Last post in this series I highlighted my views from the rear view mirror. Going into 2019 will see more changes than normal. No I’m not selling any positions but changing the emphasis (allocation) on certain issues. The game plan is for reinvested dividends and fresh money to gradually swing the portfolio into balance with the new targets.
I decided to pause my 3Rs series to review one particular event of this past week. No, not the political spectrum (guilty pleas/verdicts in the US and a new PM in Australia) but the bloodbath incurred in the discount broker space following JP Morgan’s announcement of the commencement of a free trade platform. In the event you missed it, the Tuesday morning market shudder (per Seeking Alpha) was:
Online brokers slump in premarket trading after JPMorgan (NYSE:JPM) says it’s introducing a mobile investing app bundled with free or discounted trades.
JPMorgan +0.7% in premarket trading.
The theme for the month was volatility. A couple of ETNs cratered as a result of the high volatility causing investors to lose significantly when using these levered products. “We sincerely apologize for causing significant difficulties to investors,” Nomura said. Credit Suisse stated “investors who held shares of XIV had bet against at volatility at their own risk. It worked well for a long time until it didn’t, which is generally what happens in markets”. Caveat emptor.
During the month, the S&P index dipped into correction territory before rallying to close the month down 3.89%. My portfolio sympathized with the index closing down 5.53%. I never hit correction so my peak drop was less but I also failed to recover as quickly. Probably an area to perform a root cause analysis on at some point. Following back-to-back monthly losses against the S&P, I’m down 3.44% to start the year. Continue reading
Generally I refrain from back-to-back posts with similar topics but decided to make an exception this week as the moving parts have kicked into high gear. My post last week addressed my uneasiness with cryptocurrency as well as my interest in the underlying blockchain technology. It appears that my view has some support as two blockchain ETFs debuted on January 17th (BLOK and BLCN) and one January 25th (LEGR). This should be followed by KOIN next week. Horizons and Harvest (HBLK) also have ETF applications pending. Grenadier penned a piece on Seeking Alpha that did some analysis on the first two. Four of LEGR’s top five holdings are included in either one or both of the originals so it will probably be similar. David Snowball highlights this sentiment in his piece There’s no idea so dumb that it won’t attract a dozen ETFs stating, “…there are no publicly traded companies that specialize in blockchain; there are mostly companies with a dozen other lines of business that have some sort of efforts going into blockchain.” This is 100% correct.
Each year I establish a basic plan to govern my investing activity based on sectors, segments or locales able to deliver a little alpha to my portfolio. The past couple of years had a focus on the Financial industry with the outcome being rewarded with mergers (small banks) and outsized dividend increases (money center banks). I also began increasing my Canadian allocation in 2015 from 2.5% of my dividends to the current 8.6%. Since the election, I was accelerating the increase in my other foreign holdings to the current 13.6% on two theories, 1) gridlock in Congress would persist as the Republican majority would be too narrow to push through sweeping changes, and 2) this inaction would result in a weaker dollar. It appears I was correct on both counts as the US dollar is now at an eight month low.
With my alpha agendas now too pricey (at least for slam dunk results), a re-prioritization is in order. With the Fed Chairs’ testimony this week indicating that GDP growth of 3% would be difficult, the Trump agenda which projects a higher growth rate is likely in peril – even ignoring the self-inflicted wounds. Without an improvement in the GDP, deficit hawks will be circling. It is likely the last half of the year will present some opportunities, but my view these will be predicated on external events. My eyes will remain open to the USD exchange rate – on strength I may buy foreign issues.
My portfolio allocation between holdings labeled Anchor, Core and Satellite have been imbalanced for a year or two primarily due to merger activity and the acceleration of adding foreign issues. Now that the major mergers have completed, the last this past January, and other alternatives are slim, I figure it’s time to get back to basics.
My going forward strategy can be summarized as follows:
- Non-US equities when secured at a favorable exchange rate
a)I have 2 Japanese, 2 Swiss, 1 UK and 1 Swedish company on my watch list in the event an attractive price presents itself
- Assess corporate actions (spins, splits, mergers) for opportunities
a) Generally I’m agnostic to splits except when the result would be a weird fractional. I can easily manage tenths or hundredths of shares. Smaller sizes are troublesome so I avoid when possible.
b) Spins (and mergers) are assessed to prevent (if possible) weird fractionals. For instance, I added to my MET position earlier this month as their spin will be at a ratio of 11:1 which would have otherwise delivered a weird fractional.
- Assess portfolio for average down and other opportunities
a) An example of this was last months’ purchase of KSU. To this end, I recently updated my Dividends (Div Dates) Google sheet to flag when the current price is lower than my cost basis.
b) An example of “Other Opportunities” would be BCBP which is resident in my Penalty Box due to dilution. The dilution (secondary) might be explained (now) with their announced acquisition of the troubled IA Bancorp. If the regulators provide their seal of approval, it may be time to remove BCBP from Penalty status and perhaps add to this 3.5% yielder.
- Add to holdings that are below target weighting
a) This is where I expect most of my second half activity to reside.
Of my 26 stocks labeled Anchor, Core or Satellite; 5 can be considered at their target weight (within .5% of the target) and 4 I consider to be overweight. The remaining 17 will receive most of my attention. As most of these rarely go on sale, I’ll likely ignore price and place a higher priority on yield and events – at least until I’ve exceeded last years’ total dividends.
The following table highlights this portion of my portfolio:
|First of Long Island/FLIC||C-(3%)||0.85%|
|Bank of the Ozarks/OZRK||C-(3%)||0.67%|
|NOTE: Not all payment schedules coincide completely|
|PNC Financial Services/PNC||C-(3%)||0.30%|
|Legacy Texas Financial/LTXB||C-(3%)||1.48%|
|NOTE: Not all payment schedules coincide completely|
|Flushing Financial Corp/FFIC||S-(1.5%)||0.99%|
|NOTE: Not all payment schedules coincide completely|
I will provide the caveat that this plan is subject to not only the whims of the market but of my own as well. In addition, this plan may be changed if/when a better idea comes along.
March brought us the longest DOW losing streak in five and a half years on the heels of the first legislative defeat of the Trump administration. The talking heads then moved their focus to the “end of the earnings recession”. Frankly, I think as long as the US dollar remains strong, earnings will continue to suffer – except for domestically focused companies. As a leading indicator to this thesis, I would point to the slowing growth in dividend increases as a proxy. Regardless, the S&P closed the month down .04% while my portfolio rebounded ending the month up 3.3%. At the end of the first quarter, I lead the S&P by 1.35%.
Headlines impacting my portfolio:
- 3/1 – SQ buys OrderAhead (pvt)
- 3/6 – FMBI acquires Premier Asset Mgmt, LLC
- 3/9 – BR acquires Message Automation, Ltd.
- 3/13 – BUSE acquiring MDLM
- 3/16 – MMM acquiring Scott Safety from JCI
- 3/16 – Fed lowers barriers for <$100B bank mergers
- 3/20 – UL reviewing sale of spreads line
- 3/23 – BLK buys 5% stake in NTDOY
- 3/27 – BLL sells paint can line to BWAY Holding
- 3/27 – DST buys remaining UK JVs from STT
- 3/27 – SGBK to merge with HOMB
- 3/28 – KO and KOF close on AdeS line purchase from UL
- 3/29 – MA acquires NuData Security
- 3/30 – CM increases offer for PVTB
- Added to BCE
- Added to SQ
- Added to KO
- Added to TD
- Initiated position in AKO.B
- March delivered an increase of 9.15% over March 2016. 2.24% of this increase is attributable to purchases with the remaining 97.76% a result of dividend increases. The Y/Y comparison is a little distorted as four companies shifted pay dates and one special dividend did not reoccur.
- March had an increase of 6.44% over the prior quarter. This was primarily due to a pay date shift as a result of a merger.
- Declared dividend increases averaged 7.75% with 36.42% of my portfolio delivering at least one raise (1 cut – YUM).
- YTD Dividends received were 27.1% of total 2016 dividends. If the current run rate is maintained would exceed 2016 around October 15th – particularly with most of my semi-annual or interim/final cycles paying during the next quarter.
The MET spin (Brighthouse Financial – BHF) remains pending.
Agrium/POT, JNS/HGG.L and SGBK.HOMB remain pending
Keeping with my Coca-Cola bottler strategy, yesterday I added a new holding to my portfolio. Embotelladora Andina S.A. is based in Chile with territory covering Brazil, Argentina, Paraguay in addition to Chile. Their product line includes Coca-Cola products in addition to bottling and distributing outside brands including Amstel, Dos Equis (XX), Heineken and others. They have an integrated operation, meaning they manufacture the bottles, cases and caps used in their bottling operation.
Andina has two share classes, the A shares carry greater voting power while the B shares pay a higher dividend. As I don’t expect to accumulate enough shares to impact the board, I chose the higher dividend. The shares are traded on the NYSE as an ADR administered by Bank of New York Mellon (BK), another of my holdings. The ADR ratio is 6 shares of Andina-B (Chilean exchange) to 1 AKO.B (NYSE).
A dividend is paid almost quarterly (Feb, Jun, Sep, Nov) but is variable as the cycle is Provisorio/Adicional. The company’s goal is to pay approximately 35% of earnings to shareholders. The TTM for the ADR is $.70 which translates into a current yield of 2.88% at my $24.25 purchase price. The forward (12 month) yield would be about 3.1% depending on actual declarations and the future exchange rate.
A also added to my TD holdings making it a full satellite position (1.5% of portfolio dividends) due to weakness (can you say Wells Fargo?).