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For this update I will not only report the wonderful progress of the Team Alpha Retirement Portfolio, but also lay out the strategy for the next month. The entire market seems to being going through a rotation of sorts, and while this might not be the type of overall correction many have anticipated, it still requires us to take action.

First, let's take a look at how the portfolio is performing. The Team Alpha portfolio consists of Ford (F) Chevron (CVX) Apple (AAPL), McDonald's (MCD), Exxon Mobil (XOM), Johnson & Johnson (JNJ), AT&T (T), General Electric (GE), BlackRock Kelso Capital (BKCC), KKR Financial (KFN), Procter & Gamble (PG), CSX Corp. (CSX), Realty Income (O), Coca-Cola (KO), Annaly Capital (NLY), Cisco (CSCO), Bristol-Myers Squibb (BMY), Healthcare Select Sector SPDR (XLV), and Wells Fargo (WFC).

Stock#Shares5/30/2013TotValueOrig. Price
XOM10092/shr920075
JNJ10086/shr860062
T25036/shr900027
GE50024/shr1200015
BKCC60010/shr600010
AAPL20452/shr9004436
PG10079/shr790061
KO10041/shr410034
XLV20049/shr980039
WFC10041/shr410037
O20047/shr940032
KFN60011/shr660010
NLY20014/shr280014
CSCO40025/shr1000018
CVX50125/shr6250116
BMY17547/shr822532
MCD10097/shr970086
CSX20026/shr520019
F30016/shr480013
Cash Rsvsxx3792
Tot Valuexx146471

The Team Alpha Portfolio has increased in total value by 46.5% since we began back in November 2011. That also includes a current yield on cost of 4.96% which is giving us roughly $5k in annual income as of now.

The S&P 500 has gone from 1162 to 1654, for an increase of 42.5% (overall yield of roughly 2%) meaning that Team Alpha has once again out-performed the S&P 500 by more than 8% (46.5% vs 42.5%, less the dividend differential).

Not many professional portfolio managers can claim a record such as we have. While the bull market has made it an easier task, we have also weathered some of the recent market rotations and mini-corrections quite well. We have not panicked, and we have maintained, and even grown, our income stream.

There is work to be done, however.

Our cash position is under 3%, and in this current environment we need to build up some cash reserves to take advantage of opportunities as they arise. $545 was added to our cash from stocks that are going ex dividend in June: GE (est.), BKCC, KO, XLV, O, NLY (est.), MCD, and CSX.

Actions We Are Taking And Not Taking

As I noted in this article (which happens to be rather important), there is always trepidation when stocks move higher than we have seen. The knee jerk reaction is either fear or greed, and both are portfolio killing reactions.

  • By not taking some profits, especially with stocks that appear over-valued, we could lose gains. Bulls make money, bears make money, pigs get slaughtered.
  • By not evaluating every position, we are allowing events that are occurring around us determine our destiny. I would point to the Fed and the fears of ending QE, which has roiled the mREIT sector. We have seen shares of NLY drop significantly due to these concerns.
  • By selling great stocks, because we are afraid, we stand to lose income. Since our main goal is creating a dividend income stream, selling complete positions due to an over-reaction towards fear, will throw the entire portfolio balance off course. (Please review this article)
  • If we fail to rebalance our portfolio by lightening positions, selling under-performers, and redeploying some cash into new opportunities, we allow the portfolio to get "stale" so to speak. Keep in mind that we are managing a portfolio for "Alpha" performance. It is our BUSINESS, for the sake of our financial security, to actively manage each aspect of our portfolio.

With the above being noted, here is a breakdown of what actions we are taking (or not taking) with each stock:

StockAction
XOMHOLD
JNJHOLD
TTRIM
GEHOLD/BUY
BKCCHOLD
AAPLHOLD
PGHOLD
KOHOLD
XLVSELL
WFCHOLD/BUY
OHOLD
KFNHOLD
NLYHOLD
CSCOHOLD/BUY
CVXHOLD
BMYTRIM
MCDHOLD
CSXHOLD/BUY
FHOLD/BUY

I felt that it might be a good idea to map out our strategy for the next month or so. Each individual stock has a HOLD, HOLD/BUY, TRIM, or SELL, action assigned to it. The stocks that I believe offer us a better opportunity down the road, I have assigned a HOLD/BUY "action" suggestion. That means if there are dips, and there is enough cash, I suggest adding to the core position.

A HOLD "action" suggestion is obvious. Hold the stock, and focus on the income. A TRIM "action" suggestion means that we are selling a portion of our current holdings to book some profits, add cash to our reserves, and redeploy some of that cash into other opportunities when they appear.

As of today we are TRIMMING our positions in T, by selling 150 shares, and BMY, by selling 75 shares. This action will keep significant positions in each stock, but also give us about $8,925 in cash.

I believe that both T and BMY have reached priced points that have overshot their value, and while I still consider them core holdings, trimming the positions makes sense.

The next action we are taking is SELLING our total position in the XLV healthcare ETF today. By selling all 200 shares, we will have an additional $9,800 for our cash reserves.

XLV has been a dividend underperformer, with yields of under 2% recently. We can put that money to much better use in my opinion.

As of the writing of this article, I have added Newmont Mining (NEM) to the Team Alpha Portfolio for all of the reasons outlined within the article (the price paid was $33.14/share, and we purchased 200 shares). I believe that it is a solid hedge against higher interest rates, the Fed policy uncertainty, and with a 4.37% yield as of the other day, we will also be replacing the sale and trimming yields of the three stocks noted above, with a yield of nearly 1.5% higher overall.

The Team Alpha Retirement Portfolio As Of Today

Stock#Shares5/30/2013TotValueOrig. Price
XOM10092/shr920075
JNJ10086/shr860062
T10036/shr360027
GE50024/shr1200015
BKCC60010/shr600010
AAPL20452/shr9004436
PG10079/shr790061
KO10041/shr410034
NEM20034/shr680033
WFC10041/shr410037
O20047/shr940032
KFN60011/shr660010
NLY20014/shr280014
CSCO40025/shr1000018
CVX50125/shr6250116
BMY10047/shr470032
MCD10097/shr970086
CSX20026/shr520019
F30016/shr480013
Cash Rsvsxx15717
Tot Valuexx146471

Please notice that by taking the actions we have, the total portfolio value remains exactly the same. Our cash reserves are now at a much more comfortable allocation of about 10%, and we have added a very significant dividend paying "hedge" stock, Newmont Mining, at a very undervalued entry price.

My Opinion

Obviously the actions that we have taken are suggestions for each of you to consider. Different portfolios will have different action points, but the main goal is to rebalance, stay well diversified, and keep our income stream well intact.

By taking the above actions we have now increased our overall yield on cost from 4.96% to a trace OVER 4.98%. We are in a much better cash position, and are ready for any opportunities within the core, to add to our positions.

Let me know what you think!

Source: Team Alpha Portfolio Update: Taking Profits, Hedging, And Redeploying Some Cash