Tag Archives: investing-strategy

The V20 Portfolio: Week #31

The V20 portfolio is an actively managed portfolio that seeks to achieve an annualized return of 20% over the long term. If you are a long-term investor, then this portfolio may be for you. You can read more about how the portfolio works and the associated risks here . Always do your own research before making an investment. Read the last update here . Note: Current allocation and planned transactions are only available to premium subscribers . Over the past week, the V20 Portfolio declined by 5% while the SPDR S&P 500 ETF (NYSEARCA: SPY ) dipped by 0.3%. Portfolio Update It would appear that the saga of Dex Media (NASDAQ: DXM ) (OTCMKT: OTCPK:DXMM ) will soon come to an end. It was my hope that the management could come to an amicable agreement with lenders given the company’s massive cash flow. Unfortunately, we cannot control the outcome of the negotiation and according to the most recent press release from company, an agreement has been reached with lenders, the outcome being that equity holders will be completely wiped out. Evidently the thesis has failed to play out, but the risk of total loss was something that we accepted all along. For myself, what’s troubling is that the management voluntarily defaulted for reasons that are still unclear to me. When the company defaulted in 2015 by withholding an interest payment, the company still had plenty of cash and was on track to generate more. What really boggles my mind is that the management was somehow able to gain support from both senior and junior debt holders. To put things into perspective, the management withheld $8.9 million of cash interest back in September from junior debt holders and pushed the company into default. Now that negotiations are finished, junior debt holders will get wiped out save a $5 million payment and warrants on the new equity. Clearly it was absolutely not in their interest to consent, yet the improbable has occurred. In any case, Dex Media will likely be a write-off unless a miracle happens in court. While this investment has been a failure, the impact on the overall results of the V20 Portfolio has been minimal, which is one of the reasons why the investment was attractive in the first place, as the downside was limited when the position was viewed in the context of the whole portfolio. The V20 Portfolio began the year with just 0.5% of assets being allocated to Dex Media. On to better news. Our sole insurance company reported Q1 earnings and as expected, the company continued to demonstrate strong growth and profitability. The market reacted favorable as well, boosting the stock by roughly 10% since earnings as of close on Friday. Turning our attention to Conn’s (NASDAQ: CONN ), the company recently reported April sales data, meaning that now we have all the sales numbers for Q1. Overall, sales grew 8% year over year from $296 million to $319 million. While growth will continue to add value in the long-run, the company must show some improvement in the credit segment in the near term to get rid of the negative sentiment surrounding the stock. Spirit Airlines’ (NASDAQ: SAVE ) performance mirrored the sustained pessimism in the airline industry, shedding 6.5%. In comparison, AMEX Airline Index declined 3.9%. This has occurred despite Spirit Airline’s leading profitability and growth potential. Due to our earlier trim, the position has declined to less than 10% of the overall portfolio, hence more capital will be allocated to Spirit Airlines. Click to enlarge Disclosure: I am/we are long CONN, SAVE, DXMM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Editor’s Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

Closet Indexers Will Go The Way Of The Buggy And The Whip

“The decade long run of money moving out of actively managed mutual funds in favor of passive indexes and exchange-traded products speaks volumes about investors’ palate for active management these days,” according to a recent article in Investment News. The piece touches on how to identify active managers who are not simply hugging the benchmark in an overly cautious effort not to get beat by it. The key is to be selective, according to the article, but this can be challenging due to the large number of funds and fund classes available. Professor Martijn Cremers of Notre Dame says benchmark-huggers virtually guarantee failure, saying “The more holdings a fund has that are different from the benchmark, the more potential the fund has for performance that is different from that benchmark.” Cremers launched a website ActiveShare.info aimed at uncovering the most active of active managers, using a simple equation dividing the funds expense ratio by the index overlap. President of Touchstone Investment, Steve Graziano, is critical of benchmark huggers that are charging active-management fees. “We manage active funds because you have to be different from the benchmark in order to survive… We’re right at the intersection of where closet indexers will go the way of the buggy and the whip.”

Are You Considering ‘Sell In May, Go Away?’

One of the signs that a stock market may be transitioning from a bull to a bear? Participants dismiss exorbitant valuations , cast aside disturbing shifts in technical trends, disregard economic stagnation and scoff at historical comparisons. For instance, it has been 352 days since the Dow Jones Industrials Average registered an all-time record high in May of 2015. Since the 1920s, when the Dow has surpassed 350 calendar days without recovering a bull market peak, the index has dropped at least 17% on nine out of 11 occasions. On average, the Dow has succumbed to 30% bearish price depreciation. Adding insult to injury here is that the Dow has failed to hold 18000 since it first notched the milestone back on December 23, 2014. That was 499 days ago. Equally compelling? Five days earlier (12/18/2014) marked the Federal Reserve’s final asset purchase in its third round of quantitative easing (QE3). In other words, the stock market has been unable to make any meaningful progress since the Fed stopped expanding its balance sheet. (Note: This also lends credence to research that attributes 93% of the current bull market’s gains to the Fed’s electronic credit/asset purchase interventions). “Forget corporate earnings, sales, the global economy, technical analysis and history, Gary. You’ve got to be a contrarian here because this is the most hated stock market ever!” I’ve heard this claim dozens of times now. Ostensibly, a lack of excitement for stock assets should push stocks back to record heights and beyond. And there may be some truth to the declaration. After all, corporations have been the only “net buyers” for more than three months, as the other participants (e.g., pensions, hedge funds, “Mom-n-Pop” retail, institutional advisers, etc.) have been “net sellers.” On the other hand, according to the National Association of Active Investment Managers, investment sentiment sits at its highest level since April of 2015. Putting that into perspective? A contrarian who recognized the uber-bullishness last year may have exited the market near the all-time record highs for the Dow and the S&P 500 in May of 2015. Similarly, we may once again be at a point where bullishness is overextended. Granted, the S&P 500 might only need to rise 4% from current levels to register an all-time record. In and of itself, that is relatively impressive. Nevertheless, the year over year and year-to-date outperformance of the S&P 500 by the FTSE Multi-Asset Stock Hedge Index (affectionately known as “MASH”) is reason enough to be wary. We’re talking about the collective success of several key components like the SPDR Gold Trust ETF (NYSEARCA: GLD ), the CurrencyShares Japanese Yen Trust ETF (NYSEARCA: FXY ), the PIMCO 25+ Year Zero Coupon U.S. Treasury Index ETF (NYSEARCA: ZROZ ) and the iShares National AMT-Free Muni Bond ETF (NYSEARCA: MUB ). Click to enlarge Click to enlarge Three-quarters of S&P 500 corporations have reported Q1 2016 earnings. And according to the S&P Dow Jones Indices website, as reported earnings estimates for the S&P 500 (3/31/2016) are now $87.48. The trailing twelve-month P/E? 23.4. “In the era of ultra-low interest rates,” you insist, “it simply doesn’t matter.” Well, then, perhaps you should investigate the four bear markets that occurred in the 20-year period (1936-1955) when the U.S. had similar 10-year yields, yet price-to-earnings ratios that were half what they are right now. Here is one thing that should not be ignored. When precious metals like gold and carry-trade currencies like the yen outperform stocks over 5-6 months as well as one year – when long-maturity U.S. treasuries and Japanese government bonds are behaving in a similar fashion – “risk off” has the edge over “risk on.” Should you sell in May and go away, then? From my vantage point, just make sure you’ve got a comfortable cash/cash equivalent cushion to buy riskier assets at more attractive valuations down the road. Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships.