Lean Short-Term Growth Portfolio - March 2016 Update

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Includes: MBLY, YRCW
by: James Sands

Summary

The Lean Short-Term Growth Portfolio is up 0.9 percent since its inception in late March 2016.

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

The primary 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 are sought after will typically have higher volatility versus the Long-Term Growth Portfolio, or LLGP. The portfolio will provide monthly updates for investors.

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 March 31, 2016, the fund currently comprises of 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. Additionally, diversification will be a consideration which will inform decisions on selecting stocks to include within the portfolio.

Current Holdings Performance - Initial Update

As of March 31, 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

Since the inception of the portfolio, the new holdings which have been added include Mobileye and YRC Worldwide. Buy alerts were placed on March 24, 2016, for YRC Worldwide and March 29, 2016 for Mobileye, providing investors with the justification and a short thesis as to the investment potential.

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.

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.

Source: Yahoo! Finance and Personal Database

To date, the portfolio is up 0.9 percent. The portfolio has underperformed all primary benchmarks, with only one week of performance in the bag. The benchmark comparison is not so much 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 major transportation indices have also been included as a substantial portion of the fund, will contain holdings within the freight sector. To date, 53 percent of the holdings in the portfolio are within the freight sector.

The LLGP 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 0.9 positive 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 focus 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 positive start. The upcoming first quarter earnings results for 2016 will be a critical focal point for the holdings of the LSGP. Depending upon an assessment of company business drivers, actions may be taken sooner rather than later. This could include averaging positions as well as liquidation.

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.