My IMF Portfolio: April Performance Review

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Includes: BF.B, BT, CBL, CCMP, CIB, CPB, DEO, EWW, HRL, INTC, MKC, NYCB, PAC, T, TXN, VT, WASH, WPG
by: Ian Bezek

Summary

The IMF gained 1.1% for April, beating the S&P 500 by 0.6%.

The portfolio is trailing the S&P slightly year to date.

Alcohol stocks, banks, and semiconductors led the way.

REITs, Latin American stocks, and BT Group have been the biggest drags on returns.

Ian's Million Fund "IMF" is a real-money portfolio that I've written about monthly since January 2016 here at Seeking Alpha. The portfolio is a largely buy-and-hold group of ~100 stocks. Each month, I buy 10-25 of the most compelling stocks available at then-current prices, deploying $1,000 of my capital plus accumulated dividends. If things go according to plan, this portfolio, began when I was 27, will hit one million dollars in equity in 2041 at age 52. I intend it to serve as a model for other younger investors.

It's been a couple months since our last IMF portfolio review. Your author was busy getting married. Anyways, we're back to our normal schedule of posting. How's the IMF portfolio fared against the market lately as market volatility has ramped up?

After February's dramatic underperformance (-5.4% vs. -3.6% for the S&P), things have bounced back. In March, the IMF only dropped 0.2%, and in April, it gained 1.1%, doubling up on the S&P's 0.5% rise for the month. Here are monthly returns for my fund, the S&P 500, and an all-world stock fund (VT).

Graphically, this adds up to the following - indexed to 100 at end-of-November 2016:

The way this portfolio is designed, it is likely to underperform markets that are strongly uptrending. The stock market has traded at a premium valuation since this portfolio's inception, and, as such, I'm more interested in buying conservative stocks at fair valuations rather than chasing growth. Still, I can live with a 21% total return over the past year and a half against 23% for the S&P 500 and 25% for the all-world stock index.

If and when tech stocks stop outperforming everything else in sight, my portfolio should move ahead of the other indexes. Already, we saw this to some extent in March, as the IMF was effectively flat on the month, while the S&P dropped almost 3%.

What's Working For The Portfolio

There's been more divergence in the portfolio's performance lately. At the end of 2017, I was remarking on how few holdings were in the red overall. That's changed a quite a bit with the market's recent volatility. On the plus side, the number of big winners continues to grow. We're up to 16 $100+ gainers against three losers of that magnitude.

The alcohol producers continue to lead the way, with Brown-Forman (BF.B) as the portfolio's biggest monetary gainer, and Diageo (DEO) close behind. Those two stocks alone make up close to 20% of the total capital gains in the portfolio to date. You'd be hard-pressed to find a more beautiful long-term chart; big bull move, sideways consolidation for years, and now a huge surge to new all-time highs:

The stock is fully valued and not worth adding to at this point, but this is sort of the top-tier holding that you never let go of once you manage to acquire some at a fair price. It became the IMF's top holding earlier this month and did so due to its rising share price - not because I bought more.

Next up in the biggest winners, the Colombian banks are surging on the strength of higher oil and a favorable political climate. Bancolombia (CIB) has moved to multi-year highs, and barring unexpected developments in the presidential vote this month, they should break out further. In January, I suggested 50% gains ahead for the Colombian banks over the next year or two - we're well on our way. And, needless to say, having a top holding up 20% year-to-date has provided nice alpha against a choppy market:

The other big winner of late has been the semiconductors. I went on Cheddar TV last October to talk up Intel (INTC), then at $40, as a nice technical play to $50 as earnings increased and the stock broke out of a 15-year trading range. It's gone to $50 and more, and other semiconductor holdings such as Texas Instruments (TXN) and Cabot Microelectronics (CCMP) have also more than doubled off the IMF's cost basis:

What's Not Working

Overall, the portfolio has largely avoided blowups. It currently sits with 16 three-digit dollar figure gainers, and just three losers of that magnitude. BT Group (BT) is the biggest overall loser in the portfolio on a dollar basis. That one hasn't blown up exactly, but the combination of accounting concerns and a weak British economy has left BT stock in a funk:

The portfolio's cost basis is at $20.50 - which seemed cheap for a blue chip mega-cap telecom company compared to where it had been previously. But cheap stocks often get cheaper. I read this past week that British stocks as a whole are yielding the most (compared to bonds) today that they have since the World Wars. From that article:

According to Citigroup, the current 4pc yield implies that annualised returns from British shares over the next 10 years will be more than 10pc. Ms Vohora said: “There are selective ‘contrarian’ buying opportunities for investors who are prepared to spot undervalued companies, particularly those firms that pay generous dividends backed by free cash flow.”

None of this guarantees that BT in particular will come back, but I like the odds with analysts projecting $2+ in earnings for the 2019 and 2020, putting the stock around 7x forward earnings. More broadly, Britain remains a good place to go bargain shopping as its equities remain under a cloud of political uncertainty.

The next biggest loser is CBL & Associates (CBL). I've already written my mea culpa on that one, and am neutral to bearish on it. I sold my other low-end mall stock, Washington Prime Group (WPG), out of the IMF recently, and I'm fully prepared to dump CBL as well if the situation worsens much more. This was a clear miss on my part.

The only other sizable loser is New York Community Bancorp (NYCB). That one I'm not at all worried about. I have an article coming out next week that will explain why NYCB is about to take off (to see it now, check out Ian's Insider Corner or SA Pro Plus).

More generally, the portfolio has underperformed since September 2017 due to outsized Latin American exposure. The current economic catastrophe going on in Argentina has caused ripples across Latin America, leading stocks in places such as Mexico to also underperform. Even Colombia, which is leading the continent as of late is underperforming where you'd expect it to be given the surge in the price of oil.

That said, Mexico is the big issue, as far as keeping up with the S&P 500 goes. Two of the portfolio's top three holdings are currently Mexican airport operators, and they've given up much of their gains as the combination of NAFTA concerns, Mexican election jitters, and Argentina's problems have the Mexico ETF (EWW) at year-to-date lows:

Of those concerns, the Mexican presidential election in July is the only one I'm nervous about. The left-wing candidate has a sizable lead in the polls. Though he has moderated his economic rhetoric, it'd still a step in the wrong direction for the credibility of Mexican capital markets if he wins. That said, Mexican stocks such as my conviction holding Grupo Aeroportuario del Pacifico (PAC) are way down from last year's highs and thus are attractive even with political uncertainty in play. With PAC, for example, the core business is continuing to grow at a double-digit rate.

Tracking The Yield

In April, the IMF produced $109 in dividend income - that's a new record for the portfolio.

One of the goals for 2018 was to get the portfolio to consistently generate more than $100/month in dividends. The IMF should still be on track to achieve that goal. The annual dividend run-rate is now $1,218/year, or just over $100/month.

That said, I've done little to try to balance the amount of dividends that come in on a monthly basis. May is the biggest month of the year for the portfolio, due to owning a bunch of foreign stocks that pay much or all of their annual dividend that month. June, however, is a lean month (a special dividend accounted for nearly half of last year's haul) as is July. July, or at worst August, should be the last sub-$100 month. Looking ahead, May 2019 has a realistic chance of hitting the $200/month mark for the first time.

At this point, all dividends received have been invested into either Hormel Foods (HRL) or Campbell Soup (CPB). These stocks now combine to produce more than $25/year in dividend income. While it's just a trickle at this point, it's nice to see the dividends start producing their own dividends.

For the month of April, here's everything that paid a dividend by ticker:

The alcohol stocks led the way. Brown-Forman paid a most generous special dividend, which I described in further detail recently. And Diageo, as a semi-annual payer, also kicked out a sizable payment in April. After that, the next biggest payers were largely REITs - which is alright, but I prefer the dividends from the likes of McCormick & Co (MKC) or Washington Trust Bancorp (WASH) since they're likely to grow much more quickly in the future. Regardless, the IMF tends to buy what the market has put on sale lately, and that's been REITs in recent months.

As you can see, any one company could cut or suspend its dividend without affecting the overall portfolio income much. In fact, only one stock makes up more than 5% of the portfolio's annual dividend stream.

On the whole, the portfolio is yielding 4.15% on cost and 3.64% at today's prices. Given the collapse in consumer staples, it appears there will be plenty of opportunities to keep buying defensive stocks at 3.6%+ yields in coming months as well and maintain that relatively high starting yield.

Overall, here are the top 20 sources of income for the portfolio on an annual basis. I'm quite content with the level of diversification here so far:

And since many of you have asked to see the whole portfolio, I've reproduced it below (data as of May 14th market close, doesn't reflect this month's purchases yet). (Neither G/L nor cost basis accounts for dividends)

Company Ticker Value Shares Current Price Cost Basis (per share) G/L %
Grupo Aeroportuario del Centro Norte OMAB $1,309 32.22 $40.62 $40.49 0.32%
Grupo Aeroportuario Del Pacifico PAC $1,280 14.06 $91.07 $89.71 1.52%
BanColombia CIB $1,139 23.67 $48.11 $37.88 27.01%
Hormel Foods HRL $1,076 29.83 $36.08 $33.99 6.15%
Diageo DEO $1,048 7.25 $144.49 $106.17 36.09%
Public Storage PSA $907 4.33 $209.44 $205.42 1.96%
McCormick & Company MKC $908 8.49 $106.93 $96.12 11.25%
Brown Forman Inc BF.A $885 16.37 $54.05 $39.14 38.09%
TFS Financial TFSL $831 55.39 $15.01 $15.14 -0.86%
New York Community Bancorp NYCB $836 70.7 $11.82 $13.33 -11.33%
Grupo Aval Acciones y Valores AVAL $680 79.88 $8.51 $7.91 7.59%
Intel INTC $559 10.18 $54.90 $33.14 65.66%
BT Group BT $533 37.11 $14.37 $20.53 -30.00%
Washington Trust Bancorp WASH $534 9.41 $56.70 $37.91 49.56%
Vina Concha Y Toro VCO $515 11.24 $45.80 $32.50 40.92%
CB Financial Services Inc CBFV $504 14.64 $34.45 $23.19 48.56%
Tecnoglass TGLS $491 55.77 $8.80 $10.19 -13.64%
Grupo Financiero Santander Mexico BSMX $460 66.09 $6.96 $7.71 -9.73%
Novo Nordisk NVO $457 9.15 $49.98 $34.98 42.88%
Brown Forman BF.B $451 7.8675 $57.31 $39.14 46.42%
Aviva AVVIY $441 30.13 $14.62 $11.48 27.31%
Coca Cola Femsa KOF $434 7.21 $60.19 $65.59 -8.23%
Fidelity Southern LION $422 18.25 $23.14 $15.48 49.51%
National Grid NGG $410 7.1042 $57.77 $63.39 -8.86%
Northrim BanCorp NRIM $389 10.56 $36.85 $26.70 38.02%
Compania Cervecerias Unidas CCU $377 13.95 $27.00 $20.20 33.68%
Orange ORAN $377 20.96 $17.98 $15.16 18.57%
Global Net Lease GNL $358 19.09 $18.75 $19.53 -3.99%
Smith & Nephew SNN $338 9.44 $35.80 $30.96 15.63%
Grupo Aeroportuario del Sureste ASR $338 1.99 $169.69 $193.17 -12.16%
First Guaranty Bancshares FGBI $324 12.12 $26.77 $16.21 65.17%
Fomento Economico Mexicano FMX $322 3.77 $85.33 $78.64 8.50%
Hershey HSY $323 3.49 $92.54 $92.65 -0.12%
Kentucky First Federal Bancorp KFFB $308 35.82 $8.60 $9.56 -10.04%
First American Financial FAF $300 5.55 $54.05 $38.55 40.22%
Gilead Sciences GILD $298 4.44 $67.05 $72.07 -6.97%
China Life Insurance LFC $292 20.28 $14.40 $11.33 27.06%
Teva Pharmaceutical TEVA $290 14.21 $20.38 $27.10 -24.80%
Kimco Realty Corporation KIM $288 20.2 $14.28 $15.18 -5.93%
Walgreens Boots Alliance WBA $291 4.47 $65.10 $71.41 -8.84%
Catchmark Timber CTT $271 21.03 $12.91 $11.90 8.49%
San Juan Royalty Trust SJT $273 38.87 $7.03 $6.79 3.53%
Texas Instruments TXN $271 2.45 $110.64 $50.09 120.90%
Conagra Brands CAG $260 6.88 $37.75 $34.27 10.15%
EPR Properties EPR $254 4.26 $59.70 $55.71 7.16%
The Boston Beer Co SAM $246 1.06 $232.45 $158.07 47.06%
Molson Coors TAP $243 4.02 $60.42 $77.59 -22.13%
Union Pacific UNP $239 1.7 $140.71 $73.36 91.80%
WPP plc WPP $239 2.72 $87.84 $92.44 -4.98%
SCANA Corporation SCG $237 6.79 $34.94 $43.41 -19.51%
Orbital ATK OA $237 1.78 $133.38 $81.52 63.61%
Berkshire Hathaway BRK.B $235 1.18 $199.18 $126.11 57.94%
Astrazeneca AZN $227 6.24 $36.42 $28.35 28.47%
Bank of South Carolina BKSC $227 10.92 $20.80 $18.58 11.95%
Telefonica TEF $225 22.89 $9.81 $9.00 9.00%
Tanger Factory Outlet Centers SKT $220 10.75 $20.42 $25.24 -19.10%
Urstadt Biddle Properties UBA $203 9.93 $20.48 $19.32 6.00%
Community Trust Bancorp CTBI $202 4.1 $49.20 $35.08 40.24%
Frank's International FI $199 27.32 $7.27 $8.93 -18.59%
BP BP $188 4.05 $46.40 $34.55 34.30%
Credicorp BAP $183 0.81 $226.12 $88.69 154.95%
Polaris Industries PII $184 1.72 $106.91 $77.48 37.99%
JD.com Inc JD $181 4.87 $37.17 $31.24 18.98%
CIBC CM $181 1.99 $90.73 $61.67 47.13%
United Technologies UTX $177 1.42 $124.98 $86.85 43.91%
Kraft Heinz KHC $176 2.97 $59.28 $59.35 -0.12%
CBL & Associates CBL $169 39.75 $4.26 $8.00 -46.75%
Qualcomm QCOM $172 3.03 $56.74 $47.23 20.14%
Brinker International EAT $168 3.87 $43.53 $36.55 19.10%
Waddell & Reed Financial WDR $170 9.06 $18.80 $17.54 7.18%
Unilever UL $170 3.03 $56.03 $40.41 38.67%
Discover Financial Services DFS $169 2.24 $75.45 $59.69 26.40%
Tallgrass Energy GP LP TEGP $166 7.75 $21.45 $20.19 6.24%
Cabot Microelectronics CCMP $160 1.43 $112.11 $38.97 187.67%
Arrow Financial AROW $157 4.3157 $36.45 $31.20 16.83%
Infracap MLP ETF AMZA $159 20.9 $7.61 $7.49 1.60%
J.M. Smucker SJM $156 1.4 $111.58 $105.43 5.83%
Uniti Group UNIT $154 7.6 $20.23 $17.17 17.82%
Nutrien = former Potash NTR $153 3.028 $50.50 $37.94 33.10%
Prudential PUK $141 2.72 $51.74 $34.22 51.20%
Old National Bancorp ONB $140 7.98 $17.50 $12.26 42.69%
DowDuPont DWDP $122 1.8 $67.53 $52.22 29.31%
Emerson Electric EMR $118 1.63 $72.16 $43.26 66.79%
Telecom Italia TI $118 12.33 $9.55 $7.63 25.09%
Colfax CFX $112 3.48 $32.20 $20.31 58.52%
Computer Programs and Systems CPSI $112 3.54 $31.65 $45.35 -30.21%
Huaneng Power HNP $112 4.17 $26.75 $23.30 14.81%
Aircastle AYR $109 4.88 $22.32 $15.98 39.68%
Ohio Valley Banc OVBC $107 2.27 $47.00 $22.00 113.68%
V.F. Corp VFC $106 1.37 $77.58 $48.35 60.45%
Piper Jaffray PJC $106 1.4 $75.80 $41.80 81.34%
Gamestop GME $106 8.02 $13.26 $20.56 -35.51%
Facebook FB $99 0.53 $186.64 $164.80 13.25%
Enbridge ENB $97 2.93 $33.25 $29.93 11.09%
Exxon Mobil XOM $97 1.18 $81.83 $74.18 10.31%
Johnson & Johnson JNJ $95 0.75 $126.06 $97.69 29.04%
TransCanada TRP $95 2.16 $43.80 $40.70 7.62%
Autozone AZO $93 0.14 $666.02 $515.43 29.22%
Eastman Chemical EMN $91 0.85 $106.71 $58.54 82.28%
CIT Group CIT $89 1.66 $53.71 $31.43 70.90%
Humana HUM $90 0.31 $289.63 $151.29 91.44%
Brighthouse Financial BHF $79 1.62 $48.80 $54.00 -9.63%
Graña y Montero GRAM $79 22.36 $3.54 $2.33 51.93%
Campbell's Soup CPB $76 1.91 $40.04 $41.01 -2.37%
Stewart Title STC $77 1.84 $41.94 $35.12 19.42%
Hope Bancorp HOPE $76 4.23 $18.04 $15.23 18.45%
Flowers Foods FLO $71 3.24 $22.01 $15.37 43.20%
Embraer ERJ $71 2.88 $24.54 $17.31 41.78%
Corporacion America Airports CAAP $71 7 $10.08 $12.80 -21.25%
Willamette Valley Vineyards WVVI $69 8.18 $8.39 $7.09 18.35%
Despegar DESP $62 2.49 $24.90 $28.72 -13.30%
Birner Dental Management Services BDMS $51 7.31 $7.00 $9.79 -28.53%
Coca-Cola Bottling Co. COKE $49 0.39 $126.80 $132.23 -4.11%
Colony Northstar CLNS $42 6.97 $6.05 $8.94 -32.33%
Cooper Tire & Rubber CTB $39 1.56 $25.15 $30.19 -16.70%

Disclosure: I am/we are long THE AFOREMENTIONED STOCKS.

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.