Lean Short-Term Growth Portfolio: April 2016 Update

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Includes: MBLY, YRCW
by: James Sands

Summary

The LSGP is up 1.5 percent since its inception in late March 2016.

This portfolio was created as of March 24, 2016; to date only two companies have been added including Mobileye and YRC Worldwide.

The goal of the portfolio is to take advantage of companies with high risk/reward opportunities; holdings may be liquidated within a 12-month time period.

Overview

The Lean Short-Term Growth Portfolio, or LSGP, was created in late March 2016. The objective of this portfolio is for opportunistic near-term capital appreciation and most likely will not include companies that pay dividends. Companies which will sought after will typically have higher volatility versus the Long-Term Growth Portfolio, or LLGP.

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Similar to the LLGP, the LSGP will remain lean for the foreseeable future. Due to the potential of holdings being liquidated on a shorter timeframe, there is no immediate threshold for the number of holdings. Additionally, if a company performs well and the business fundamentals become stronger, consideration to be moved to the LLGP may occur.

As of April 30, 2016, the fund currently comprises two companies including:

  • Mobileye, Inc. (NYSE:MBLY)
  • YRC Worldwide (NASDAQ:YRCW)

Similar to the LLGP, the focus of the portfolio will always dictate that a majority of the holdings will be in the freight sector. This is a primary area of research and focus. However, other companies including Mobileye have been long-term investments where research has diligently been performed since these companies were public entrants to the stock market. Other non-freight companies may be added.

Current Holdings Performance - Initial Update

As of April 30, 2016, the table below provides the initial date of purchase and stock price paid, including transaction fees, for each of the current seven holdings.

Source: Personal Database

During the month of April, no actions have been taken within the portfolio.

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Source: Personal Database

One-hundred percent of the portfolio's composition is within consumer discretionary. Since the portfolio is focused on remaining lean, it should be expected that consumer discretionary will continue to represent a substantial proportion moving forward.

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Source: Personal Database

The portfolio will most likely maintain some sort of split between mid cap and small cap in order to take advantage of high risk/reward opportunities. As stated above, due to the leanness of the portfolio, changes could occur in the future which may offset this balance due to management strategies.

Benchmark Comparison and Performance

As noted, the portfolio was developed in March 2016; as such, the benchmark performance below is as of March 24, 2016 to provide a comparable review.

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Source: Yahoo! Finance and Personal Database

To date, the portfolio has returned 1.5 percent. The portfolio has performed in-line with most primary benchmarks. The most telling aspect of this chart is that the transportation indices have substantially underperformed their broader peers during this time period.

The benchmark comparison is not so much as a direct comparison in that the portfolio would ever boast of outperformance, but rather the benchmark is a general comparable to gauge whether the LSGP is fitting anywhere close to major indices performance.

The LSGP expense ratio stood at 1.3 percent from all transactions for the year. It should be noted that all performance includes transaction costs, so the negative 0.6 performance is the pure return to date of the portfolio.

Conclusion

The stance for managing the portfolio will look to strategically maximize appreciation by liquidating positions in the event substantial gains occur within a 12-month timeframe. However, my stance as an investor is highly biased towards holding companies over long-term periods of time for capital appreciation. As such, some companies may be considered for inclusion into the LLGP; in the event this occurs, all performance will transition over as well.

Due diligence will be performed to consider existing positions and in worst case scenarios, realizing losses if the business fundamentals change and merit such a move. The benefits from this approach is that the LSGP is taking the risk as an example for investors to follow and consider if any of the companies are suitable for their own investment goals and objectives; as always separate due diligence should be performed.

To date, performance is off to a decent start. Volatility has been prevalent for both Mobileye and YRC Worldwide. While Mobileye has yet to report earnings for the first quarter, YRC Worldwide reported last week, beating earnings estimates. This sets the company up for substantial improvement throughout the year and it is anticipated that the stock may be able to double in the near-term.

Mobileye's earnings will be out this week and in the event the stock approaches and/or crosses the $50/share level, it will most likely be sold. Mobileye's prospects remain solid, but hefty premium afforded the company combined with its trading patterns places a buy/sell range opportunity. Buying the stock between $25-35/share and looking to sell between $45-55/share is the opportunity.

Disclosure: I am/we are long MBLY, YRCW.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.