Total USD Portfolio Monthly Review - April 2019

by: Steven Chen

The momentum continued in the stock market.

In April, the portfolio underperforms the benchmarks, but I would not care much as long as the business fundamentals stay intact or even improve.

The richer and richer valuation is what I really worried about when it comes to new money.

The portfolio was on its way to get more concentrated with three positions sold.

Image result for april


April just delivered another strong momentum of price returns, with major US indices hitting new highs. My Total USD Portfolio and all its benchmarks turned positive for the first time since last October.

Measured by the S&P 500, the US large-cap stocks were up more than 4% in terms of total returns (including dividends reinvested) in a single month. This occurred even after 3 consecutive months of increases in stock prices accumulating around 14% total return YTD (at the end of March).

My portfolio was up 2.77% for April, 13.34% YTD and 2.35% since last October (the period to cover the major market swing later last year). It underperformed all the benchmarks for the month and major US equity indices YTD but managed to beat all for the longer period (October 2018 - April 2019).

Apr. 2019 YTD (2019) Oct. 2018 - Apr. 2019
Total USD Portfolio 2.77% 17.34%


S&P 500 4.05% 18.25% 2.26%
MSCI ACWI All-Cap 3.35% 16.17% 0.79%
MSCI World Equity 3.6% 16.7% 1.17%
Wilshire 5000 4% 18.68% 1.72%
Berkshire Hathaway A Share (BRK.A) 7.92% 6.24% 1.59%

While I do calculate the above table on a monthly basis, short-term performance is never my focus. In the short term, the stock market is the voting machine, which makes it almost impossible to play the investment game (to my advantage). Those willing to embrace short-term volatilities patiently are most likely to win the game in the long term. Therefore, my time horizon of investing is ultra-long. I would not be worried about short-term underperformance, as long as the businesses that I own (partially) are in good sharp and improve over time (they actually do as you see very soon).

As the market craze continues, I do expect that a quality-focused portfolio like mine would underperform a little as everything goes up in price, including "junks." Additionally, what I am really worried about is that opportunities for buying quality businesses at sensible prices (or even a bit premium) are disappearing for new money. Therefore, at least for the short run, long-term quality-focused investors should be definitely hoping for price corrections (to close to fair values or lower).

Changes in Benchmarks

One little announcement here is that this is probably the last time you see MSCI World Equity and Wilshire 5000 in my monthly review, and I plan to add MSCI ACWI All-Cap to the group. As a result, next month we will have three benchmarks in total (see below). I believe that as indicated in my investment strategy statement, these three would be the best choices to measure performances with my investment styles against my goals.

  • S&P 500: the most popular index, which is hard-to-beat for fund managers;
  • MSCI ACWI All-Cap: a comprehensive index, consisting of the very majority of the global stock markets, from developed markets to emerging markets, from large-caps to micro-caps;
  • Berkshire Hathaway A Share: the benchmark for active capital allocation skills.

The drawback with MSCI World Equity is due to the lack of coverage of emerging markets, which are growing bigger and bigger. Also, I do not think it necessary to keep two US-only indices as the benchmark for an international (although "US-biased") portfolio, and hence the retirement of Wilshire 5000.

Changes of Portfolio

Several times, I expressed my short-term mission of building a more concentrated portfolio with more weights in small- and mid-caps. I did work a bit more actively towards that goal in April - 3 positions were sold completely: Anta Sports (OTCPK:ANPDY), Microsoft (MSFT), and the TJX Companies (TJX).

The management at Microsoft has done a great job in reviving its growth with the secular trend in the cloud computing, but the company is growing into a typical example of large tech conglomerates with diversified lines of businesses, which I do not like much.

Anta Sports was a small position in my portfolio with decent total returns. I admire its product strategy - Anta brand for tier-3 and -4 cities while Fila and other premium brands for tier-1 and -2 cities in China. But after having closely followed the company for months (especially the performances in their stores), I believe that the risk is piling up, leaving limited upside but more downside to shareholders.

I also decided to decrease my exposure to the off-pricers in the retail space, by disposing of my stake in TJX. I still keep Ross Stores (ROST), which I think has a more strategic focus.

Meanwhile, I add to the positions of Berkshire Hathaway and SEI Investments (SEIC). Berkshire was getting interesting thanks to its attractive valuation compared to most other stocks in my opinion. The widening moats along with its unique culture make the stock one of the best candidates for ultra-long-term holding.

In terms of SEIC, the price seems to have been suppressed by potential growth risk and recession risk, both of which I believe are overrated. In this regard, I doubled check with the management directly and asked for their views. Below is the reply from CFO, Dennis McGonigle:

Our continued investment in R&D, into both transformative technology in the wealth and investment management space, coupled with the development of new markets and business lines will serve us well over the long-term. We are still in the early stages of capitalizing on our wealth platform, we have changed the value equation for the administration business in the investment management industry from back-office to front-office technology and business solutions, and we have recently completed the transition of our sizeable Advisor business to our new platform, opening up additional opportunities beyond assets under management. We have a lot of long-tailed opportunities as a result of the past 5 to 10 years of investing. We will continue to invest as we monetize these investments.


We have continued to diversify our business to be more technological and operational in nature. We also still have a pricing model predominantly driven by assets in its’ formula. If we have an upcoming recession that results in disrupted markets, we usually see additional market opportunity emerge as the markets we serve become more attracted to outsourcing of technology, operations and asset management. We are not immune to market moves, however as ’08 and ’09 showed our business is financially resilient, our balance sheet is strong and our willingness and ability to lean into clients pays off in the long-term.

Portfolio Breakdown

As a result of the above changes, SEIC is among the top 3 holdings of my portfolio and Berkshire occupies almost 1/10. I believe that the mission for more concentration will continue.

Source: Personal Capital; data as of 5/8/2019.

Below is the breakdown in terms of sectors. If we exclude Berkshire Hathaway, which should be a conglomerate but is regarded as financial by Personal Capital, consumer staples and healthcare are the top sectors. I am confident about the recession-proof-ness of this portfolio.

Source: Personal Capital; data as of 5/8/2019.

The ratio between US and non-US stocks is roughly 2:1 (see below), which I think is appropriate and reflects the global distribution of good companies, although no target is set in this respect.

Source: Personal Capital; data as of 5/8/2019.

Fundamentals & Valuation

As promised, I calculated the position weighted averages of fundamentals and valuations (see below). To avoid the impact from outliers (especially to the upside), such as Rightmove, which has a sky-high ROIC, I also added the column for "Median" values.

Position-weighted Average Median
ROIC 177.91% 37.08%
FCF Margin 24.12% 23.76%






Source: GuruFocus; Data as of 5/11/2019.

My portfolio companies on average generate around 24% FCF on sales and around 37% earnings on invested capital - they are truly decent businesses! EV/EBIT went down a bit from the level of last month, but the overall valuation is still hefty, especially in light of a more than 25x P/FCF, which is only a 4% free cash flow yield.


April was a busy month for earnings releases. On average, my reporting companies are growing their businesses at the pace of 5%-9% YoY, which I think is healthy at the moment. Over the long haul, a high-single-digit to low-double-digit growth is what is aimed at here.

Revenue Growth (YoY)

British American Tobacco (BTI)

25.2% (full-year)

Wal-Mart De Mexico (OTCQX:WMMVY)


Intuitive Surgical (ISRG)


Check Point Software Technologies (CHKP)


SEI Investment (SEIC)


Waters (WAT)


Novozymes (OTCPK:NVZMY)


Canadian National Railway (CNI)


Facebook (FB)


Amgen (AMGN)


Credit Acceptance (CACC)


Federated Investors (FII)


Rollins (ROL)


Altria (MO)


Philip Morris (PM)


Colgate-Palmolive (CL)


Domino's Pizza (DPZ)


Evolution Gaming (OTCPK:EVVTY)



Equally-weighted Average 8.9%
Median 4.6%

Source: press releases.


Compared to earnings, April is a quiet month for dividend payouts in my portfolio.

Dividend Paid (USD, per share) Yield Dividend Increase
Altria (MO) 0.8 6.04% 0%
Diageo (DEO) 1.7326 (semi-annually) 2.07% 1.4% YoY
Philip Morris (PM) 1.14 5.4% 0%
Novo Nordisk (NVO) 0.61965 (semi-annually) 2.61% 8.3%
Nike (NKE) 0.22 1.07% 0%
Equally-weighted Average N/A 3.44% 1.94%
Median N/A 2.61% 0%

Source:; data as of 5/9/2019.

Over the long haul, I am hoping the total dividend payout to increase at a low-double-digit CAGR.


Although my portfolio underperformed in April, most of the businesses that I own are growing healthily. Also, I am confident about the fundamental qualities of the companies in the portfolio, and therefore, the prospect with regards to the total returns in the long run. Moving forward, I shall continue the implementation of a more concentrated portfolio with a bit more bias towards small- and mid-caps.

Disclosure: I am/we are long most of the stocks 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.