AMS Portfolio review - April 2017
Sticking with the March approach which seemed to strike a reasonable balance of quantitative and qualitative performance assessment and commentary (we will see if that is sustainable and/or whether there are ways to improve this), I am now reviewing the April and Year to date investment activity, performance and status.
As usual I am starting with the portfolio level overview across 3 portfolios (US – growth oriented, Singapore – growth and yield oriented & HK – growth oriented). I’m focusing on capital change but will track the running yields from dividend income at the portfolio level. I am looking at portfolio performance vs local index benchmarks on a monthly and YTD basis as well as cross portfolio comparisons.
I then focus on the US portfolio with an overall summary of the month followed by a drill down into the top 15 holdings according to 3 ranking metrics: 1) Overall value allocation, 2) Overall % return & 3) 2017 YTD % return. I am excluding coverage of my outsized holding in my former company stock which I am selling down and will review the (rest of the) top 15 holdings and suspend coverage of the long tail that I am in the process of cleaning up.
I am also reviewing the performance and thesis of the leading holdings at a high level. Specifically, I am looking at: associated mega themes, revenue growth, earnings growth, valuation and a thesis status check. I am referencing latest quarterly YoY results in order to understand to what degree holdings are: delivering on a 20%+ growth in revenues, with commensurate earnings growth, possessing a reasonable P/E and P/S ratio and fit the PEG or high yield investment thesis - for growth stocks I am looking ideally at a Saul like 1YPEG of <1, for income stocks I am looking for yields >5% with dividend payout growth >5%.
Finally I am covering off buy & sell trades made in the month as well as reflections on my “Watch List”.
The overall US portfolio 2017 investing returns are up 16.3% from 2016 year end through to 28th April market close. The HK port – has accelerated further ahead to reach +19.54% YTD whilst the Singapore port (which is a combination of high yield and growth stocks) went back slightly in the month and is up 6.42% over the same time period. I have added new capital to all portfolios YTD but only to the SG and HK portfolios this month which I have adjusted out of the gains. The US portfolio activity has simply been a re-allocation affair this month
Overall 2017 YTD portfolio investment returns vs index benchmarks:-
**US Port S&P SG Port STI HK Port HS** Jan - +1.79% - +5.76% - +6.18% Feb - +3.72% - +1.63% - +1.63% Mar +2.49% -0.04% +1.21% +2.54% +4.26 +1.56% Apr 3.62% 0.91% -0.09% 0.01% 4.94% 2.09% YTD 16.30% 6.49% 6.42% 10.23% 19.54% 11.88% Yield 0.17% - 0.60% - 0.11% -
Both US and HK ports are ahead of their indices but SG is behind. The US portfolio performance has continued to maintain alpha whilst the HK portfolio seem to be up more on up days (alpha) and down less than the market on down days. The Singapore portfolio seems to lag the up days but also lag the down days – although it has more of a yield (REITs) skew to it which particularly affected the portfolio this month as there were several x-dividend dates occurring which has not yet translated into dividend receipts. The US port has yielded 0.17% year to date (not annualised) whilst SG has yielded 0.60% YTD. The HK port received its first dividend this month and should catch up a little with its lumpy pay out calendar during the year.
FWIW on the index front whilst the US and the UK are reaching new all time highs, HK and Singapore are only reaching 52 week highs which are a little down from their 5 year highs reached in mid 2015 and further still behind their all time highs reached prior to the global financial crisis.
Whilst on the surface it seems like a great month for 2 of the 3 portfolios and a steady month for the remaining port, it actually felt a pretty brutal month to go through with quite a pull back (5-10%), hitting much of my growth portfolio holdings at various points in the first 10 days of the month. It came together nicely by month end but it wasn’t an easy ride. I notice that from another benchmark perspective – Saul’s and Bear’s portfolio performance, I am falling further behind. Whilst I share an overlap with both, I haven’t captured the upside they have experienced in some really fast moving recent positions and I have completely missed out on whole round trips that Saul has made such as Hortonworks even though I have been trying to be more active at stringently exiting positions or lightening positions where appropriate, (more on this later); I have also not touched the biotech plays that Saul and others have had some great success with.
US Portfolio investments review:-
This month has been reasonably active as I have: top sliced a number of extremely highly/over valued positions, (which whilst working in my favour in February/March, in April haven’t proven to be the right decisions so far in the short term beyond sheer risk reduction); shrunk down my holding in my former employer and increased the concentration in some core holdings and explored new positions.
Last month TAL Education, Shopify and NetEase featured in all 3 Top 15 lists of my portfolio composition metrics which, whilst validating my selection of those specific stocks, in itself highlighted how unaligned my investing concentration and focus vs short and long term performance had become with the rest of my holdings. April has seen greater convergence between the Top value list and the % total gains list. In seeking to address the long tail as well as consider my re-allocation to existing and new stocks I have been mindful of 2 points:- 1) conviction and the significance of investing in a company that is has a rock solid fundamental business premise (I’m thinking Amazon, Mastercard etc), and 2) conforming to an investment thesis – whether it be high revenue and earnings growth from a capital perspective or high yield and dividend growth from an income perspective.
Having observed that much of my gains come from either very recent or very mature holdings and recounting how often I have seen strong gains evaporate when I haven’t made an exit as decisively as I should have (or certainly as Saul has), when the indicators point to a change in the thesis, leaving me with a non-performing holding; I am motivated to challenge myself on whether my holdings or even my watch list targets are conforming to a strong investing thesis. In particular, I am examining where 1) I have simply become smitten with a “story” and 2) where holdings are experiencing revenue/earnings growth deceleration and/or levels of significant over valuation.
1) Overall portfolio value rankings
**# Holding % Mega Theme LQ Revs Growth LQ EPS Growth P/E PEG P/S Latest Q Filed** 1 AliBaba 3.3% China/Cloud 54% 38.0% 53.1 1.32 13.05 Q4 2 Shopify 3.2% Cloud 85.8% - - - 17.46 Q4 3 NetEase 2.8% China/Cloud 53.1% 68.0% 20.04 0.32 6.09 Q4 4 TAL Ed Systems 2.2% China/Cloud 83.8% 36.8% 107.24 2.42 5.35 Q4 (to Feb) 5 KMI 2.1% Clean Energy 7.2% 42.6% 66.5 - 3.47 Q1 6 Mazor 2.0% Ageing 53% - - - 23.12 Q4 7 PayCom 1.9% Cloud 34.8% 80% 81.69 0.66 10.49 Q1 8 KKR 1.8% - (Yield) 42.8% 400% 34.69 - 2.28 Q1 9 Criteo 1.7% Cloud 43% 17% 42.7 0.76 1.94 Q4 10 Norw. Cruise Lines 1.7% Ageing 8.7% 10% 19.4 0.23 2.51 Q4 11 Audiocodes 1.7% IoT 6% 14.3% 11.96 0.16 1.37 Q1 12 LGI Homes 1.7% - (Growth) 34.0% 34.7% 9.36 0.27 0.80 Q4 13 CyberArk 1.6% Cyber Security 25.1% 5.1% 69.12 13.47 8.36 Q4 14 Imperva 1.6% Cyber Security 7.3% 60% - - 5.56 Q4 15 C-Trip 1.6% China 74.1% 50% 95 1.8 8.98 Q4 (to Feb)
**# Holding Thesis Check Conviction Comment** 1 AliBaba On Track High Good value on sum of the parts but challenge to maintain growth, diversify revs/earnings & SEC investigation 2 Shopify On Track High Massive TAM & fast growth but watch for EPS 3 NetEase On Track High Good value, fast growth but difficult growth compares, internationalisation & Google collaboration & leverage potential 4 TAL Ed Sys On Track Medium Huge/fragmented TAM & increasing growth rate, but hi valuation, lack of scale leverage & high SBC 5 KMI Off Track Medium Expect re-instatement of dividend + Trans Mountain project 6 Mazor On Watch Medium Good growth benefiting from Medtronic agreement but challenging growth compares going forwards & still loss making 7 PayCom On Track High Fastest growing HR Cloud play with lowest valuation but watching for competition from WorkDay 8 KKR On Track High High yield, high growth operation with exposure to infrastructure & O&G recovery 9 Criteo On Track High Consistent top line growth, inconsistent EPS growth, concerns over ad blocking and Q1 guidance 10 Norw. Cr. On Track High 20% rev & earning growth driven by Ageing, China & Cuba but latest Qtr rev growth below 10% and oil prices rising 11 Audiocodes On Watch Medium Increasing TAM in cloud space but growth falling to single digits and risk of design outs 12 LGI Homes On Track High Undervalued & consistent growth record but declining growth rate, IR hikes and 2017 home closing target 13 CyberArk On Watch Medium Top line growing double digits but EPS growth only single digits and high SBC 14 Imperva On Watch Medium Fast growth sector, differentiated player, top CEO but growth & profits have faltered in last yr with subscription transition 15 C-Trip On Track High Market leader in consolidated sector with great alliances but watch for post acquisition growth and high SBC
In terms of the top 15 holdings – there has been an uptick in movement in the rankings and even the line-up from the relatively stable recent past. Generally these are still well performing, (all of them are in the money) so I’m pretty happy on this front. I have been increasing my concentration levels in those with the highest conviction and strongest investment thesis (BABA), I have been more aggressive at lightening positions where valuations have become super stretched (TAL and MAZR) with mixed success.
I continue to watch and reconsider Audiocodes as its growth record seems a little stuck in the slow lane, together with my cyber security plays (e.g. Imperva & CyberArk) which I am highly exposed to and which appear to be facing some sector wide slow down. Mazor – a play on robotics as well as ageing whilst growing fast needs to raise profitability and maintain the momentum from its Medtronic partnership (which could result in a buy out). KMI (fitting into my shale and clean energy mega theme) is going to be intrinsically affected by the O&G sector (and politics therein), as well as the regulatory outcome of its Trans Mountain pipeline project and is more of a turnaround, recovery and income generation play for me. NCLH whilst sound and of high conviction for me is probably the most long term and least “high” growth oriented of the lot and will be affected by tourism trends as well as oil price however it is a play on China, population ageing and the re-emergence of Cuba. Shopify, Ali Baba, TAL, C-Trip and NetEase are all cloud/ecommerce and China plays doing very well. Shopify and Ali Baba are 2 of my highest conviction stocks, NetEase has been de-risked now it has the Activision Blizzard deal through to 2020 and is going like gangbusters – although there are concerns surfacing from channel checks on its Q1 performance, TAL has a massive and fragmented addressable market to penetrate and consolidate and its financials are looking great if getting very stretched in its valuation – although they destroyed expectations with their latest report with 100%+ EPS growth. C-Trip whilst a stunning performer at the top line needs to be watched from a profitability and valuation standpoint. INBK, Criteo and PAYC (my IoT and cloud) plays again need to be monitored from a growth deceleration perspective. KKR (together with BX) is an infrastructure investment and yield play for me – with very high conviction.
Out of all of them I would be most comfortable adding to Ali Baba (which I have been), KMI (which I did) and KKR followed perhaps by LGIH (which again I have also added to) and INBK.
2) Total % gain rankings
**# Holding % Mega theme Thesis Check Conviction** 1 CEVA 753.1% IoT On Track Medium 2 TAL Ed Systems 274.9% China/Cloud On Track Medium 3 C-Trip 228.6% China On Track High 4 Mazor 205.2% Robotics On Track Medium 5 Shopify 159.9% Cloud On Track High 6 AMD 121.7% Big Data On Watch Medium 7 Abiomed 89.6% Ageing On Track High 8 NetEase 86.7% China/Cloud On Track High 9 Palo Alto 67.7% Cyber Security On Track Medium 10 Carnival Cr. Lines 63.1% Ageing On Watch High 11 Noah 59.9% China/Cloud On Track Medium 12 Norw. Cruise 54.4% Ageing On Track High 13 PayCom 51.8% Cloud On Track High 14 Fortinet 41.9% Cyber Security On Track Medium 15 Imperva 39.5% Cyber Security On Watch Medium
This list includes a lot of Saul method stocks. I also note and won’t comment any further that Team China seems to be doing very well in this medals table. I’m probably closest to taking my gains and exiting from Carnival, CEVA & ABMD (which I already top sliced at 130). Interestingly this list includes some long held positions (CEVA, CTRP & AMD) as well as one very young position (SHOP). The total gains % increases have almost all moved upwards since the March position.
3) 2017 YTD % gain rankings
**# Holding % Mega theme Thesis Check Conviction** 1 Safe Bulkers 85.2% - Off Track Low 2 Shopify 77.2% Cloud On Track High 3 TAL Edu. Sys. 69.8% China/Cloud On Track High 4 Datawatch 64.5% Big Data Off Track Low 5 Golden Ocean Grp 61.8% - Off Track Low 6 BITA 55.6% China/Cloud Off Track Low 7 Comm Heath Sys 54.0% Ageing On Watch Medium 8 Stratasys 49.7% 3D Printing Off Track Low 9 Sierra Wireless 48.0% IoT On Watch Medium 10 Tesla 47.0% Clean Energy On Watch Medium 11 Mazor 45.9% Robotics On Track Medium 12 Materialize 43.4% 3D Printing On Watch Medium 13 AudioEye 42.9% Ageing Off Track Low 14 Micron 42.7% Big Data On Track Medium 15 HubSpot 42.7% Cloud On Track Medium
My 2017 strongest advancers include both current high momentum stocks as well as some older positions that have bounced back with the oil price and cyclical recovery in play (admittedly a few from some very bombed out positions – including some horror stories you might recognise which I should never have entered or should have exited a lot earlier in the face of a downturn). The 2017 YTD % increases have again almost all advanced in April over March’s % levels consistently.
Buys and Sells:-
March has been reasonably active for me on the buying front particularly.
After selling just 2 stocks in January and February (I sold out of SWKS and BOFI) and redeploying money into Twilio and PayCom; selling a further 6 holdings – Cypress (CY), Dell VM Tracking stock (DVMT), MobilEye (MBLY) and NetApp (NTAP), Aphria (APHQF) and Aurora (ACBFF) together with a top slicing of Sierra Wireless and topping up 9 positions (CRTO, LGIH, MU, UBNT, BBSI, KMI, NTES, BABA & PSTG) and buying Talend in March; in April I reduced stakes in 3 holdings added 2 new holdings and topped up 5 positions.
In April I took advantage of recent price strength and sold down 1/3rd of my stock holding in my former employer and also top sliced 2 positions where I felt the valuations were getting extremely stretched in terms of P/E and profitability growth despite top line growth.
Mazor – has produced fantastic returns for me as a Robotics and Ageing play, top slicing 30% at 30.85 for a gain of 164%. Looking at the latest Q results – the top line progress seems to be going backwards over a year ago pre the Medtronic deal and vs last Q and still without any real progress towards profitability over the whole of the last year with Medtronic on board. The outcomes claims sound amazing and the promise of further system releases and unit sales growth sounds good but there appears to be no progress in profitability. That together with hitting the wall in terms of unit bookings and tough forthcoming YOY compares vs 2016 with Medtronic made me want to move some gains off the table. Clearly from a share price action perspective this was a mistake as the SP continued up to 37 at one point. I am looking to the next set of results to see how 1) profitability progresses and 2) Medtronics interest of acquisition is shaping up. I will reconsider my conviction levels at that point.
TAL Education Systems – was a holding I brought to the board a couple of times previously. They have gained 69%+ this year and stand at a 275% gain for me right now. I was getting concerned that with a P/E of over 100 and despite top line growth of 80%, bottom line growth was not making much progress at all and the PEG was getting really out of a reasonable range. In the meantime several China Private Education companies listed in HK came to my attention with a couple of recent IPOs. I found one I liked which had about half the growth rate but a quarter of the P/E valuation with a slightly different market to TAL and took a position (MapleLeaf Education). With the Q1 results looming and my HK holding secured, I took the opportunity to de-risk my exposure a little and top sliced 12.5% of my holding at 111 for a gain of 250%. Whilst I certainly removed an element of risk and took profits this too proved to be a mistake from an SP action point of view. The TAL share price continued to move up due to: 1) Private Equity making an offer for a competitor Chinese private education player with a view to a roll up strategy which immediately bumped up TAL by 10% and 2) TAL’s results in the end demonstrated great margin expansion and expectation beating progress on the bottom line easing the strain on the PEG even if the P/E was still over 100. Fortunately my HK position was also dragged along by the same amount so I guess that leaves me net neutral with slightly lower risk. I still have very high conviction in TAL and am happy to keep my remaining stake in play.
I didn’t manage to make further reductions to my long tail of holdings but expect to in May – Carnival and Audiocodes look likely contenders together with AMD, Synaptics and Sensata and I need to make my mind up on GRUB and FIVE.
As flagged previously in my February and March reviews, I have been intending to up some of my half positions to full positions as well as keep adding to a number of high conviction holdings and in April I added to:
Ali Baba – BABA has continued its climb from a very undervalued level and take out one technical buy point after another. After topping up sub 90 around the end of last year I added in March when it took out a technical level around 105 and again in April at 110 when it surpassed its 52 week high. I have more than doubled my stake since my original purchase over a year ago and the additions this year have increased the 2017 starting holding by more than 50%. It has been a classic lesson in adding to your winners and averaging up paying off. Ali Baba is now my largest holding (leaving aside my stake in my former employer). I expect this to be one of my largest holdings for years to come.
Blackstone – BX has been on my watch list to add to for a while; 1 percent of my US portfolio at year end was just too small a stake for this high performing / high return top class business which I have had direct experience of and hold in high conviction. I increased my stake by 1/3rd and it now stands at 1.3% of my port. BX also announced results recently that topped expectations. Leaving aside the historic 11% yield, it stands at a P/E of 15.37 and grew quarterly revenues by 108% YoY and earnings swung hugely positive. BX management believe it will reach a $100/share valuation in 3 years – a triple from here.
EVA, HASI and MRCC – with the sell down in the stake in my former employer, I have been left with USD funds in my UK brokerage. As discussed previously, given that UK has a lower US withholding tax on US dividends than SG, whilst SG has zero capital gains tax – I tend to run high yield income investing plays over in the UK (which also fits the UK investment landscape opportunity) and use SG for growth investing. As a result, I re-deployed much of that capital into topping up 3 fast growing dividend/high yield holdings that I hold in my UK brokerage. I added to Enviva Partners, Hannon Armstrong and Monroe Capital Corporation. All are now 1-1.25% portfolio sized holdings. I expect these to benefit from any forthcoming infrastructure stimulus. I’m not sure these will be of so much interest to Saul Method enthusiasts but I am sure B&W will be delighted to hear.
Finally I have added two new holdings (again from within my UK brokerage account) that again may not quite fit with the Saul Investing ethos but I will explain my rationale and gladly take on board any feedback. These 2 additions are:
FDN – First Trust Dow Jones Internet ETF. The logic behind this besides the fund’s long term performance and low fee cost structure is that 1) I have missed out from but dearly want to buy into Amazon and Facebook as cornerstone holdings and the largest holdings within this fund include both these stocks. 2) Whilst volatile these are now at historic highs. Whilst I perhaps wait for a legendary 20%+ pull back in Amazon or Facebook this at least gets me into the game. If one of these fell and not the other I might be able pull out of the fund with a gain and deploy money into the opportunity. So effectively it is a surrogate stake in high conviction high growth businesses that allow me to get exposure and keep funds ready for a particular moment.
IJR – iShares Core S&P small-cap ETF. Again we have all witnessed the outperformance of small caps over the years however without the local insights and ability to sift buy, watch, hold and add/sell where required an ETF gets me exposure to this part of the market that I would otherwise have no insights with which to invest. It’s a proven money grower and a good place to store capital whilst identifying opportunities.
I am now comfortable with the positions I have got in my high conviction holdings of BX, KKR, Ali Baba and NetEase although if Ali Baba takes out its all time high of $120 I might top up once more as it enters blue sky in the charts.
I’m continue to consider initiating positions in PayPal (if I can get my head around their market capitalisations) and perhaps Square. The Cloudera IPO has put Hortonworks in play and I might consider either 1 if valuations dropped – particularly Cloudera; although I want to streamline my long tail before or in the process. I’m also intrigued by Atlassian (top rated cloud play), Zillow (people always need houses) and Stamps.com (although it sounds like a dot com business that should have gone bust in Y2K) as well as Impinj (see Bert’s latest on that company). Impinj has been annoying to watch going up basically 3% every day for the last month – I should have just bought it. Nutanix could also be looking an interesting entry opportunity right now. Whilst I exited BOFI above the $30 mark, I might well consider a re-entry if gets down to a good value point again – it does seem to gyrate around and I won’t rule it out. I would like them to get beyond the court action overhang as well as the SEC whispers. Taser or whatever their new name (Axion) is also looking interesting to check out further.
Feb Review: http://discussion.fool.com/ams-portfolio-review-feb-2017-3261710…
Mar Review: http://discussion.fool.com/ams-portfolio-review-march-2017-32660…