AMS Portfolio review - Dec 2017

AMS Portfolio review - Dec 2017 Yr End

Review approach
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 pay out growth >5%. Almost all stocks have now reported Q3 - 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”.

Performance review:-
The overall US portfolio 2017 investing returns ended +37.41% from 2016 year end through to 29th December market close – down 2.45% in the month. The HK port – has stayed out ahead reaching +54.12% YTD – up 4.37% in the month whilst the Singapore port (which is a combination of high yield and growth stocks) regained some momentum finishing up +5.89% YTD, up 1.90% in the month. I have added net new capital to the Singapore portfolio but have net withdrawn capital again from the US and HK portfolios which I have adjusted out of the gains. The US portfolio has seen some reasonable activity this month with 2 new positions taken, a number of top ups, no stake reductions but several 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%
Sep	+3.23%		+1.93%		-0.08%		-1.75%		+5.89%		-1.49%
Oct	+4.93%		+2.22%		+2.43%		+4.79%		-0.68%		+2.51%
Nov	+1.98%		+2.81%		-2.73%		+1.76%		+2.64%		+3.30%
Dec	-2.45%		+0.98%		+1.90%		-0.89%		+4.37%		+2.54%	
**YTD	+37.41%        +19.42%	        +5.89%	        +18.13%	        +54.12%	        +35.99%**
Yield	0.56%		-		4.98%		-		3.16%		-

Both US and HK ports ended ahead of their indices but SG finished behind for the year. The US portfolio performance was unable to match the index in December consistently falling behind, the HK portfolio stormed ahead again this month whilst the Singapore portfolio bounced back but was unable to catch the index for the year as a whole. The US port has yielded 0.56% year to date (not annualised) whilst SG has yielded 4.98% YTD and HK 3.16% - SG and HK yields tend to produce lumpy quarterly or half yearly payouts particularly around Q1/Q2/Q4 time.

On the index front whilst the US and HK have been reaching a new all time high, Singapore has merely struck multi year highs but still is a little away behind its all time record reached prior to the global financial crisis.

Overall I am happy with how the HK and to a degree the US ports have done but 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 was a disappointing end to a strong year, where I ended the year probably 5-7% off the portfolio high water mark. 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 and 4) withdrawing capital from the portfolio (~5% of total value) reducing the opportunity for compounding my gains. The 3rd point – a real 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 seen moderate activity levels as I have: entered 2 new growth positions and topped up 2 others (that represented buying opportunities and a concentration play); and exited 3 holding with no stake reductions.

The portfolio ends December at peak correlation of 6 holdings featuring in all 3 lists: TAL, Shopify, LGI, Nutanix, YY & Ali Baba; up from 5 in November. Whilst I would prefer to see greater overlap amongst the holdings between the lists, I would not want it to be at the expense of failing to exit holdings where valuations are too stretched or the growth story has played out/changed.

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  Shopify		5.5%	Cloud		72.2%	        350%	        -	-	18.2	Q3
2  AliBaba		5.1%	China/Cloud	61.0%	        -0.1%	        51.78	1.12	16.2	Q3
3  LGI Homes		3.4%	- (Growth)	69.2%	        62.7.0%	        12.85	0.27	1.42	Q3
4  TAL Ed Systems	2.4% 	China/Cloud	68.1%	        0%	        116.87	21.25	6.52	Q3
5  NetEase		2.4%	China/Cloud	35.3%	        0.0%	        23.93	0.80	6.08 	Q3
6  YY			2.3%	China	        47.8%	        42.0% 	        20.39	0.49	3.65	Q3
7  Nutanix		2.3%	Cloud/Big Data 46.2%		-	        -	-    	6.56	Q1
8  KKR			1.7%	- (Yield)	21.4%	        -50%	        10.11	0.02	6.52	Q3
9  Micron		1.7%	Big Data	71.3%	        750%		6.88	0.01	2.18	Q1
10 KMI			1.7%	Clean Energy	-1.5%	        250.0%	        33.57	0.28	3.12	Q3
11 Square   		1.6%	Growth	        44.6%		-		-	-       6.84	Q3
12 First Int Bnk       	1.6%    Growth	        13.7%	        27.3%	        15.75	0.84    3.62    Q3
13 Box			1.5%	Cloud/Big Data	28.5%	        -	        -	-	6.1     Q2
14 PayCom   		1.5%	Cloud		31.0%	        90%	        75.89	1.73	11.49	Q3
15 Pure	        	1.5%	Cloud/Big Data  37.6%	        -	        -	-	3.83	Q2

**#  Holding	Thesis Check	Conviction  Comment**
1  Shopify	On Track	High	    Massive TAM & fast growth but watch for EPS 
2  AliBaba	On Track	High	    Good value for growth but challenge to diversify revs/inc & SEC investigation
3  LGI Homes	On Track	High	    Undervalued & consistent growth record but declining growth rate & IR hikes
4  TAL Ed Sys	On Track	Medium	    Huge/fragmented TAM & growth, but hi valuation, lack of leverage & high SBC
5  NetEase	On Track	High        Good value/growth but difficult compares, needs to internationalise & leverage
6  YY		On Track	Medium	    Undervalued fast growing internet player, watch for volatility & take private
7  Nutanix	On Track	Medium      At the heart of Big Data with strong growth/high TAM but not profitable
8  KKR	        On Track        High	    High yield, high growth with exposure to infrastructure & O&G recovery 
9  Micron	On Track	Medium      Fast growth in a consolidating sector, benefit from big data but cyclical risk 
10 KMI		Off Track	Medium	    Expect re-instatement of dividend + Trans Mountain project 
11 Square 	On Track	High	    Fast growing Fintech disrupter – more B2B than PayPal but competes vs Shopify 
12 First Int Bk On Track        High        Consistent Rev/EPS growth, well mgd - needs to improve core lending metrics
13 Box		On Track	High	    Fast growth/recurring revs & large/expanding TAM, needs to b/e & differentiate
14 PayCom   	On Track	High	    Fastest growing HR Cloud play with low valuation but competition from WorkDay
15 Pure	        On Track	High	    Fast growing all flash storage company, no legacy drag & on verge of profitability

In terms of the top 15 holdings – there has been little movement in the rankings and the line-up – Talend drops out; Pure (data storage) enter for the first time whilst First Internet Bank, Square, PayCom, NetEase, TAL Education, YY, KMI, Micron and KKR hang in there whilst LGI Homes, Ali Baba, & Shopify continue to consolidate at the top.

Throughout 2017 I have been increasing my concentration in those with the highest conviction and strongest investment thesis + valuation (Shopify, Ali Baba, NetEase, Blackstone & KKR) and that has continued this month with Pure & Applied Optio and I have been more aggressive at lightening positions where valuations have become super stretched (TAL, Abiomed, Mazor, PayCom & Grubhub) though with mixed success.

LGI Homes seem to just power on regardless and I have stayed with it. The housing market looks very strong despite interest rates rising.
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, 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 consolidating its market position – although needs to find further growth avenues! 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, none the less I trimmed at its recent peak.
Micron, Box, Pure and Nutanix are all riding the Big Data/Cloud wave and in particular the shortage of data storage and need for computing at the edge. Micron whilst an old position for me has come alive thanks to the 100% growth trend it is hitting. I have added to the holding during the year as results accelerate and feel more comfortable about Micron being less commoditised and less cyclical than ever. 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 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 which I admittedly trimmed is still a strong performer although the headline revenue growth has moderated, the bottom line and all key metrics look great.

Out of all of my top holdings I would be most comfortable adding to Ali Baba, Shopify and KKR (which I have been). I am closest to selling YY, NetEase and potentially LGI if interest rates start to bite.

2) Total % gain rankings

**#  Holding		%		Mega theme	Thesis Check	Conviction**
1  TAL Ed Systems	461.1%		China/Cloud	On Track	Medium 
2  Mazor		341.7%		Robotics	On Track	Medium
3  C-Trip		186.9%		China		On Track	High
4  LGI Homes	        183.8%		Growth	        On Track	High 
5  Abiomed 		172.7%		Ageing 		On Track	High
6  Nutanix   		133.6%		Cloud/Big Data  On Track	Medium
7  Palo Alto		124.2%		Cyber Security	On Track	Medium 
8  GrubHub		110.0%		Cloud		On Track	High 
9  PayCom		102.4%		Cloud		On Track	High 
10 NetEase		93.9%		China/Cloud	On Track	High
11 Shopify		90.6%		Cloud		On Track	High 
12 Five Below		85.7%		Growth  	On Track	Medium
13 YY			85.1%		China/Cloud 	On Track	Medium
14 Ali Baba		80.6%		China/Cloud	On Track	High
15 AMD		        71.3%		Big Data	On Watch	Medium 
* Gains are actual gains of investment holdings not % change since beginning of the year

This list includes a lot of Saul method stocks. I also note and won’t comment any further that Team China continues to do well in this medals table. I’m probably closest to taking my gains and exiting from AMD & Abiomed (which I already top sliced at 170), PayCom and Mazor (which I have reduced as well). Interestingly this list used to include some long held positions as well as one very young position but now it is almost completely dominated by recent vintages. The total gains % increases have mostly moved upwards since the October position – the winners have kept on winning and I now have 9 triple digit risers and 2 multi-baggers with nothing less than 71% total gain in the top 15 (it has been on a rising trend since the beginning of the year when the bottom of the table was a lifetime gain of 47% - which is after selling a 1000% gainer).

3) 2017 YTD % gain rankings

**#  Holding		%	        Mega theme	Thesis Check	Conviction**
1  Safe Bulkers		180.9%	        -		Off Track	Low
2  YY Group	        159.3%	        China		On Track	Medium 
3  TAL Edu. Sys.	154.1%	        China/Cloud	On Track	Medium 
4  LGI Homes		151.5%          Growth		On Track	High 
5  Nutanix		133.6%	        Cloud		On Track	Medium 
6  Ali Baba		73.8%	        Cloud		On Track	High
7  Golden Ocean	        73.0%	        -		Off Track	Low
8  Datawatch		72.7%	        Cloud/Big Data	Off Track	Low 
9  BITA         	68.8%           China/Cloud    	Off Track	Low
10 Five Below		66.0%	        Growth		On Track	Medium
11 Materialize		65.5%	        3D Printing	On Watch	Medium
12 Shopify	       	62.6% 	        Cloud		On Track	High
13 Jupai		61.3%	        China		On Track	Medium
14 GrubHub		60.5%	        Cloud/Big Data	On Track	Medium
15 NetEase		60.2%           China/Cloud	On Track	Medium 
* Gains are actual gains of investment holdings not % change since beginning of the year

My 2017 strongest advancers represent 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 stabilised and not continued the momentum beyond tracking in the ongoing bull run although some gains 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:-
December was a moderately active month 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.

In September I mostly deployed remaining cash positions. I sold 2 holdings: Holly Frontier (HFC) and Qualys; bought Nutanix and topped up recently acquired positions into more sizeable stakes: Jupai, Mulesoft, Nutanix, Arista Networks, Applied Optio and Micron.

In October I sold out of some extended gains in stocks I felt were stretched and held concerns over earnings expectations including: Neogen, Cognex, Splunk and Ceva and I slimmed down my holdings in Abiomed, First Internet Bank and TAL Education Systems. I topped up 2 holdings Sierra Wireless and Shopify since the short attack was launched and I bought 1 new purchase – Wix.

In November I sold out of Avigilon and Baracuda taking advantage of some share price recovery and bid activity, slimmed down on NetEase and topped up Wix, The Trade Desk, Hubspot and Square and added a new position – Xinyuan.

In December I sold out of Ambarella, Astromics & Skechers, topped up on Pure and Applied Optio and made first time purchases of Alteryx & Lending Tree.

Ambarella (AMBA) – 8.3% gain. This at one point had done very well but the business turned very rapidly. I exited after the recent recovery which I have yet to see materialising in their underlying business performance. I dodged a bullet here - another tech hardware blow up to add to the collection.

Astromics (ATRO) – 20% loss. A good business that really went off the boil and saw a melt down in the share price. It just didn’t recover fast enough for my liking.

Skechers (SKX) – 13.1% gain. Another stock that made me a paper fortune, lost me a paper fortune then came back from the dead. It worked out in the end but the opportunity cost was high even if the holding risk was low.

Whilst I didn’t get further than these sales, I am also reaching a sell urge with Mazor and YY.

Stake reductions

It was a relatively active month for me on the buy side where I made 2 new purchase and 2 top ups.

Alteryx (AYX). This was another Saul find which I liked especially as a replacement for Splunk which I sold out of (too early).

Lending Tree (TREE). I was looking for a more viable P2P lending investment as an alternative to Lending Circle. This was what I was looking for. Momentum looks strong but we will need to monitor the impact of rate rises on this one closely.

Top ups
Pure (PSTG). I have been in Pure and enjoying the strong rise this year however my stake was under-scale and with the imminent transition to profitability I wanted to double down on this. I topped up after the recent pull back.

Applied Optio (AAIO). This was a topping up of a September purchase – the SP has really suffered whilst the business has continued to grow at 25%+. It holds some risk but looks like a finely balanced opportunity.

Watch List:-
My watch list has evolved and I am interested in taking a stake in: Gilead, Celgene, Interactive Brokers and Atlassian as well as CRISPR technology. 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 most interested in topping up Mercado Libre and Shopify and have begun considering Zillow again.

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! Next year I might do quarterly reviews as that was pretty hard work all year but worth it – I think.

A year in review:-
Noteworthy points for the year…

  1. I managed to slim down my port by a net 20% in 2017 whilst entering new positions
  2. I managed to let go of some very old holdings
  3. I dodged some bullets by selling into strength
  4. I miss-timed some sales – especially Neogen, HFC, Splunk
  5. I failed to take positions in some killer stocks like KITE
  6. I was very late to the party with some plays – like Arista
  7. I’m 70% weighted in tech in the US which is a risk
  8. I had a record year thanks to the Saul method but still failed to come close
  9. China (and HK) has continued to be good to me
  10. I still can’t exit some cruddy under water positions which I believe/hope will come back


Feb Review:…
Mar Review:…
Apr Review:…
May Review:…
Jun Review:…
Jul Review:…
Aug Review:…
Sep Review:…
Oct Review:…
Nov Review:…


Ant, that’s a great review! Thanks,