When I launched my second model, the Conservative Growth/Balanced Model Portfolio, in July of 2008, I shared the names and the philosophy behind it in a series of articles. You can visit the last one and backtrack to the rest. Today, like last year, I want to share all of the current holdings, as well as some overall portfolio structure.
As I described recently, 2011 was a challenging year for the model, with the total return of the model beating its benchmark (60% stocks and 40% bonds) by just 0.6% (unrebalanced), with a return of just over 5%. The picks I shared a year ago fared even worse, but, fortunately, we were able to reposition the portfolio as the year progressed. Our models were underweight bonds and overweight stocks most of the year. As a reminder, the model is subject to several rules: Stocks vary between 45% and 75%, bonds (we use ETFs only) vary between 10% and 50% and cash can be 0% to 45%. Before I share the current names and structure, I want to say that we have a pretty tough task with this model. On the one hand, we want to grow our principal and produce income above the S&P 500. On the other hand, though, I am charged with protecting from capital loss. It's the old adage: Make me money but don't take any risk.
Ok, here is what the model looks like currently. We recently took our equity exposure down from 75% to about 67% as the year neared an end. Many of our names were extended (protect the principal at play). Our bond exposure, currently near the minimum at just 11%, is entirely in the iShares Barclays MBS Fund (MBB), which is the mortgage portion of the index. So, we remain quite underweight. The balance of the model is in cash (14%). Here are our current stock holdings:
- Applied Materials (AMAT)
- Becton, Dickinson (BDX)
- Franklin Resources (BEN)
- Cato Corp (CATO)
- Cullen/Frost Bankers (CFR)
- Chico's (CHS)
- Cisco (CSCO)
- Chevron (CVX)
- Intel (INTC)
- Johnson & Johnson (JNJ)
- Met-Pro (MPR)
- National Bankshares (NKSH)
- Owens & Minor (OMI)
- Walgreen's (WAG)
Last year, I shared 16 names, while this year there are 14. We ended up selling six of the names and adding four new ones (in bold). While we still hold Applied Materials (AMAT), Chico's (CHS) and Owens & Minor (OMI), we didn't hold them throughout the entire year. Not all of the positions are the same size - you can find out our weightings by signing up for a free trial. Unlike my Top 20 Model Portfolio, which is 36% Industrials and 26% Technology, we take a more balanced approach in CG/B. The 74% in stocks is allocated 23% Healthcare, 20% Technology, 18% Financials, 15% Consumer Discretionary, 9% Energy, 7% Consumer Staples and 7% to Industrials. That's 7 out of the 10 sectors (no Utilities, Materials or Telecom Services, all of which are very small parts of the S&P 500 totaling 10%).
In terms of market caps, we have some Small-Cap exposure, but it's not as extreme as Top 20. Our median is $15 billion, with an average of over $57 billion. We do have 2 names that are below $200mm and another below $1 billion. The median PE ratio is about 12X, with the portfolio-weighted PE at 11.7X. Our dividend yield is about 2.8%, which is above the market. Our balance sheets are very strong, with most of the companies having less debt than cash. The stock with the most net debt to capital is below the average of the S&P 500. I hope that the very conservative nature of this portfolio is evident from the characteristics I described. We have good economic sector diversification, exposure to a very broad range of market capitalizations, strong balance sheets and above-average dividend yields with good records of dividend growth. Good luck with your investing in 2012.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Disclaimer: Each of the stocks mentioned is included in the Conservative Growth/Balanced Model Portfolio at Invest By Model.