The market continues to be unfazed by all the headlines being thrown at with another solid month of returns in May despite all the chatter. Earnings also continue to be strong, so maybe this old bull has some strength left after all. There are hundreds of market predictions that abound on Seeking Alpha and the wider financial press…and even more from brokers and financial advisors (side note: I just received my first boiler room style cold call today with a can't miss stock tip…so I must be coming up in the world). I hung up on the guy and I recommend that you hang up on must of what you see and hear as average investors often suffer from a variety of biases that all hurt returns. While it can be easy to think 'that applies to someone else, but not me', the overwhelming evidence of wealth destruction that average investors do to themselves is overwhelming.
This graph comes out of an excellent data dump long read from JP Morgan that everyone should take the time to look at. For me, the takeaway is that you need to have a strategy and not be caught chasing fads. In my case, that is a dividend growth strategy with hedges against volatility. While my strategy isn't the top of the charts right now, I think that capitulating to my FOMO and putting everything in FANG-like stocks would be the worse thing I could do for myself over the long run…so I'm going to stay true to my strategy and accept that this will cause some negative alpha over (hopefully) short time periods. So don't be blinded by missed gains that you didn't see, instead focus of crafting a lasting strategy that works for the long haul.
May 2017 Review
May was another tough month for me as my outperformance in foreign holdings was overshadowed by the drubbing that energy and REITs took. I finished May basically flat versus a 1.5% gain for the S&P 500. With only a 2.5% capital gain for the year, I am definitely behind where I want to be at this point in the year; however, my solid 5%-ish dividend performance is keeping me content to stick with my value focused strategy in a market that is crazy for growth stories.
For the 12 months ending April 2017, my portfolio's realized yield is 4.4% (based on its TTM value) and delivered $11,589 in cash to me. With the rollover of my last 401k, I am now fairly confident that I will make my $13,000 2017 goal, even with my sizable cash and short positions. In May 2017, I earned $894 in cash (which was 16% greater than April 2016. Fear and greed are hard to balance, but overall I am more happy with where I am. My yield focused strategy still makes the most sense to me as paper gains may come and go but cash is forever!!
Since I write for Seeking Alpha primarily to improve my own investment portfolio, I think it is important that you know my objectives. Please consider this context when you look at any advice I give and form your own opinions based on your needs and desires.
- GOAL: Attractive, risk-adjusted, absolute returns (5-15% annually) over a long-term time frame while minimizing capital loss and extreme drawdowns.
- STRATEGY: 'Enhanced' dividend growth or DGI strategy that focuses on a core of diversified holdings (ETFs and individual companies -- my general screening criteria: growing companies (YoY EPS growth >0%) with attractive valuations (PEG <1.5 and P/E <20) and strong and safe dividends (yield >4%, payout <90%, and market cap >$500MM)…no tobacco stocks or micro caps), supplemented with return enhancing tools like hedges (derivatives and shorts), commodity exposure, etc., as well as some crazy picks.
- BALANCE: Blend of ETFs (domestic and international) and individual companies (where there is a compelling reason to own). Seek to not overweight any one sector unless there is a compelling reason to do so (although the nature of these investments lead me to be overweight in traditional dividend paying sectors like financials, REITs, and energy).
Note: I violate these guidelines constantly, so please call me out on it!
Portfolio Composition as of May 31, 2017
|Security||Type||Div Yield||Market Value||Last Month Value||Gain/Loss(%)|
|CORE DIVIDEND FUNDS||4.9%||$97,405||$96,488||0.9%|
|SPDR S&P Emerging Markets Dividend ETF (NYSEARCA:EDIV)||ETF||4.3%||$9,073||$9,040||0.4%|
|WisdomTree Emerging Markets High Div ETF (NYSEARCA:DEM)||ETF||3.3%||$8,703||$8,722||-0.2%|
|SPDR S&P International Dividend ETF (NYSEARCA:DWX)||ETF||5.3%||$8,136||$7,908||2.9%|
|SPDR S&P 500 High Dividend ETF (NYSEARCA:SPYD)||ETF||4.4%||$7,032||$7,022||0.1%|
|Deutsch X Trk MSCI EAFE Hdg Eqy ETF (NYSEARCA:DBEF)||ETF||2.4%||$6,144||$6,002||2.4%|
|Global X Superdividend REIT ETF (NASDAQ:SRET)||ETF||7.5%||$6,038||$6,096||-1.0%|
|Global X SuperDividend U.S. ETF (NYSEARCA:DIV)||ETF||6.4%||$5,076||$5,114||-0.7%|
|SPDR MSCI Australia StrategicFactors ETF (NYSEARCA:QAUS)||ETF||3.8%||$5,065||$5,226||-3.1%|
|Fst Tst Dow Jns Glbl Sel Dvd Idx ETF (NYSEARCA:FGD)||ETF||4.1%||$5,048||$4,966||1.7%|
|Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD)||ETF||2.9%||$4,547||$4,469||1.7%|
|ProShares Hedged FTSE Europe ETF (NYSEARCA:HGEU)||ETF||4.4%||$4,260||$4,094||4.1%|
|Global X SuperDividend ETF (NYSEARCA:SDIV)||ETF||6.7%||$4,256||$4,328||-1.7%|
|SPDR S&P Global Dividend ETF (NYSEARCA:WDIV)||ETF||4.0%||$3,352||$3,286||2.0%|
|JPMorgan Alerian MLP ETN (NYSEARCA:AMJ)||ETN||6.3%||$2,991||$3,185||-6.1%|
|Pacer Global Cash Cows Dividend ETF (BATS:GCOW)||ETF||2.4%||$2,962||$2,870||3.2%|
|First Trust STOXX European Select Dividend Fund (NYSEARCA:FDD)||ETF||4.6%||$2,710||$2,538||6.8%|
|WisdomTree Japan Hedged Quality Div Growth (NYSEARCA:JHDG)||ETF||2.0%||$2,572||$2,501||2.8%|
|WisdomTree United Kingdom Hedged Equity Fund (NASDAQ:DXPS)||ETF||4.4%||$2,471||$2,344||5.4%|
|PowerShares Europe Currency Hedged Low Vol (NYSEARCA:FXEU)||ETF||16.7%||$2,379||$2,284||4.1%|
|Eaton Vance Buy-Write Opportunities Fund (NYSE:ETW)||CEF||9.5%||$2,306||$2,252||2.4%|
|SPDR S&P Int'l Dividend Currency Hedged ETF (NYSEARCA:HDWX)||ETF||5.5%||$2,283||$2,241||1.9%|
|CORE DIVIDEND COMPANIES||6.8%||$105,721||$106,685||-0.9%|
|Omega Healthcare Investors (NYSE:OHI)||REIT||8.0%||$15,660||$16,500||-5.1%|
|Care Capital Properties (CCP)||REIT||8.7%||$10,516||$10,561||-0.4%|
|Royal Dutch Shell (RDSB)||Company||6.7%||$8,432||$8,118||3.9%|
|Teva Pharmaceutical Industries (NYSE:TEVA)||Company||4.9%||$8,358||$8,558||-2.3%|
|New Residential Investment (NYSE:NRZ)||REIT||11.9%||$8,270||$8,571||-3.5%|
|Blackstone Mortgage Trust (NYSE:BXMT)||REIT||8.0%||$6,210||$6,176||0.6%|
|Ford Motors (NYSE:F)||Company||5.4%||$4,448||$4,588||-3.1%|
|Kinder Morgan (NYSE:KMI)||Company||2.7%||$3,452||$3,796||-9.1%|
|Valero Energy (NYSE:VLO)||Company||4.5%||$3,074||$3,231||-4.9%|
|Tanger Factory Outlet REIT (NYSE:SKT)||REIT||5.3%||$2,606||$2,980||-12.5%|
|Verizon Communications (NYSE:VZ)||Company||5.0%||$2,332||$2,296||1.6%|
|Senior Housing Properties (NYSE:SNH)||REIT||7.4%||$2,114||$2,152||-1.8%|
|Icahn Enterprises (NYSE:IEP)||Invest Co||12.4%||$1,813||$2,008||-9.7%|
|SPECULATIVE HOLDINGS TOTAL||0.8%||$8,065||$8,532||-5.5%|
|Market Vectors Gold Miners ETF (NYSEARCA:GDX)||ETF||0.3%||$2,269||$2,223||2.1%|
|VARIOUS POSITIONS OF <$1,000 VALUE||VARIOUS||2.0%||$3,069||$3,000||2.3%|
|FIXED INCOME TOTAL||5.1%||$40,044||$40,166||-0.3%|
|Goldman Sachs (NYSE:GS) - Pref A (GS+A)||Pref||4.1%||$10,222||$10,294||-0.7%|
|PowerShares Variable Rate Preferred ETF (NYSE:VRP)||ETF||4.9%||$5,198||$5,233||-0.7%|
|Bank of America Corporation (NYSE:BAC) - Pref L (BML+L)||Pref||4.4%||$4,656||$4,637||0.4%|
|Blackrock Limited Duration Fund (NYSE:BLW)||ETF||6.7%||$3,144||$3,142||0.1%|
|T. Rowe Price Emerging Markets Bond Fund (MUTF:PREMX)||Fund||6.4%||$3,012||$3,000||0.4%|
|BlackRock Floating Rate Income Strategies Fund (NYSE:FRA)||ETF||5.1%||$2,886||$2,885||0.0%|
|WisdomTree BofA Mrl Lynch HYBd ZrDr ETF (NASDAQ:HYZD)||ETF||5.3%||$2,401||$2,390||0.5%|
|Nuveen Floating Rate ETF (NYSE:JRO)||ETF||7.1%||$2,376||$2,386||-0.4%|
|Goldman Sachs - Pref D (GS+D)||Pref||4.3%||$2,288||$2,293||-0.2%|
|WisdomTree BofA Mrl Lynch HYBd NgtDr ETF (NASDAQ:HYND)||ETF||5.0%||$2,082||$2,091||-0.5%|
|Nuveen Short Duration Credit ETF (NYSE:JSD)||ETF||7.1%||$1,780||$1,815||-1.9%|
|ProShares UltraPro Short Russell2000 (NYSEARCA:SRTY)||ETF||0.0%||$8,432||$8,003||5.4%|
|ProShares Short S&P500 (NYSEARCA:SH)||ETF||0.0%||$8,425||$8,543||-1.4%|
|ProShares Short Real Estate (NYSEARCA:REK)||ETF||0.0%||$3,353||$3,352||0.0%|
|ProShares UltraShort NASDAQ (NYSEARCA:QID-OLD)||ETF||0.0%||$3,338||$3,614||-7.6%|
|ProShares UltraPro Short S&P 500 (NYSEARCA:SPXU-OLD)||ETF||0.0%||$1,595||$1,663||-4.1%|
|T-Mobile US (NASDAQ:TMUS)||Company||0.0%||($4,719)||($4,709)||-0.2%|
|SCHWAB ROBO-ADVISOR TOTAL||2.0%||$11,470||$11,359||1.0%|
|TOTAL + CASH||$30,924||4.6%||$314,051||$323,563||-0.1%|
Portfolio Moves in May 2017
SHARE BUY - Care Capital Properties : Bought an additional 200 shares of this healthcare REIT at $26.50 on May 9.
- Reasoning: Healthcare REITs continue to underwhelm with interest rate and Trumpcare fears, but CCP's solid core business and 8.7% dividend yield are paying me well to stay calm.
SHARE BUY - BlackRock Floating Rate Income Strategies Fund : Bought 200 shares of this bank loan ETF at $14.40 on May 2.
- Reasoning: I wanted some fixed income exposure in a rising rate environment, so I choose this bank loan ETF with a great dividend (5.1%) but higher fees than I would like (1.1%).
SHARE BUY - T. Rowe Price Emerging Markets Bond Fund : Bought $3,000 of this emerging markets bond mutual fund at $12.72 on May 10.
- Reasoning: I almost never buy mutual funds (fees are generally too high and I hate all the trading rules), but I wanted to add to my international bond exposure and I liked the yield (6.4%) with a low-ish (for this exposure) 0.9% management fee.
SHARE BUY - Qualcomm : Bought 100 shares of this IT hardware giant at $53.38 on May 2.
- Reasoning: QCOM has had a rough year, but I like the contrarian play of hardware when software is so popular at the moment (and with a well-covered dividend yield over 4%, I am being well paid to wait for them to right the ship).
SHARE BUY - Tanger Factory Outlet Centers : Bought 100 shares of this outlet mall REIT at $29.75 on May 3.
- Reasoning: I was definitely early on this falling knife (shares went down >10% in May) as Amazon fears eat everything in the retail sector, but I like the contrarian play of outlet malls and I have been looking to own SKT for years…with a well-covered 5.3% dividend yield, I may buy some more.
SHARE BUY - Teva Pharmaceutical : Bought an additional 200 shares of this large multi-national pharma company at $29.85 on May 18.
- Reasoning: I might be a bit early on this falling knife, but TEVA's solid core business, growth acquisitions, and 4.9% dividend yield are paying me well to stay calm.
SHARE SALE - Teucrium Corn Fund (NYSEARCA:CORN): Sold my 100 shares of this corn commodities ETF at $19.05 on May 26.
- Reasoning: Corn have been a disaster for any investor over the past few years as an appreciating dollar and high inventory with weak demand have decimated prices. While I still want to have commodities exposure, I will do it through dividend paying producers instead of direct exposure to the commodities that pay no yield.
SHARE SALE - WisdomTree Germany Hedged Equity Fund (NASDAQ:DXGE): Sold my 100 shares of this German ETF at $31.31 on May 30.
- Reasoning: While European markets have been on the rise lately, a low 3.1% yield led me to cash out on this ETF (with a 7% gain) and reinvest elsewhere.
SHARE SALE - Teucrium Agricultural Fund (NYSEARCA:TAGS): Sold my 100 shares of this broad commodities ETF at $23.65 on May 26.
- Reasoning: Commodities have been a disaster for any investor over the past few years as an appreciating dollar and high inventory with weak demand have decimated prices. While I still want to have commodities exposure, I will do it through dividend paying producers instead of direct exposure to the commodities that pay no yield.
"Life ain't a track meet, it's a marathon" (Ice Cube)
If you're feeling frustrated by this market, know that you aren't alone (this sentiment is well explored in a recent article on Seeking Alpha by the venerable Chuck Carnevale). But don't let your frustration ruin your game plan. By focusing on valuation, yield, and value, I believe I am positioning myself for the long term. Sticking to my strategy won't guarantee me instant riches, but it will keep me from self-inflicted wounds than many average investors endure. How are other dividend/value focused investors responding tactically in their portfolios? Please comment.
Disclosure: I am/we are long ALL STOCKS AS MENTIONED.
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.
Additional disclosure: The author is an amateur who has a history of getting calls both right and wrong with zero predictive power. Trade at your own risk and never rely solely on this author's opinion. Also, as I have no knowledge of your circumstances, goals, and/or portfolio concentration or diversification, readers are expected to complete their own due diligence before purchasing any stocks mentioned or recommended.