July 2019 was another month that was hard to predict as the market held its breath for the Fed rate decision. At the risk of sounding like a broken record, I again underperformed the S&P 500 (1.4% vs -0.8%), but this was my first month of splitting directions with the market in a negative way. For me, it is still a battle between my quest for bargains (meaning stocks and markets that have had a hard time of it) versus the market that continues to punish the unloved and froth the values of the select few. The chart below summarizes the components of the S&P 500.
Source: S&P Dow Jones Indices
As if that we’re enough, the international returns were (again) bad enough to make me wonder why I am even bothering.
As you have now heard, the Fed decided to enact a midcycle cut of 25 bps. While the logic of this move still beguiles me, this action had been anticipated (or even more) for some time, so there was no a major impact on the market. However, President Trump’s fresh volley in the trade war with China had a more pronounced spooking effect on the market. While the day to day drama of politics continues to dominate the headlines, it is tough to find any real signal in all the noise. I continue to believe that a defense (yet invested) posture is the right one for the time being. Sometimes it's better to just distract yourself instead of doing something crazy...
July 2019 Review
July 2019 was another solid effort for the markets with the S&P 500 posting a 1.4% gain for the month. Unfortunately, I lagged with a -0.8% increase (my value and foreign holdings continue to act as a drag). YTD, I am up 8.3% vs the 18.9% gains for the index (before dividends are considered). However, my 5.5% forward dividend yield on invested capital keeps crushing the less than 1.8% yield of the index. While I (like value investors everywhere) continue to fight FOMO, I’m about where I would expect to be after a big run up in asset prices (as my value focused picks tend to lag growth stories during big rallies).
July 2019 rewarded me with realized dividends of $1,366 (versus $938 in 2018…a monster 46% increase). For the last 12 months, my portfolio delivered $15,401 in cash to me (up over 9% from my 2018 total). My realized yield for the trailing twelve months was 4.9% for my full portfolio including cash reserves. I’m also quite confident about achieving my 2019 goal of over $15,000 for the year (a 15% increase over 2018). Fear and greed are hard to balance, but I am happy with where I am overall. 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 high yielding 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 leads 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 July 31, 2019
|Security||Type||Div Yield||Market Value||Last Month Value||Monthly Gain/Loss (%)|
|SPDR S&P 500 High Dividend ETF (SPYD)||ETF||4.5%||$22,746||$22,830||-0.4%|
|Fst Tst Dow Jns Glbl Sel Dvd Idx ETF (FGD)||ETF||6.3%||$11,255||$11,555||-2.6%|
|Invesco S&P Emerging Markets Low Volatility ETF (EELV)||ETF||5.6%||$9,444||$9,796||-3.6%|
|PowerShares S&P 500 High Div Low Volatility ETF (SPHD)||ETF||4.1%||$8,392||$8,420||-0.3%|
|SPDR S&P International Dividend ETF (DWX)||ETF||4.0%||$7,876||$8,089||-2.6%|
|FlexShares Intl Quality Dividend Defensive (IQDE)||ETF||5.0%||$6,417||$6,633||-3.3%|
|Invesco S&P Intl Devd High Div Low Vol ETF (IDHD)||ETF||4.1%||$5,559||$5,700||-2.5%|
|UBS ETRACS 2x US High Div, Low Vol ETN (HDLV)||ETN||10.4%||$5,368||$5,516||-2.7%|
|iShares Nasdaq Biotechnology ETF (IBB)||ETF||0.1%||$5,283||$5,489||-3.8%|
|iShares Evolved U.S. Innovative Healthcare ETF (IEIH)||ETF||1.4%||$4,954||$5,134||-3.5%|
|Xtrackers MSCI World ex US Div Yld Hdgd ETF (HDAW)||ETF||4.7%||$4,831||$4,976||-2.9%|
|VictoryShares EM High Div Vol Wtd ETF (CEY)||ETF||4.9%||$4,738||$4,966||-4.6%|
|Invesco S&P SmallCap High Div Low Vol ETF (XSHD)||ETF||4.9%||$4,799||$4,752||1.0%|
|Horizons NASDAQ 100 Covered Call ETF (QYLD)||ETF||10.8%||$4,636||$4,605||0.7%|
|iShares MSCI Australia ETF (EWA)||ETF||5.3%||$4,482||$4,497||-0.3%|
|iShares Asia/Pacific Dividend ETF (DVYA)||ETF||6.1%||$4,308||$4,421||-2.6%|
|iShares MSCI China Small Cap ETF (ECNS)||ETF||5.7%||$4,102||$4,298||-4.6%|
|IQ 50 Percent Hedged FTSE Europe ETF (HFXE)||ETF||3.1%||$3,886||$3,940||-1.4%|
|Global X MSCI Portugal ETF (PGAL)||ETF||7.4%||$3,062||$3,201||-4.3%|
|iShares International Select Dividend ETF (IDV)||ETF||6.1%||$2,995||$3,084||-2.9%|
|iShares MSCI Malaysia ETF (EWM)||ETF||3.4%||$2,889||$3,003||-3.8%|
|Global X MSCI China Comm Services ETF (CHIC)||ETF||0.4%||$2,251||$2,440||-7.8%|
|Blackstone Mortgage Trust (BXMT)||REIT||7.0%||$10,656||$10,644||0.1%|
|Royal Dutch Shell (RDSB)||Company||5.9%||$9,521||$9,984||-4.6%|
|New Residential Investment (NRZ)||REIT||12.8%||$8,065||$7,941||1.6%|
|Tanger Factory Outlet REIT (SKT)||REIT||8.9%||$7,940||$7,985||-0.6%|
|Sabra Health Care REIT (SBRA)||REIT||8.7%||$6,935||$6,549||5.9%|
|Iron Mountain (IRM)||REIT||8.3%||$5,882||$6,155||-4.4%|
|Occidental Petroleum (OXY)||Company||6.2%||$5,136||$5,023||2.2%|
|Cardinal Health (CAH)||Company||4.2%||$4,573||$4,760||-3.9%|
|KKR Real Estate Finance Trust (KREF)||REIT||8.6%||$4,006||$4,001||0.1%|
|PacWest Bancorp (PACW)||Company||6.2%||$3,863||$3,882||-0.5%|
|Kinder Morgan (KMI)||Company||4.9%||$3,794||$3,870||-1.9%|
|People's United Financial (PBCT)||Company||4.3%||$3,284||$3,349||-1.9%|
|Gilead Sciences (GILD)||Company||3.9%||$3,276||$3,415||-4.1%|
|VARIOUS POSITIONS OF <$1,000 VALUE||VARIOUS||2.0%||$3,310||$3,472||-4.7%|
|FIXED INCOME TOTAL||4.8%||$22,859||$21,958||4.1%|
|Goldman Sachs (GS) - Pref D (GS+D)||Pref||4.8%||$6,372||$6,033||5.6%|
|Morgan Stanley (MS) - Pref A (MS+A)||Pref||4.7%||$4,270||$4,087||4.5%|
|Goldman Sachs (GS) - Pref A (GS+C)||Pref||4.8%||$4,230||$4,064||4.1%|
|Goldman Sachs (GS) - Pref A (GS+A)||Pref||4.8%||$4,016||$3,860||4.0%|
|Bank of America (BAC) - Pref L (BML+L)||Pref||4.7%||$3,971||$3,913||1.5%|
|SCHWAB ROBO-ADVISOR TOTAL||2.0%||$13,012||$13,043||-0.2%|
|TOTAL + CASH||$23,106||5.1%||$326,621||$330,495||-0.8%|
Portfolio Moves in July 2019
SHARE BUY– Allergan (AGN): Bought 15 shares of this pharma player at $160.05 on July 31.
- Reasoning: I was tempted to buy more ABBV based on the tough sledding the stock has endured, but I found I could get a better deal on ABBV by going through the merger. (hat tip to Justin Law [ https://seekingalpha.com/article/4274785-like-abbvie-buying-allergan])
I started a new job in July, so my trading activity was quiet (which is just as well since the markets were all waiting to see what the Fed would do). Overly greedy or panicked investors will likely see the worst returns of any cohort so stick to what you can control (fees, diversification, etc) and try to maintain a long-term outlook. Few people in Q4 of last year would have predicted that the market would be up almost 20% at this point in 2019, so try to stay calm. Remember that we investors are often our own worst enemies when it comes to over-optimizing and strategy chasing.
With a hat tip to Jeff Miller at NewArc Investments ( https://www.dashofinsight.com) whose ‘Weighing the Week Ahead’ is the single most valuable thing I read every week, I will separate my thoughts into two buckets: ‘Could Be Signal’ for front of mind topics and ‘Probably Just Noise’ for things in the press that don’t bother me much at this point with regards to how it might impact equity markets.
Could Be Signal:
- Elevated U.S. valuations versus low corporate growth expectations (P/E ratios in the ‘hot’ sectors continue to defy rational expectations)
- Corporate buybacks and M&A continue to be major accelerants (but how long can these trends continue)
- Political entrenchment now virtually guarantees that the trade wars will continue for many more months…and resolution is likely to be a whimper instead of a bang
Probably Just Noise:
- Fed rate changes (defying my expectations, the Fed did cut rates but they signaled it was a one-off event)
- Anything 2020 politics (it’s just too early and governance has a way of moderating firebrands)
Disclosure: I am/we are long ALL POSITIONS 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, readers are expected to complete their own due diligence before purchasing any stocks mentioned or recommended.