AMS Portfolio review - May 2017

AMS Portfolio review - May 2017

Sticking with the prior 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 May and year to date investment activity, performance and status. Going forwards I might make some enhancements based on everyone else’s awesome portfolio review approaches an any feedback/suggestions.

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; (still – yes I know…).

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%. Most stocks have now reported Q1 results and 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 are now up +19.53% from 2016 year end through to 31st May market close. The HK port – has accelerated further ahead to reach +24.36% YTD whilst the Singapore port (which is a combination of high yield and growth stocks) went back slightly in the month and is up +6.31% over the same time period. I have added new capital to all portfolios YTD but only to the SG and US portfolios this month which I have adjusted out of the gains. The US portfolio activity has seen considerable activity in terms of new positions as well as top ups this month, SG and HK have seen 1 exit each and in SG I have taken a new position and topped up another.

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%
**YTD	19.53%	        7.73%		6.31%		11.46%	        24.36%		16.64%**
Yield	0.25%		-		1.87%		-		1.32%		-

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 May whilst the HK portfolio was level and the Singapore portfolio seems to continue to lag. The US port has yielded 0.25% year to date (not annualised) whilst SG has yielded 1.87% YTD and HK 1.32% - HK yields have been particularly lumpy with many stocks paying either once or twice annually rather than quarterly.

On the index front whilst the US and the UK are reaching new all time highs, 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.

Whilst I am happy with how the HK and to a degree the US ports are doing, I need to challenge myself on what is not working for me in the SG port – whether it be the stock selection choices I am making or my strategy. I can get why SG won’t match HK and US as much of the SG port is a yield play but I shouldn’t be that far away from the index.

On the US port side, this last month has seen both the largest 1 day gains and largest 1 day losses in terms of % and $ movements I think I have ever experienced aside from perhaps the dotcom boom/bust era. I continue to fall behind Saul’s and Bear’s portfolio performance. 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 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.

US Portfolio investments review:-
This month has been very active as I have: entered 5 new growth positions and topped up 4 others (that presented a valuation opportunity and a cornerstone concentration play) and I continued to shrink down my holding in my former employer.

Last month TAL Education, Shopify and Mazor featured in all 3 Top 15 lists of my portfolio composition metrics (the month previous it was also 3 – TAL, SHOP & NetEase). This month it is still the same 3 featuring in all 3 lists but there is much more overlap amongst the other holdings between the lists which I am getting happier about.

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		4.0%	China/Cloud	59.8%	        45.0%	        36	0.8	12.7	Q1
2  Shopify		3.7%	Cloud		75%	        -	        -	-	19.2	Q1
3  NetEase		2.9%	China/Cloud	72.3%	        52.2%	        19.36	0.38	5.89	Q1
4  Mazor		2.3%	Ageing		82.2%	        -	        -       -	23.19	Q1
5  TAL Ed Systems	2.1% 	China/Cloud	80%	        103.3%	        85.28	0.8	5.34	Q4 (to Feb)
6  PayCom   		2.0%	Cloud		32.6%	        43%	        76.09	0.65	10.72	Q1
7  KMI			1.9%	Clean Energy	7.2%	        42.6%	        60.5	-	3.2	Q1
8  Imperva		1.7%	Cyber Security	21.3%	        - 	        -	-	5.73	Q1
9  KKR			1.7%	- (Yield)	34.2%	        200%	        10.29	-	2.55	Q1
10 Audiocodes	        1.7%	IoT		7.5%	        75%	        12.26	0.31	1.43	Q1
11 C-Trip		1.7%	China		46.1%	        50%	        1833	36	9.39    Q1
12 LGI Homes		1.6%	- (Growth)	0.3%	        -10%	        9.67	0.39	0.85	Q1
13  Criteo		1.6%	Cloud		29%	        65%	        44.0	0.85	1.79	Q1
14 Box Storage	        1.5%	Cloud		29.8%	        -	        -	-	6.27	Q1
15 Sierra Wireless	1.5%	IoT	        13.3%	        237%	        59.66	0.82	1.46	Q1

**#  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 in PRC & leverage as profitability emerges
4  Mazor	On Watch	Medium	        Benefiting from Medtronic agreement but challenging growth compares going forwards & still loss making
5  TAL Ed Sys	On Track	Medium	        Huge/fragmented TAM & increasing growth rate, but hi valuation, lack of scale leverage & high SBC
6  PayCom   	On Track	High		Fastest growing HR Cloud play with lowest valuation but watching for competition from WorkDay
7  KMI		Off Track	Medium	        Expect re-instatement of dividend + Trans Mountain project
8  Imperva	On Watch	Medium	        Fast growth sector, differentiated player, top CEO but growth & profits have faltered in last yr with subscription transition
9  KKR	        On Track	High		High yield, high growth operation with exposure to infrastructure & O&G recovery
10 Audiocodes	On Watch	Medium	        Increasing TAM in cloud space but growth falling to single digits and risk of design outs
11 C-Trip	On Track	High		Market leader in consolidated sector with great alliances but watch for post acquisition growth and high SBC
12 LGI Homes	On Track	High	        Undervalued & consistent growth record but declining growth rate, IR hikes and 2017 home closing target
13 Criteo	On Track	High		Consistent top line growth, inconsistent EPS growth, concerns over ad blocking and Q1 guidance
14 Box Storage	On Track	High		Fast growing recurring revs in a large + expanding TAM - needs to reach break/even & differentiate vs Azure & AWS
15 Sierra W.    On Watch        Medium	        Stretched valuation & struggling to recover 20%+ growth rates but outlook improving

In terms of the top 15 holdings – there has been some movement in the rankings and even the line-up – Sierra Wireless re-enters and CyberArk drops out. Generally these holdings are still performing well, (all of them are in the money) so I’m pretty happy on this front. So far this year I have been increasing my concentration in those with the highest conviction and strongest investment thesis + valuation (BABA, NetEase, Paycom & Criteo) and I have been more aggressive at lightening positions where valuations have become super stretched (Sierra Wireless, TAL and Mazor) though with mixed success.

I continue to watch and reconsider Audiocodes as its growth record seems a little stuck in the slow lane. Cyber security plays (e.g. Imperva) which I am highly exposed to, had been experiencing a gradual slow down but most seem to have navigated the transition to a subscription model well and are hitting a reasonable constant 20%+ stride and benefiting from renewed focus on the sector following recent ransomware events. 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. Shopify, Ali Baba, TAL Education, C-Trip 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. Criteo and PAYC, IoT and cloud plays, again need to be monitored from a growth deceleration perspective whilst Sierra Wireless needs to continue its revenue acceleration. KKR (together with BX) is an infrastructure investment and yield play for me – with very high conviction for me. Box makes a new entry to this list and the total gains % list. With its expectation beating results just announced and another 10% gain it should be featuring in all 3 lists in the near future - Box is all about the data, the cloud, recurring subscription revenue and in the future AI.

Out of all of them I would be most comfortable adding to Ali Baba (which I have been) and KKR followed perhaps by PayCom. I am closest to selling Audiocodes, Mazor and LGIH and potentially Sierra Wireless.

2) Total % gain rankings

**#  Holding		%		Mega theme	Thesis Check	Conviction**
1  CEVA   		901.2%		IoT		On Track	Medium
2  TAL Ed Systems	266.6%		China/Cloud	On Track	Medium
3  C-Trip		255.6%		China		On Track	High
4  Mazor		254.5%		Robotics	On Track	Medium
5  Shopify		214.4%		Cloud		On Track	High
6  NetEase		100.3%		China/Cloud	On Track	High
7  Abiomed 		100%		Ageing 		On Track	High
8  AMD		        86.5%		Big Data	On Watch	Medium
9  Palo Alto		83.5%		Cyber Security	On Track	Medium
10 Noah		        73.9%		China/Cloud	On Track	Medium
11 PayCom		64.9%		Cloud		On Track	High
12 Imperva		55.0%		Cyber Security	On Watch	Medium
13 Box Storage	        50.3%		Cloud		On Track	High
14 Five Below	        43.7%		Growth		On Track	Medium
15 Fortinet		43.1%		Cyber Security	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). 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 April position – the winners have kept on winning and I now have 7 double digit risers vs 6 in April and 5 multi-baggers vs 4 previously. I sold out of 2 of April’s list of top 15 risers – Carnival and Norwegian cruise lines. Cyber security seems to be back with a bang right now.

3) 2017 YTD % gain rankings

**#  Holding		%	        Mega theme	Thesis Check	Conviction**
1  Shopify		114.3%	        Cloud		On Track	High
2  Micron		79.3%	        Big Data	On Track	Medium
3  Safe Bulkers		79.1%	        -		Off Track	Low
4  Lightbridge		69.3% 	        Clean Energy        Off Track	Low
5  Materialize		66.5%	        3D Printing	On Watch	Medium
6  TAL Edu. Sys.	66.0%	        China/Cloud	On Track	High
7  Mazor		65.2%	        Robotics	On Track	Medium
8  Stratasys		62.6%	        3D Printing	Off Track	Low
9  Tesla		59.6%	        Clean Energy	On Watch	Medium
10 Comm Heath Sys	58.3%	        Ageing		On Watch	Medium
11 Sierra Wireless	56.8%	        IoT		On Watch	Medium
12  YY Group	        56.1%	        China		On Track	Medium
13 3D Systems		53.9%	        3D Printing	Off Track	Low
14 HubSpot		53.4%	        Cloud		On Track	Medium
15 Datawatch		50.9%	        Big Data	Off Track	Low	

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 May over April’s % levels consistently and are seeing some improved alignment between this list and the other 2.

Buys and Sells:-
May has been an active for me on the buying and selling front particularly.

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

I continued to take advantage of recent price strength and sold down more of my holding in my former employer (especially after a PE triggered secondary offering) and also sold out of successful but deteriorating performers in the cruise line industry – Carnival and Norwegian and took more difficult decisions to exit at an insignificant gain or slight loss some positions where the original investment thesis was broken – AMN, NHTC and QQQ.

Carnival – has been a longer term holding for me and I exited at a 66% gain. I bought originally as part of my Ageing mega trends play together for its exposure to China and Cuba’s internationalisation. It is a class company but the decent double digit growth rates benefiting from the tail winds of economic recovery and low oil prices had faded leaving a single digit growth story. It simply wasn’t a growth company anymore.

Norwegian Cruise Lines – the same applied to Norwegian which I had bought more recently and at several points and exited for an overall return of 48.5%. Again – a class company with great exposure to ageing and china trends but only producing single digit growth with very little fleet capacity additions.

Natural Health Trends Corp was a very fast growing stock in a total sweet spot of nutraceutical supplements in China. Somehow its triple digit growth dropped to 0% growth in a year – I had plenty of opportunities to take a profit when the writing was on the wall. I failed to but am biting the bullet now. I exited at a 1% loss. The one comfort is that I maintain exposure to this opportunity via another player that is growing at high double digits – residing in my Singapore portfolio where it is one of my top gainers.

AMN – I bought recently (in the last year) having looked at their long term CAGR and liked the story together with the ageing mega trend exposure. After recent results I took a look at past performance and realised that the attractive long term CAGR was a blend of some low growth periods of late and historically sandwiching a substantial uplift around the time of the ACA. I realised that this was a one time factor and now given the current political dynamic I thought that there was no point maintaining exposure given the original thesis was mistaken and a potential unwinding political event likely. I exited with a 23% gain.

QQQ Clean Energy fund (QCLN) was a holding I had bought with a view to a clean energy mega trend perspective. Frankly that trend is broken as confirmed by events this week. I thought I wanted to cease my exposure to this in the US on an untargeted basis. I exited at a 0.5% loss – although it was dead money for quite a while.

I still intend do make serious headway on the long tail in coming months – Audiocodes, AMD, Synaptics and Sensata are top of mind to address and I need to make my mind up on GRUB and FIVE (although FIVE seems to have re-confirmed its thesis as immune from the Amazon factor with its latest results).

It was an active month for me on the buy side where I made some top up decisions as well as taking new positions in as many holdings as I was vacating on the sell side.

The top ups include:

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 then made one further addition in May when it broke out beyond its all time high at 120. 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 – and frankly at the valuations it has been sporting – I wouldn’t even consider this “buying high”. 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.

iShares S&P Small Caps ETF – IJR; as mentioned previously… 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 made an additional top up and may continue as a store for cash.

YY – I can hear it now, not another Chinese holding. Yes afraid so. YY is one of the cheapest super fast growing companies in China focused on the hot area of internet video content. I won’t go into further detail but for those of you in MOMO, WEIBO, NTES etc this is another alternative. It announced incredible results recently and the price dropped. I took advantage of this to top up and now they are up 15% from the top up level pushing their 52 week high.

Twilio – ok now for the difficult conversation. Whilst clearly missing the opportunity to exit ahead of the drop, I now find myself in the opposite direction of Saul on this one. I actually think that it remains to be seen if the thesis is broken – whether customers can take this capability in house or whether as Twilio says only very few companies are able to do it. Frankly the growth rates are still amazing and the customer concentration risk is pretty low. I’m prepared to see how this goes for a few more quarters.

I also took 5 new positions in May:

The Trade Desk, TTD – this I entered just before the one day mega pop having watched it gaining momentum. I feel this has all the potential if not more of HubSpot and Criteo.
It needs to be watched like a hawk recalling the total collapse that FUEL experienced but overall the numbers look great and I find the valuation very reasonable.

Impinj, PI – this was on my radar for a while. I got convinced after an article by Bert. The numbers look great but again it needs to be watched in order to understand: 1) whether RFID etc really has come of time just as there is a Smart this that and the rest emerging in every industry, with the rise of ecommerce, logistics must be ripe for it 2) whether Amazon could completely obsolete PI.

MercadoLibre, MELI – I have followed this for about 3 years and it just keeps on rising as the business accelerates. Enough’s enough. If I don’t want to put all my eggs in an Ali Baba basket and if I feel I’ve missed the boat on Amazon already then this is the one to go for. After going to South America earlier in the year and having seen how this company is consolidating its market dominance I’m convinced.

Ziopharma, ZIOP – ok having spent a bunch of time doing DD in the pharma space this definitely has potential. It is very high risk. Personally I like Kite more and it has better partnerships but it is massive risk. Ziopharma will come to market later so it will benefit from Kite’s approval if successful but hopefully not be as impacted on a knock back. It also has the turn off key to its medication. We will see. I would have preferred ZIOP to have had the partnerships that KITE has, as half of Ziopharma’s alliance partners are really second tier.

Splunk, SPLK – again one that I’ve been tracking for a long time. The latest results were very good and their relevancy to cyber security a good second string to the bow. Leaving aside the gains I have missed out, the one concern I have over Splunk is whether they are just the latest next big thing in a long line of next big things in the area of big data analytics; (Tableau, Apperture etc.).

Watch List:-
My watch list has evolved and I am close to pulling the trigger on a few including:
Square, Nutanix, Mulesoft and Cognex – and I continue to consider initiating positions in PayPal and Atlassian and re-entering BOFI; although I want to continue to address my long tail and at a minimum allow a one in one out.

Feb Review:…
Mar Review:…
Apr Review:…