I have been managing and developing an equity-based portfolio over the past few years or so and I am now ready to begin to publicly monitor its progress. I am going to develop real-time measurement of the portfolio's success. My profile discloses the primary goals and objectives of the portfolio, as well as my experience relative to investing, so feel free to take a look. For lack of better fund name, I will christen this fund the Individual Investor Fund or II Fund.
2012 will be the first year of performance monitoring publicly. The key component of the portfolio is to invest in companies with market capitalizations, or market caps, between $300 million to $10 billion. This does not preclude owning a stock that exceeds the $10 billion value. It is meant to guide the portfolio towards aggressive growth goals. Companies within most all industries will be considered. Benchmarks will include the S&P 500, Russell 2500, Vanguard Mid-Cap Growth Index Fund Admiral (MUTF:VMGMX), and Fidelity Mid-Cap Stock Fund (MUTF:FMCSX).
The idea for disclosing the performance of this fund is to provide an opportunity for other individual investors and interested parties to follow companies and information that may be of interest. If anything, it is a real opportunity to see how the fund performs against benchmarks and other professionally managed mutual funds with similar goals.
At this time I am going to provide a list of the currently owned companies, their market caps, and and sectors and industries of business. So here we go.
Current Holdings as of September 22, 2012
- Ancestry.com, Inc. (NASDAQ:ACOM); market cap - $1.33 billion; technology sector/Internet information providers industry
- Clean Harbors, Inc. (NYSE:CLH); market cap - $2.58 billion; industrial goods sector/waste management industry
- Discovery Communications, Inc. (NASDAQ:DISCA); market cap - $22.82 billion; services sector/CATV systems industry
- Kayak Software Corporation (NASDAQ:KYAK); market cap - $1.3 billion; technology sector/Internet information providers industry
- Laredo Petroleum Holdings, Inc. (NYSE:LPI); $2.79 billion; basic materials sector/independent oils & gas industry
- Liquidity Services, Inc. (NASDAQ:LQDT); market cap - $1.17 billion; services sector/catalog & mail order houses industry
- MercadoLibre, Inc. (NASDAQ:MELI); market cap - $3.67 billion; services sector/business services industry
- SAP AG (NYSE:SAP); market cap - $86.85 billion; technology sector/application software industry
- Scripps Networks Interactive, Inc. (NYSE:SNI); market cap - $9.18 billion; services sector/broadcasting TV industry
- Velti Plc (VELT); market cap - $607 million; technology sector/business software & services industry
- Zipcar, Inc. (ZIP); market cap - $311 million; services sector/consumer services industry
YTD Individual Company Performance as of September 22, 2012
- Velti - 53.2%
- Liquidity Services - 39.8%
- Ancestry.com - 35.0%
- MercadoLibre - 25.7%
- Discovery - 19.6%
- Scripps Networks - 14.8%
- SAP - 13.9%
- Kayak - 4.7%
- Laredo Petroleum - 3.5%
- Clean Harbors - (13.2%)
- Zipcar - (17.3%)
Benchmark Comparison and II Fund Performance
The II Fund has returned 14.0% YTD. This performance is comprised primarily of unrealized gains representing roughly 74% of the return and realized gains representing roughly 26% of the return. Comparatively, the S&P 500 has returned 16.1% and the Russell 2500 has returned 15.4%. The VMGMX fund has returned 15.5% and the FMCSX fund has returned 16.8%. While both benchmark indices and professionally managed funds have outperformed the II Fund so far, the comparisons are fairly close and tracking well against peers.
Fund Overview and Management Activities
Over the past few months the majority of holdings for the fund have been purchased, most occurring in July 2012. Recent transactions have included selling positions in LinkedIn Corporation (NYSE:LNKD) and Liquidity Services.
The entire LinkedIn position was sold in August 2012 for a realized gain of 26.7%. LinkedIn is considered a strong long-term candidate, however, due to macroeconomic concerns and possible volatility during 2013, the entire position was liquidated. Cash is set aside for a re-entry opportunity, preferably below the $100 level.
Half of the Liquidity Services position was sold during September 2012 for a realized gain of 38.1%. The position provided a roughly 40% run-up in less than two months, and due to similar uncertainties mentioned above, the decision to trim the position was justified.
Performance for MercadoLibre and Discovery has been very strong recently. MercadoLibre continues to perform well despite threats of competition from Amazon.com, Inc. (NASDAQ:AMZN) in the Brazilian marketplace, and Discovery's wealth of content continues to drive growth. Strategies to trim some of the positions in either of these two companies may be initiated in the near-term.
Velti continues to be volatile, and has trended positively for the most part during these volatile sessions. Velti's robust potential for revenue growth, especially in the Americas and United Kingdom markets, combined with Velti's moderate valuation justify holding the position despite significant appreciation in the stock price.
Clean Harbors just recently was downgraded and the stock has taken a hit over the past couple of days. Management discussions and valuation analysis are currently being performed and a decision to add to the position may occur in the near future.
Zipcar has been the worst performing position in the fund. Zipcar was recently added to in August 2012. More research and analysis is being conducted to determine the long-term prospects for the company. Growth trends remain robust in the car-sharing markets globally. However, competition is growing as well.
The II Fund is currently holding a 33% cash allocation ratio of which 15% and 9% are designated for LinkedIn and Liquidity Services respectively. Additionally, another 13% would be used to add to the Clean Harbors position. The fund will be adding cash this year and next year.
Companies Being Considered
Both LinkedIn and Zillow, Inc. (NASDAQ:Z) are companies that are considered strong candidates for long-term investment. However, both companies have had significant run-ups in stock price recently. Current valuations are not justified for re-entry or establishing a position. These companies will be purchased in the future however, in the event their prices become attractive.
- AMC Networks Inc. (NASDAQ:AMCX); market cap - $3.06 billion; services sector/CATV systems industry
- JB Hunt Transport Services, Inc. (NASDAQ:JBHT); market cap - $6.0 billion; services sector/trucking industry
- The McGraw Hill Companies, Inc. (MHP) (spin-off); market cap - TBD; services sector/publishing - books industry
- News Corp. (NASDAQ:NWS); (spin-off); market cap - TBD; services sector/entertainment diversified industry
- SINA corporation (NASDAQ:SINA); market cap - $4.4 billion; technology sector/Internet software & services industry
- Sohu.com Inc. (NASDAQ:SOHU); market cap - $1.59 billion; technology sector/Internet information providers industry
- Tesla Motors, Inc. (NASDAQ:TSLA); market cap - $3.17 billion; consumer goods sector/auto manufacturers - major industry
These companies are being watched for potential consideration for the fund. AMC Networks provides an opportunity to gain additional content/media exposure for the fund. AMC's market valuation is low compared to its peers, risks include over-reliance on debt and recent stock price run-up. JB Hunt provides a great opportunity to get into the transportation and logistics area and the company's stock price has weakened recently. Both McGraw Hill and NWS offer interesting spin-off investment opportunities, McGraw Hill with its educational services segment and NWS with its entertainment segment. SINA and SOHU are varying examples of risky China plays with upside potential. I would definitely give Nick Butcher's latest article on Tesla Motors and others he's written a read for some great input and discussion on the stock.
The next II Fund update and review will occur at month-end of October 2012.