Each month I model, but don’t necessarily invest in, a new hybrid yield-conviction portfolio for myself to ponder over. My expectation when I ‘got set’ around June 2014 was that I would hold (without trading) for at least three months unless something really drastic happened. But I fully intended to rebalance into a new portfolio within 12 months, so as to keep it fresh.
Readers might recall that I recently started an international exposure in my SMSF but that exposure came from selling down stocks from my ‘other’ portfolio and not my hybrid yield.
By so doing, I got my international exposure up to 30%, as I flagged I wanted to last month. And then I even ‘over-achieved’ by getting that exposure up to 37%, all in the unhedged iShares Core S&P 500 ETF (IVV). Rebalancing my hybrid portfolio was a separate exercise that, through a number of separate circumstances, happened at the beginning of March.
The first thing I noticed was that the portfolio’s performance started to slip a little against the ASX/S&P 200 benchmark.
The second point was that all of the high-yield sectors, plus health, were seriously overpriced using my exuberance measures, suggesting a correction or a prolonged sideways movement, might be imminent. The ASX/S&P 200 was less overheated at about 4.5% and below the 6% level I use to call a correction.
The new (March) portfolio contained only 12 stocks, rather than the 15 I was holding, because my filters again couldn’t find enough good stocks to populate the new sectoral allocation. Moreover, some of my June stocks had consensus broker recommendations that had slipped below a ‘3’, which is a hold.
Out with the old
So Duet (+2.2%), Federation Centres (+18.5%), Primary Health Care (10.1%) and Suncorp (+0.5%) had to go – where the percentages in parentheses denote the capital gains over the eight months or so. Of course, they all paid dividends as well.
Tatts should have been replaced by Tabcorp – a similar sort of company – but I chose to ignore that. Tatts (+31.9%) had done particularly well and its broker forecasts had just been updated and were slightly better than those for Tabcorp.
Two new stocks were added: Alumina and Perpetual. In essence, Perpetual replaced Suncorp and Alumina entered because a materials stocks at last could enter the portfolio. Four stocks (Spark Infrastructure, Stockland, Transurban and Telstra) attracted significant additional funding. Other rebalances were suggested but they were too small to justify the effort and cost of that part of the rebalance. The new portfolio is shown in Chart 1.
Chart 1: The new Hybrid Yield-Conviction Portfolio
The new portfolio has not been running long enough to justify a performance check but it is currently ahead of the benchmark since the rebalance.
So my current SMSF is 31% Hybrid, 37% international, 30% other and 2% Cash. Fortunately the ‘other stocks’ I sold to fund the purchase of IVV have since fallen 2.7% while IVV has only lost 0.3% so that’s 3.0% on the trade.
I sold some of those same stocks from my margin loan (outside of my SMSF) at the same time to reduce debt – or de-risk. My geared iShares MSCI Australia 200 ETF (IOZ) and IVV portfolio I write about (and discussed on Switzer TV on the 11th March) now constitutes about 75% of that portfolio. The margin loan stocks I sold would have lost me 7.9% had I not sold them!
My point here is not to try to show I have some special intuition. Rather the opposite, all of my recent trading was based on my mispricing measures (which I publish each week in the Woodhall Weekly) and my quantitative, logical consistent assessment of broker data that defines my portfolios. As you can tell, I am prepared to make some slight qualitative modifications to save effort. But I put my money where my mouth is and, of course, sometimes I make poor decisions in hindsight – like everyone else.
I have no expectations to trade again this financial year in my SMSF other than to possibly take up the Macquarie offer and whatever might come out of the BHP divestment. Indeed, I might not trade again until Christmas. On the other hand, I might sell IOZ or IVV if their respective indexes rise too high in my geared portfolio.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.