Today I am rebalancing both of the SIA-style Portfolios, as another month has passed. Let me start with the Global Leaders Portfolio (GLP) here.
So, since the Inception (28th Jan 2020) the GLP has done a great job of preserving the capital during the Covid-19 extreme downturn (max monthly drawdown -1,5% vs. -14% for SP500 in March 2020) and adding nice gains of almost 10% as of now.
The main positive contributors to the Fund’s performance have been the following assets:
* TLT (+15% since purchase on 37% of portfolio as of now): FedFunds (FF) cuts this spring caused a rally in long-term debt plus TLT has a safe haven status in times like we just experienced.
* GLD (+11% since purchase on 30% of portfolio as of now): safe haven plus rising long-term inflation expectations due to unlimited QE announced during Covid-19 crisis.
* Selective stocks, which are big gainers of the general tendency of the world going online:
NVDA (producer of graphics processors) +48% on 1.7% weight currently,
SQ (mobile payments solutions) +39% on 2.8% weight currently,
NOW (IT management software) +27% on 2% weight currently,
EA (gaming) +17% on 2.1% weight currently.
And the major negative contributors so far have been the stocks that were hit by Covid-19 (BKNG (online travel services) -20% on 1.4% weight currently) or struggle because of the continued USA-China tensions (INTC (computer processors) -15% on 1.6% weigth currently).
The rebalance
Today, as I mentioned in one of the recent rebalancings, I wanted to add a new name to the GLP equity part to further diversify the portfolio. And my choice is Facebook (FB). It’s not only for the fact that it easily fulfills the SIAScore, but also because I recently convinced myself personally about what kind of a cash-generating machine it is :). So the whole marketing platform on FB is built in a way to perfectly and constantly draw pure cash from its users looking to expand their business via social media. It’s extremely powerful, has a world-wide range and close to monopolistic position in the world of social media. And one can spend any amount of money real fast on FB. It’s a cash machine for real.
Now let me run the SIAScore for FB:
S1: growing sector 1pts/0pts,
S2: incumbent or prospective global leader 1pts/0pts,
S3: growing or stable wide margins (40%+ gross; 3yr avg) 2pts/0pts,
S4: Net Debt/EBITDA <1.5 (last 3 ended FYs) 2pts/0pts,
S5: above-average cash flows (FCF/MktCap (last 3 ended FYs) > S&P500 Dividend Yield or US 10yr Treasry Yield (higher of the values)) 2pts/0pts;
MAX TOTAL SCORE: 8pts/MIN TOTAL SCORE: 0pts/MIN SCORE TO QUALIFY: 4pts
| Score | S1 | S2 | S3 | S4 | S5 | Total |
| FB | 1 | 1 | 2 | 2 | 2 | 8 |
The quantitative part of the SIAScore looks as follows in details:
| S3: growing or stable wide margins (40%+ gross; 3yr avg) 2pts/0pts | |||||
| Name | 2017 | 2018 | 2019 | AVG | S3 score |
| FB | 86,6% | 83,2% | 81,9% | 83,9% | 2 |
| S4: Net Debt/EBITDA <1.5 (last 3 ended FYs) 2pts/0pts | |||||
| Name | 2017 | 2018 | 2019 | AVG | S4 score |
| FB | -1,8 | -1,42 | -1,22 | -1,48 | 2 |
| S5: above-average cash flows (FCF/MktCap (last 3 ended FYs) > S&P500 Dividend Yield or US 10yr Treasry Yield (higher of the values)) 2pts/0pts | |||||||
| Name | 2017 | 2018 | 2019 | AVG | US 10Y yield as of 30.06.2020 | SP500 dividend yield as of 30.06.2020 | S5 score |
| FB | 3,41% | 4,12% | 3,62% | 3,72% | 0,68% | 1,96% | 2 |
Effectively FB goes into GLP with a 2.14% weight. To keep the aggregate equity allocation at max 20% (GLP’s maximum treshold for Contraction period we’re currently experiencing) other stocks, which have increased in value recently, are being trimmed. These names are NVDA, SQ, NOW, EA first thing, as well as SWKS and GRMN.
The current state of markets does not differ much from a month ago. Equities, bonds, FX and commodities still trade mostly driven by the Covid-19 resurgence news and its impact on the reopening of the economy. Still, with an almost +20% surge for the SP500, 2Q20 was the best quarter since 1998 as far as performance of the equity market is concerned. Additionally volatility has been largely contained and liquidity is plenty. Also, recent macro data have often surprised to the uspide, showing that the US economy is willing to get back on its rails. Remember though that the NBER has now officially confirmed Recession (peak month Feb 2020), hence our GLP allocation looks as it does. Once prospects from the EAS model let us assume that Recovery is coming, the portfolio allocations will change appropriately.
Portfolio holdings are traded at the closing price on the rebalancing day presented by www.morningstar.com (which may differ from official closing prices given by appropriate stock exchanges).
Current structure of the GLP can be found on Portfolios page.
Total Personal Return since inception (TPR) o GLP as of close 30th June 2020: +9.9%.
Next update in a month.
Yours,
PC
Disclaimers: None of the ideas, views and thoughts presented here shall ever be taken as a recommendation to buy or sell stocks,bonds,FX,commodities or any other financial instruments as stated in REGULATION (EU) No 596/2014 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 16 April 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC or the Regulation of the Polish Minister of Finance of 19 October 2005 on information constituting recommendations regarding financial instruments, their issuers or exhibitors (Journal of Laws of 2005, No. 206, item 1715) or the Polish Act of 10 February 2017 amending the act on trading in financial instruments and some other acts. The article is for educational reasons and purely presents private views of the author, thus the author shall not be claimed eligibile for any losses of a third party resulting from trading activities based upon this article. The author uses his best knowledge and data from sources believed to be reliable, but makes no representations as to the accuracy of the data.Full Disclaimers&Liability Limitations page.
