My +2.4% gain was beaten by the hearty +3.0% of the S&P 500 in December; for 2019, I was +16.4% which is strong but lagged the +31.5% of the index.
My Dec dividends were an 16% increase from a year ago and my YTD dividends are up over 18%.
My dividend yield was 5.6%! (versus the under 2% mark for the S&P 500).
While this bull might be late in the game, there is plenty of potential for additional gains so I’m staying invested even as valuations become ever frothier.
After my healthy 5% ‘alpha’ victory in 2018, 2019’s everlasting bull run was hard for my conservative portfolio to match as large cap growth stocks (which drive the S&P 500 these days) blew the doors off (+31.5%) with their best performance since 2013. My portfolio exceeded my stated 5-15% return objective with +16.4%, but it is hard not to feel disappointed when comparing myself to the index. In fact, my cautious approach lagged most of the factor bets leading me to ponder if active management is worth it at all.
Source: S&P Global
However, I am at least cheered by knowing that my plan is working and I am meeting my goals. Since I’m in my mid-30s, I’m investing for a much longer time time frame than 1 year and I know that eventually markets will turn and it is performance across the cycle that matters more than any given year. I am also heartened by knowing that I am doing MUCH better than the average investor (many of whom sat out all of 2019 due to scary headlines). If I’m producing strong positive returns that work for me and let me sleep well at night, then I have to learn to tune out the siren song of chasing hot ideas…the tortoise is more likely to win the long race after all.
Source: JP Morgan Asset Management
But enough ‘crying’ over the past, all that matters to me (and all that should matter to you) is where things are headed from here. Of course, I don’t have a crystal ball (as I have demonstrated)…but I do have the ability to analyze markets and look for patterns. Helping me greatly in this task is the quarterly report from JP Morgan Asset Management, which is a MUST READ each quarter.
As with most value focused investors, valuation is the topic most on my mind these days. However, I was a bit surprised to find that the market, while elevated, is not as frothy as I would have thought. To be sure, there is more space below the current Forward P/E ratio than above it, but there is more head room than I would have anticipated based on the last 25 years of results.
Source: JP Morgan Asset Management
When looking further into future time period returns distribution, this ‘goldilocks’ story is historically borne out by understanding that current valuations levels are about half-way on the risk-reward spectrum. My takeaway: don’t go running to cash just because you see smoke (wait until you see the fire).
Source: JP Morgan Asset Management
However, while the more aggressive market strategies have dominate for the past few years, remember that it is performance across cycles that matters most to the average investor. So I’ll keep my lower volatility and higher dividend focused strategy (I’ll just try to do a bit better in my selections).
Source: S&P Global
December 2019 Review
December 2019 was another strong one for the broader markets with multiple record highs reached for U.S. equities. For the month, the S&P 500 posted a 3.0% gain which I slightly lagged with a 2.4% gain. For 2019, I was up a meaty 16.4% but I lagged the spectacular 31.5% gains for the index (before dividends are considered). However, my 5.1% dividend yield keeps crushing the 1.8% yield of the index.
As for cash yield, December 2019 rewarded me with realized dividends of $2,195 (versus $1,894 in 2018…a hearty 16% increase). For the last 12 months, my portfolio delivered $16,642 in cash to me (up 18% from my 2018 total). My realized yield for the trailing twelve months was 5.7% for my full portfolio including cash reserves. I beat my 2019 yield goal of over $15,000 for the year (a 15% increase over 2018). For 2020, I am going for $18,000! 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 December 31, 2019
|Security||Type||Div Yield||Market Value||Last Month Value||Monthly Gain/Loss (%)|
|SPDR S&P 500 High Dividend ETF (SPYD)||ETF||4.4%||$23,676||$23,340||1.4%|
|Fst Tst Dow Jns Glbl Sel Dvd Idx ETF (FGD)||ETF||5.8%||$12,475||$12,140||2.8%|
|Xtrackers MSCI World ex US Div Yld Hdgd ETF (HDAW)||ETF||4.5%||$10,462||$10,069||3.9%|
|Invesco S&P Emerging Markets Low Volatility ETF (EELV)||ETF||4.8%||$9,600||$9,208||4.3%|
|PowerShares S&P 500 High Div Low Volatility ETF (SPHD)||ETF||4.1%||$8,806||$8,610||2.3%|
|FlexShares Intl Quality Dividend Defensive (IQDE)||ETF||5.1%||$6,851||$6,591||3.9%|
|UBS ETRACS 2x US High Div, Low Vol ETN (HDLV)||ETN||11.0%||$6,032||$5,730||5.3%|
|Invesco S&P Intl Devd High Div Low Vol ETF (IDHD)||ETF||4.4%||$5,638||$5,659||-0.4%|
|iShares Evolved U.S. Innovative Healthcare ETF (IEIH)||ETF||1.4%||$5,591||$5,525||1.2%|
|Legg Mason EM Low Vol High Div ETF (LVHE)||ETF||3.4%||$5,188||$5,108||1.6%|
|Invesco S&P SmallCap High Div Low Vol ETF (XSHD)||ETF||5.0%||$4,948||$4,799||3.1%|
|Xtrackers MSCI EAFE High Dividend Yield Equity ETF (HDEF)||ETF||5.0%||$4,936||$4,771||3.5%|
|SPDR S&P Biotech ETF (XBI)||ETF||0.0%||$4,756||$4,683||1.6%|
|Horizons NASDAQ 100 Covered Call ETF (QYLD)||ETF||10.0%||$4,722||$4,678||0.9%|
|iShares MSCI Australia ETF (EWA)||ETF||5.2%||$4,528||$4,566||-0.8%|
|iShares Asia/Pacific Dividend ETF (DVYA)||ETF||6.0%||$4,375||$4,368||0.2%|
|iShares MSCI China Small Cap ETF (ECNS)||ETF||6.1%||$4,081||$3,906||4.5%|
|iShares International Select Dividend ETF (IDV)||ETF||5.6%||$3,357||$3,238||3.7%|
|Global X MSCI Portugal ETF (PGAL)||ETF||7.2%||$3,336||$3,231||3.2%|
|iShares MSCI Malaysia ETF (EWM)||ETF||3.7%||$2,851||$2,754||3.5%|
|Legg Mason Int'l Low Vol High Div ETF (LVHI)||ETF||4.1%||$2,670||$2,744||-2.7%|
|Global X MSCI China Comm Services ETF (CHIC)||ETF||0.5%||$2,426||$2,261||7.3%|
|Iron Mountain (IRM)||REIT||7.8%||$12,748||$12,848||-0.8%|
|Blackstone Mortgage Trust (BXMT)||REIT||6.7%||$11,166||$10,989||1.6%|
|Royal Dutch Shell (RDSB)||Company||6.3%||$8,996||$8,642||4.1%|
|New Residential Investment (NRZ)||REIT||12.4%||$8,281||$7,967||3.9%|
|Tanger Factory Outlet REIT (SKT)||REIT||9.6%||$7,365||$7,610||-3.2%|
|Sabra Health Care REIT (SBRA)||REIT||8.4%||$7,170||$7,486||-4.2%|
|Occidental Petroleum (OXY)||Company||7.7%||$4,121||$3,857||6.8%|
|Kinder Morgan (KMI)||Company||4.7%||$3,895||$3,608||8.0%|
|PacWest Bancorp (PACW)||Company||6.3%||$3,827||$3,724||2.8%|
|Gilead Sciences (GILD)||Company||3.9%||$3,249||$3,362||-3.4%|
|VARIOUS POSITIONS OF <$1,000 VALUE||VARIOUS||2.0%||$3,715||$3,600||3.2%|
|FIXED INCOME TOTAL||3.5%||$35,231||$35,155||0.2%|
|Amer Century CA High Yield Municipal Fund (BCHYX)||Mutual||3.3%||$20,420||$20,332||0.4%|
|iShares Long-Term Corporate Bond ETF (IGLB)||ETF||3.8%||$6,667||$6,681||-0.2%|
|iShares Yield Optimized Bond ETF (BYLD)||ETF||4.0%||$5,133||$5,120||0.2%|
|SPDR Long Term Corporate Bond ETF (SPLB)||ETF||3.8%||$3,011||$3,022||-0.4%|
|SCHWAB ROBO-ADVISOR TOTAL||2.0%||$13,980||$13,582||2.9%|
|TOTAL + CASH||$10,843||5.1%||$351,551||$339,039||2.4%|
Portfolio Moves in December 2019
What a year for returns as the ‘most hated bull market in memory’ continues to dazzle. I can’t believe that being up over 16% would leave me disappointed, but this market has made fools out of many. 2020 will no doubt be difficult to predict as well, but for now all signs point to cautious optimism about shareholders continuing to be rewarded for their continued participation.
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: ‘Likely Signal’ for front of mind topics and ‘Probably Noise’ for things in the press that don’t bother me much at this point with regards to how it might impact equity markets. (note: the past months have seen Jeff’s indicators indicate rising caution)
- U.S. 2019 ‘earnings recession’ continues as businesses continue low reinvestment rates
- Endless trade wars (this month’s twitter optimism can rapidly turn into next month’s shattered hopes)
- Search for positive real returns makes equities (even at elevate valuations) the only way to beat inflation in 2020 given the lack of alternatives
- Trump impeachment proceedings (unless a foreign war gets started to ‘wag the dog’…even then, the biggest impact is likely on currently depressed oil prices)
- Anything 2020 U.S. politics (it’s still too early and governance has a way of moderating firebrands…betting on the status quo remains the most likely winner (see: recent healthcare pricing debate))
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.