AMS Portfolio review - Aug 2017
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 (a) my outsized holding in my former company which I am selling down and (b) ETFs that are holding pools for potential redeployment opportunities as well as giving me exposure to certain sectors. I 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%. All stocks have now reported Q1 results and some Q2 - I have updated the information captured to reflect the latest performance.
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 now up +27.50% from 2016 year end through to 31st August market close – up 3.03% in the month. The HK port – has accelerated further ahead to reach +31.62% YTD – up 1.93% in the month whilst the Singapore port (which is a combination of high yield and growth stocks) saw a major reversal giving back half of the year’s gains leaving it at +4.39% YTD, down 5.18% in the month (which is being held back by a rights issue in progress). I have added net new capital to all portfolios YTD but have withdrawn capital again this month from 2 of the 3 ports which I have adjusted out of the gains. The US portfolio activity has seen major activity this month with new positions taken, a few top ups, several stake reductions and many holding exits.
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% May +2.77% +1.16% -0.10% +1.11% +4.03% +4.25% June +1.58% +0.48% +4.07% +0.49% +1.24% +0.41% July +3.03% +1.93% -0.05% +3.19% +4.55% +6.05% Aug +1.93% +0.05% -5.18% -1.57% +3.91% +2.37% **YTD +27.50% +10.40% +4.39% +13.76% +36.77% +27.13%** Yield 0.40% - 2.94% - 1.92% -
Both US and HK ports are ahead of their indices but SG is behind for the year. The US portfolio performance has continued to beat the index in August, the HK portfolio had a ripper month whilst the Singapore portfolio lost ground in the month. The US port has yielded 0.40% year to date (not annualised) whilst SG has yielded 2.94% YTD and HK 1.92% - SG and HK yields tend to produce lumpy quarterly or half yearly payouts particularly around Q1/Q2 time.
On the index front whilst the US has been reaching a new all time high, HK and Singapore are getting closer to their 2015 highs but still a little away behind their all time highs reached prior to the global financial crisis.
Overall I am happy with how the HK and to a degree the US ports are doing and I need to think hard about the SG portfolio where my growth stocks have proven extremely volatile in particular (compared with more stable and rewarding yield plays).
On the US port side, this last month came back after some topsy turvy action earlier in the month, I think I ended the month at the intra-month high for the portfolio. I continue to fall behind Saul’s and Bear’s portfolio performances and probably others as well. This is in part due to: 1) some stock selections I have not participated in 2) entering into certain stocks later in the game and 3) continuing to hold some non performing stocks that I need to reconsider my conviction in or psychologically turn the corner with and sell out. This 3rd psychological barrier has been holding me back and whilst some of the stocks I can point to genuine conviction in regards to future performance I need to get more ruthless in my selling decisions. I have started with the easier decisions so far this year and slimmed down the portfolio by exiting some successful gains, I am now taking the harder decisions where I am exiting non performers or holdings in negative territory. Ignoring past performance and treating existing holdings on purely go forwards investment merit together with a willingness to “buy high” are the 2 biggest psychological developments areas I am grappling with. As I continue to move my investments out of non-performing holdings into greater potential stocks I am at the same time haunted by the feeling that it could also be a signal of peak market mania.
US Portfolio investments review:-
This month has been seen relatively high activity levels as I have: entered 3 new growth positions and topped up 3 others (that represented buying opportunities and a concentration play); exited 6 holding and top sliced 2 further holding.
Last month a record 6 holdings featured in all 3 lists: TAL, Shopify, Mazor, LGI, Paycom & Ali Baba featured in all 3 lists. This month a reduced number of core holdings feature in all 3 lists: TAL, Shopify, LGI & Ali Baba & Talend as I reduced my holdings in Mazor and PayCom – I would prefer to have greater overlap amongst the other holdings between the lists but not at the expense of failing to exit holdings where valuations are too stretched or the growth story has played out.
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 and 3) If I were to invest now would I buy on the going forwards basis.
1) Overall portfolio value rankings
**# Holding % Mega Theme LQ Revs Growth LQ EPS Growth P/E PEG P/S Latest Q Filed** 1 AliBaba 5.4% China/Cloud 56.0% 65.0% 57.6 0.89 16.73 Q2 2 Shopify 4.9% Cloud 75% - - - 21.45 Q2 3 TAL Ed Systems 3.1% China/Cloud 65% 72.0% 117.0 1.63 7.74 Q2 (to Jun) 4 NetEase 2.7% China/Cloud 46.0% 5.0% 16.7 0.56 5.00 Q2 5 LGI Homes 2.1% - (Growth) 45.0% 25.0% 11.88 0.37 1.03 Q2 6 KMI 2.1% Clean Energy 7.3% 0.0% 62.5 0.16 3.21 Q2 7 First Int Bnk 1.9% Growth 70.7% 7.0% 14.3 0.84 2.63 Q2 8 Splunk 1.8% Cloud/Big Data 31.6% 60.0% - - 8.68 Q2 9 KKR 1.7% - (Yield) 39.3% 282% 7.17 0.03 2.56 Q2 10 YY 1.6% China 28.9% 53.0% 13.72 0.26 2.07 Q2 11 Talend 1.5% Cloud/Big Data 41.1% 85% - - 9.13 Q2 12 Box Storage 1.5% Cloud 28.5% - - - 5.62 Q2 13 Imperva 1.5% Cyber Security 29.0% - 61.2 - 5.82 Q2 14 Blackstone 1.5% Growth 29.1% 34.1% 12.3 0.03 3.49 Q2 15 C-Trip 1.5% China 43.9% 200% 1135 5.68 8.47 Q2
**# 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 TAL Ed Sys On Track Medium Huge/fragmented TAM & increasing growth, but watch valuation, lack of op leverage & high SBC 4 NetEase On Track High Good value/fast growth but difficult growth compares, watch for internationalisation & op. leverage 5 LGI Homes On Track High Undervalued & consistent growth record but declining growth rate, IR hikes and 2017 home closing target 6 KMI Off Track Medium Expect re-instatement of dividend + Trans Mountain project 7 First Int Bk On Track High Consistent Rev & EPS grower, well managed - needs to improve a few core lending metrics 8 Splunk On Track Medium At the heart of Big Data analytics & cybersecurity but could be just the latest next big thing 9 KKR On Track High High yield, high growth operation with exposure to infrastructure & O&G recovery 10 YY On Track Medium Undervalued fast growing internet player, watch for earnings volatility & take private shenanigans 11 Talend On Track High Peerless in its offering and capability – needs to scale for market dominance 12 Box Storage On Track High Fast growing recurring revs in a large + expanding TAM - needs to reach break/even & differentiate vs Azure & AWS 13 Imperva On Watch Medium Fast growth sector, differentiated player, top CEO but growth & profits have faltered in last yr with subscription transition 14 Blackstone On Track High Market leading PE performance, massive deal maker, well positioned for property, O&G recovery and infra 15 C-Trip On Track High Market leader in consolidated sector with great alliances but watch for continued growth & high SBC
In terms of the top 15 holdings – there has been a lot of movement in the rankings and even the line-up – Imperva (cyber security) and Box Storage (cloud) make a return; YY is racing up the rankings with its $100-120 target in view; Blackstone, Talend, Splunk and First Internet Bancorp make the list for the first time thanks to top ups and share price performance and stake reduction in Mazor, GrubHub and PayCom which sees these drop out. All 3 are becoming too stretched for my liking
So far this year I have been increasing my concentration in those with the highest conviction and strongest investment thesis + valuation (BABA, NetEase, Blackstone & KKR) and I have been more aggressive at lightening positions where valuations have become super stretched (TAL, Mazor & Grubhub) though with mixed success.
I continue to watch and reconsider Splunk as its bottom line seems without the leverage I would want to see and SBC seems high. I expect LGI Homes to announce some pain – although I can’t figure whether actually in the mid term Harvey might increase demand for houses as replacements for those badly destroyed by the floods. 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. Shopify, Ali Baba, TAL Education, C-Trip, YY and NetEase are all cloud/ecommerce and/or China plays that are 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 – and growth is accelerating! 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 as well as recent regulatory developments as well as for Ali Baba’s deal with Marriot hotels. YY, which I topped up earlier this year after a stunning earnings release timed with a pull back in the share price, is undervalued, although management over there needs to be watched and Government media controls are a risk… KKR (together with BX) is an infrastructure investment and yield play for me but also happens to be growing very fast – another I hold in very high conviction. First Internet Bancorp makes a welcome return after an amazing set of quarterly results with revenues accelerating to a 70% YoY growth rate. Talend I feel is very under rated and has already done very well for me with a 40%+ rise since purchase – I much preferred Talend to Hortonworks.
Out of all of my top holdings I would be most comfortable adding to Ali Baba, Shopify, Blackstone and KKR (which I have been)… I am closest to selling Splunk, YY and potentially LGIH.
2) Total % gain rankings
**# Holding % Mega theme Thesis Check Conviction** 1 CEVA 860.9% IoT On Track Medium 2 TAL Ed Systems 474.7% China/Cloud On Track Medium 3 Mazor 304.6% Robotics On Track Medium 4 C-Trip 234.7% China On Track High 5 Shopify 200.6% Cloud On Track High 6 Abiomed 119.4% Ageing On Track High 7 AMD 116.7% Big Data On Watch Medium 8 Palo Alto 105.3% Cyber Security On Track Medium 9 NetEase 94.0% China/Cloud On Track High 10 PayCom 88.0% Cloud On Track High 11 Ali Baba 79.8% Cloud On Track High 12 GrubHub 67.0% China/Cloud On Track Medium 13 LGI Homes 60.9% Growth On Track High 14 Box Storage 57.7% Cloud On Track Medium 15 Talend 42.2% Cloud/Big Data On Track Medium
This list includes a lot of Saul method stocks. I also note and won’t comment any further that Team China is doing very well in this medals table. I’m probably closest to taking my gains and exiting from CEVA, AMD & Abiomed (which I already top sliced at 130), PayCom and Mazor (which I have reduced as well). Interestingly this list includes some long held positions (CEVA, CTRP & AMD) as well as one very young position (LGI, SHOP, Talend, & Box). The total gains % increases have mostly moved upwards since the June position – the winners have kept on winning and I now have 10 triple digit risers vs 8 in June and 7 in May and I’m back to 5 multi-baggers.
3) 2017 YTD % gain rankings
**# Holding % Mega theme Thesis Check Conviction** 1 Safe Bulkers 181.7% - Off Track Low 2 TAL Edu. Sys. 160.3% China/Cloud On Track Medium 3 Shopify 126.3% Cloud On Track High 4 Golden Ocean 97.7% - Off Track Low 5 BITA 90.0% China/Cloud Off Track Low 6 Datawatch 87.3% Cloud/Big Data Off Track Low 7 Materialize 79.9% 3D Printing On Watch Medium 8 Ali Baba 73.1% Cloud On Track High 9 YY Group 71.4% China On Track Medium 10 Tesla 66.5% Clean Energy On Watch Medium 11 Hubspot 56.1% Cloud On Track Medium 12 Qualys 50.1% Cyber Security On Track Medium 13 PayCom 42.7% Cloud On Track Medium 14 LGI Homes 42.6% Growth On Track High 15 Talend 42.2% Cloud/Big Data On Track High
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 continued to make progress participating in the ongoing bull run although some averages have dropped as I have continued adding to holdings and although with considerable churn there is improved alignment between the constituents of this list and the previous 2.
Buys and Sells:-
August was relatively active for me on the buying and selling front.
In January and February I sold out of SWKS and BOFI and redeploying money into Twilio and PayCom
In March I sold 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 topped up 9 positions- Criteo, LGI Holdings, Micron, Ubiquiti, Barret Business Services, KMI, NetEase, Ali Baba & Pure Storage and buying Talend
In April I reduced stakes in 3 holdings - my previous employer, Mazor & TAL Education Systems, added 2 new holdings (2 ETFs – S&P small caps & First DJ Internet) and topped up 5 positions - Blackstone, Ali Baba, Enviva, Hannon Armstrong & Monroe Capital
In May I continued to clean house – selling out of Carnival, Norwegian Cruise Lines, Natural Health Trends Corp, AMN, and QQQ’s clean energy ETF and reducing my stake in my previous employer and started new positions in: The Trade Desk, Impinj, Ziopharma, Mercadolibre & Splunk and topped up: YY, Twilio, Ali Baba and an S&P small cap ETF
In June I continued taking difficult decisions in selling out of 7 non-performing holdings sometimes at a loss including: Georg Group, Qualcomm, Cree, Whole Foods, Sensata, Leucadia, and California Amplifier; adding 4 new positions including: Nvidia, Cognex, MuleSoft and Square and again topping up First DJ internet ETF and Splunk.
In July I wasn’t able to able to make much headway in reshaping the portfolio beyond a few nips and tucks. I sold out of 1 holding - Lending Club, reduced my position in another – GrubHub and took the opportunity to top up MercadoLibre, Splunk and Micron with no new positions taken.
In August I made quite a bit of progress re-allocating my portfolio. I sold out of: Solar Edge, Mitek, SilverSpring Networks, Noah and Virtu Financial and Audiocodes; reducing stakes in Mazor and PayCom; buying Jupai holdings, Arista Networks and Applied Optio and increasing my positions in Blackstone, Shopify, First Internet Bancorp and Micron.
Solar Edge – 9.1% gain. A one time significant gainer which swung to a significant loss, came back. With instability at its key client in SolarCity and a less than supportive President in the Clean Energy policy arena, this was one I wanted out of for a while.
Mitek – 26.7% gain. Mitek continues to perform but somehow I feel it has no real moat to speak of. I wasn’t comfortable with something that frankly could be completely displaced by other fintech solutions so it was an amicable parting on this one. I wish them well.
SilverSpring Networks – 11% gain. This was just becoming too opaque for me. Somehow Bert remained impressed with forward business but I just couldn’t see how it was accumulating and I ran out of patience.
Noah – 87% gain. This was a quality financial company out of China with a grade A leadership team. The growth rates however were slowing and finally it dropped to single digits. In the meantime I found another player (Jupai - JP) with very high growth rates so I jumped horses mid race and selling out of NOAH in the meantime. It was a good ride.
Virtu Financial – 23% loss. Ugh – I thought these guys were revolutionising investing but then they didn’t and the business went backwards. Glad to be out and should never have gotten in to a “story”.
Audiocodes – breakeven. This I held for far too long and not an insignificant amount of money and opportunity cost. Should never have waited too long to exit. After another quarter of single digit growth it was time to get out no matter how good the mega theme story sounded.
PayCom – 79% gain. Whilst Bert a few months ago came to the same conclusion Saul has now reached, I am giving PayCom one quarter to prove itself otherwise Saul’s decision will have been justified and prevail and the lack of bottom line leverage will mean exiting the remaining position.
Mazor – 252.9% gain. MZOR has benefited from another uplift from the Medtronic follow on agreement. Frankly I cannot see its market performance or total lack of profitability justifying its price unless TMF is correct in hypothesising a +100x in robotic surgery TAM over the next few years.
GrubHub – 34% gain. Annoyingly, I sold down some of my holding just before the deal with Yelp was announced. Whilst the deal has supported the business prospects, the valuation has notched up another level. I will look to see how the deal works out before I make my next move.
It was a relatively active month for me on the buy side where I made some new purchases and further top ups.
Arista Networks (ANET). Finally I bit the bullet. For me the law suit is no longer a reasonable threat to fear and they seem to have the market to themselves. As we move towards 5G I think internet/network infrastructure could be a strong place to be as I see it as the disruptive leap from 2 to 3G rather than the incremental 3G to 4G type of leap. Should have had confidence to do this years ago but after Infinera once bitten twice shy.
Applied Optoelectronic (AAIO). Same goes for these guys – who have still a very small market cap despite their gains in the last year. Need to watch this carefully though.
Jupai Holdings (JP). This was my replacement for NOAH. As the Chinese produce HNW Individuals like never before they have to park their money somewhere. I came across them through a writer/broadcaster on Seeking Alpha who I happen to like. He specialises in Growth stocks and is comfortable looking at emerging markets as I am. If you are interested his name is Sven Carlin. He’s got a blue chip background and seems pretty smart and genuine. I have him tagged together with Bert and Brad Thomas.
Blackstone – BX. Having topped up on KKR previously it was now BX’s turn to get the capital inflow. Very high growth, very low valuation, very good yield and very high quality mgmt. There’s nothing not to like about this one. Total class.
Shopify – SHOP. I added after pull back below 100 from the initial post results surge. It is now within a whisker of 5% of my US port. I would happily double this with the right opportunity.
First Internet Bancorp – INBK. After their 70% bumper growth last quarter I felt they deserved more funding. A relatively low p/e and with regional financials benefiting from the rate tightening stage in the cycle – I was happy to add. I know some don’t rate the company. I wish they were better focused on going national and international but so be it.
Micron – MU; after producing amazing results (92% revenue growth), was I felt, unfairly punished with some pessimistic coverage and after the share price pulled back I topped up. I added in back to back months to reach a reasonable position in this one.
My watch list has evolved and I am close to pulling the trigger on Nutanix and possibly Atlassian. I like the look of PayPal after their blizzard of partnership announcements. I would also jump into Align Technology at a heart beat if they weren’t always so expensive. I’m interested in topping up The Trade Desk, MuleSoft, Mercado Libre and Shopify.
One serious pondering I have which could be of potential interest to this board is to switch over my exposure in Ali Baba from BABA paper in the VIE structure to Altaba shares which owns the underlying Ali Baba holding rather than the US listed notes. Its exposure might be diluted by other interests (SNAP and Yahoo Japan), but for those that shy away from BABA for fear of the VIE issue but would like a piece of the action, Altaba might be the answer.
Anyhow – thanks for reading and hope it was interesting/useful. All comments welcome!
Feb Review: http://discussion.fool.com/ams-portfolio-review-feb-2017-3261710…
Mar Review: http://discussion.fool.com/ams-portfolio-review-march-2017-32660…
Apr Review: http://discussion.fool.com/ams-portfolio-review-april-2017-32695…
May Review: http://discussion.fool.com/ams-portfolio-review-may-2017-3273205…
June Review: http://discussion.fool.com/ams-portfolio-review-june-2017-327678…
July Review: http://discussion.fool.com/ams-portfolio-review-july-2017-327958…