The writing is clearly on the wall for everyone to see (or ignore).

So let’s break apart my objections.

  1. The Green New Deal can best be described as aspirational at best and is highly unlikely to be passed in any manner close to its’ current form. The essence of the resolution is to re-engage in the Paris Accord, ensure existing laws (particularly Labor and EPA) are strengthened or adhered to, strengthen laws pertaining to collective bargaining and improve the economy with a focus on infrastructure.  The one piece with any short term chance of passing is infrastructure as it melds with Trump’s economic priorities. Regardless, it remains too lacking in focus to be a viable basis for investment decisions.
  2. The PG&E filing was based on California law that holds a company liable for claims even when fault is not proven (one of the reasons I rarely invest in California).  It appears the direct cause was ‘equipment malfunction’ predicating the filing. His claim that the filing was due to global warming may be partially true but is based on an op-ed (opinion) piece in the LA Times.
  3. His quest against asset managers is akin to tilting at windmills for two reasons.  The majority of ETFs are rules based and merely a reflection of the base rule or index.  If the index is MSCI managed the determination would need to be made by MSCI – not the asset manager.  If the index was based on the S&P 500, the questionable company would need to be removed from the S&P before it would be reflected in the underlying index.  A more jermain reason is that asset managers based in the US (like Blackrock, Vanguard, Fidelity, et.al.) are required to adhere to a higher, government mandated, standard as related to shareholder engagement activities (activism).  To do otherwise would jeopardize their business model.

If engagement were to be considered, who would be the target?  Would it be a broad-brush approach or be laser focused? I mentioned MSCI earlier.  Would they get a pass as they create and manage indexes addressing both investing styles?  Or would their inclusion of questionable companies in some indexes place a target squarely on their backs?  I alluded to this type of inequity in my final sentence to DIY, “The quandary I encounter in my research are undefined secondary impacts. One example being solar. A by-product of manufacturing is silicon tetra-chloride. Therefore, is solar really green?”  The answer is a resounding yes, but, maybe ….

To make the implication that I’m a non-believer reinforces my contention that DIY Investor (UK) has a tendency to mold a conclusion based on opinions rather than facts.  The reality is that I have been looking at this type of strategy since at least 2015. One doesn’t have to look any further than the comment stream of one of Roadmap2Retire’s oldies but goodies on the renewable topic.  Today, the investing landscape in this space remains as muddled as ever and additional elements, perhaps brought into the spotlight by the Green New Deal, are being included. My concern is that this broadness will be result in its failure.  Call me a pragmatist, but current iterations include everything but the kitchen sink. You may also call me overly cautious, but not a naysayer.

The one investment on my watchlist that appears to meet much of the criteria is Brookfield Renewable Partners (BEP) with my core issues being valuation, debt and the K-1.  Therefore, on my watchlist it remains.

The one certainty continues to be each and every investor has their own core sets of values and beliefs – meaning that arriving at a consensus approach is unlikely at this time. I do have to applaud the energy and research being applied by newer investors coupled with their desire to invest in a manner matching their ideals.  For that is what will ultimately result in the world being a better place.

With that, I’ll get down off my soapbox and let you all have your turn 🙂

January 2019 Update

The new year began with a flourish shrugging off the December selloff and recovering most of the losses. With the month exhibiting minimal turbulence outside some earnings misses, my purchases were essentially toppers to existing holdings (except one) – all in the first week. The S&P rose 7.29% while my portfolio lagged a little rising 6.48%. In reality, I was probably even but my cash position was abnormally high as I failed to deploy the cash received from a merger (I exclude cash from my investing positions). I expect this will normalize during February.

PORTFOLIO UPDATES

  • Lost GBNK, GNBC and SHPG via mergers
  • Added TAK and regained IBTX via mergers
  • Added new position BDXA
  • Increased VGK, MSCI, SF, JPMV, HTH, GNTY, EBSB, EWA, DGX, CUT, CL, BNCL and BHBK positions

DIVIDENDS

While my primary focus resides on dividends with the goal being a rising flow of dividends on an annual basis, I’m placing less emphasis on the quarterly numbers as the number of semi-annual, interim/final and annual cycles have been steadily increasing in my portfolio.

  • January delivered an increase of 19.63% Y/Y, the impacts being dividend increases, special dividends and reinvesting merger cash proceeds into the portfolio.
  • January delivered a 0.83% decrease over last quarter (Oct) – the impact of two dividend cuts.
  • Dividend increases averaged 8.84% with 20.81% of the portfolio delivering at least one increase (including 2 cuts (GE, OMI).
  • 2019 Dividends received were 9.33% of 2018 total dividends putting me on target to exceed last years’ total in October.

Note: I updated my Goals page to provide a visual of these numbers.  Based on Mr All Things Money’s instruction set with a conversion to percentages.  My code only updates when the monthly Y/Y number is exceeded.  Otherwise, the prior year actual is used.

2019 conversion remains pending

SPINOFFs

GE‘s rail unit to spin then merge with WEB. This was restructured in January to generate more cash for GE – end result being a taxable event for shareowners

GE to spin 80% of the health business

NVS proposed spin of Alcon scheduled for shareholder approval Feb 2019

On Oct 4,2018 MSG filed a confidential Form 10 to spin the sports business

MERGERS

XRX merger with Fujifilm cancelled (still being litigated).

BNCL to merge into WSFS

BHBK to merge into INDB

SUMMARY

To escape January’s dividend cuts relatively unscathed is monumental. Back in October my expectation was for the effects to linger through the first quarter. Now I can just put my head down and focus on the long game.

Some Random Meanderings

Now that I’ve presented my 2019 game plan and my positioning moves planned for the last quarter, the time is ripe to see the strategies embraced by others.   First off the blocks was Credit Suisse with a projection of an 11% upside with some volatility.  I can’t disagree with the answer but question the methodology.  Their belief is the rise will mainly be on the backs of investors willing to pay up for quality (margin expansion).  My belief is that it will be riding the back of productivity increases as a result of the tax plan.  At least we both recognize that the Y/Y EPS growth rate is generally not sustainable.

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August 2018 Update

The markets took comfort by rising on a possible trade deal with Mexico with hopes of Canada being a slam dunk being dashed (until possibly next month) by the president’s own words (albeit off-record) that shot the negotiations down.  Kind of have to wonder about the art of that deal :).  Anyway, earnings were generally good with only a few surprises although several companies guided lower on tariff concerns and the inability to maintain the run rate that was accelerated by the tax plan.  I did come off the sidelines a little this month with mostly repositioning moves on the few dips.  August saw a rise in the S&P of 3.03% while my portfolio lagged a little by registering an increase of 3.02%.  YTD I’m ahead of the S&P by 1.06%.

Portfolio Updates:

  • Initiated GNBC (hedge on VBTX merger)
  • added to LUV on weakness
  • added to CHD (repositioning move – now overweight through the dividend)
  • Initiated MSCI on weakness (capturing their 52.63% dividend increase)
  • added to JNJ (repositioning move – now overweight through the dividend)
  • added to COBZ (merger approved by regulators)

DIVIDENDS

My main focus resides on dividends.  Market gyrations are to be expected but my goal is to see a rising flow of dividends on an annual basis.  I’m placing less emphasis on the quarterly numbers as the number of semi-annual, interim/final and annual cycles have been steadily increasing in my portfolio.

  • August delivered an increase of 53.11% Y/Y, the impacts being a Sep dividend paid in Aug (10%), last month’s rebalance (5%), dividend increases (5%), interim/final cycle (5%), purchases (1%) and the remainder being dividend reinvestment.
  • August delivered a 17.93% increase over last quarter (May) due to an interim/final cycle.
  • Dividend increases averaged 14.83% with 69.16% of the portfolio delivering at least one increase (including 1 cut (GE).
  • 2018 Dividends received were 77.59% of 2017 total dividends putting us on pace to exceed last year in early November.

Note: I updated my Goals page to provide a visual of these numbers.  Based on Mr All Things Money’s instruction set with a conversion to percentages.  My code only updates when the monthly Y/Y number is exceeded.  Otherwise, the prior year actual is used.

Spinoffs:

GE‘s rail unit to spin then merge with WEB

GE to spin 80% of the health business

NVS proposed spin of Alcon scheduled for shareholder approval Feb 2019

Mergers:

XRX merger with Fujifilm cancelled (now being litigated).

SHPG to merge into TKPYY

GBNK to merge into IBTX

COBZ to merge into BOKF

GNBC to merge into VBTX (semi-reverse)

Summary

The Y/Y dividend result is a great illustration of the power of reinvestment – particularly in light of the fact that “fresh” money investment is minimal.  Next week will be the continuation of the 3Rs series which will highlight some of the moves I’m making going into 2019.  You might guess at a couple of them based on my portfolio additions.

Hope all of you had a good month as well.

Debunking Home Country Bias

Investors’ natural tendency to be most attracted to investments in domestic markets. Investors tend to focus more on their home markets and the companies that do business within these markets because they are familiar with them.

Investopedia

Much has been written on investors’ Home Country Bias recently.  Studies and analyses have been performed.  It’s real and this syndrome has infected most of the planet.  But there is an antidote!  But wait.  Before we get too carried away, let’s take a closer look.

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