We have made a significant amount of “rebalancing” trades throughout our portfolios. Most of the changes revolve around reweighting current holdings for diversification and risk management purposes. However, we have also added several new positions, as well as exited a few positions altogether. As a reminder, all of our investment portfolios are long-term in nature, so these types of large portfolio adjustments are rare. However, we do complete them from time-to-time in order to optimize our expected returns and income relative to risks, and in accordance with the long-term objectives of the strategies. Here are the changes:
Income Equity Portfolio, Yield: 6.29%
This strategy has the same long-term goals as it always had (primarily high income, and secondarily long-term capital appreciation).
For your convenience, here is an Excel doc of this table.
The main change to this strategy is we have added more positions (to reduce some of our concentration risk) and we’re also now making the distinction between “opportunistic high income” (OHI), and “steady high income” (SHI). Opportunistic high income positions generally offer very high yields, and we recommend purchasing them opportunistically (i.e. it is especially important to get attractive low purchase prices); whereas steady high income are generally less volatile and are meant to be held within a portfolio until something fundamentally changes for the company.
This strategy continues to offer an attractive overall high yield to investors (now 6.29%), and the growing long-term track record remains healthy (see below).
Income Equity Strategy, Track Record:
We’re quite proud our of track record of high income AND strong total returns (to be able to successfully deliver both is challenging and rare).
Important to note, we have sold our shares of AmeriGas partners (APU). These shares were up 45% so far this year after news of the company being acquired (the deal won’t be completed until later this year). We’re sad to see this big yield going away (the acquirer, UGI, will not be paying as big of yield), but we’re happy with the gains we generated on this position for the years we’ve owned it.
Also noteworthy, we have added a variety of new investments to this strategy with a 0.0% current weighting because these are additional securities we follow, but don’t yet own at this time (we’d considering buying them in the future at the right price).
For your convenience, here is an Excel doc of this table.
(Note: the historical returns presented in the tables in this report are as of Friday’s close (5/17/19).
Alternative Fixed Income Portfolio, Yield: 7.71%
We’re introducing this new-revamped portfolio based on reader/investor demand. The goal of the strategy is attractive high income via “alternative fixed income” securities.
For your convenience, here is an Excel doc of this table.
You’ll notice we’ve excluded individual bonds (so everything is now publicly traded on an exchange and with a specific ticker).
Also important, we continue to hold attractive preferred stocks (which we consider an alternative form of fixed income because, like a bond, preferred stocks generally have par values and offer fixed income payments). We refer to these as “PSD” for Preferred Stock Dividends.
We also added more fixed income Closed End Funds because they offer fixed income holdings, attractive high yields, and the opportunity to be purchased at attractive discounted prices. We refer to these investments as “FICEF” for Fixed Income Closed End Funds.
Important to note, we’ve included a couple tax-exempt municipal bond CEFs in the portfolio. You’ll want to consider owning these in your taxable account, not your tax advantaged account (e.g. your Individual Retirement Account/IRA) because without the tax advantage—the yields not are competitive. These CEFs (MMD and NAD) are to be owned in taxable accounts.
We’ve also added a variety of investments to this strategy with a 0% current weighting because these are additional securities we follow, but don’t yet own at this time (we’d considering buying them in the future at the right price).
Income through Disciplined Growth, Yield: 1.40%
We’re updating the name of this strategy to “Income through Disciplined Growth” (formerly it was simply called “Disciplined Growth”). The objective of this strategy is still to provide high income through “growth stocks.”
For your convenience, here is an Excel doc of this table.
Generally speaking, attractive growth stocks can offer much higher long-term price returns than pure yield-focused investments, however they lack the high current income payments that many income-focused investors desire. This strategy aims to achieve attractive long-term total returns so investors can take/harvest gains to be used for income. This strategy is not for everyone, but if you are disciplined and have a long-term investment horizon—this can be a fantastic and diversified strategy for generating some very attractive gains and ultimately income that can be spent (the power of compound growth, or growth on top of growth, is powerful).
We now distinguishing between “Steady Growth” (SG) and “Pure Growth” (PG) holdings within this portfolio. The steady growth holdings generally offer modest, but safe and growing dividend yields combined with the potential for significant long-term price appreciation (growth); whereas the pure growth investments generally offer no dividend payments (or very small dividend payments) but have the potential to grow dramatically (significant price appreciation) over the long-term, which can ultimately be used by investors as a form of income (i.e. prudently taking games for income.
Two key highlights you’ll note, we sold our position in American Express (AXP) following its strong start to 2019 (+25.9% total return), and because we’re excited about a new breed of payment processing companies such as Square (SQ)—a position we own.
You’ll also note we added shares of high end GPU chipmaker Nvidia (NVDA) because of it’s fantastic long-term growth potential (autonomous vehicles, data centers, gaming, artificial intelligence) and because it has sold off too hard over the last month on China trade war concerns (Nvidia is currently trading at a very attractive price).
Also worth highlighting, this strategy continues to have an attractive and growing long-term track record.
Income through Disciplined Growth portfolio, track record:
We have also added a variety of investments to this strategy with a 0.0% current weighting (as you can see in the earlier table) because these are additional securities we follow, but don’t yet own at this time (we’d considering buying them in the future at the right price).
Conclusion:
We’ll have more to say about our portfolio holdings in our next Blue Harbinger Weekly report and our Monthly performance report. However, important to mention now, we believe these strategies are appropriately positioned to meet their objectives and to continue delivering strong, healthy, long-term income and total returns. More specifically, this rebalance helps control risks, and is designed to help you generate ideas and continue to meet your long-term, income-focused and total return investment goals.