- I've restructured the former Green Dot Portfolio, and I explain my new focus for income and swing/position trading.
- I sold 22 stocks in February for a net gain, including dividends, of 34.7% (median), or 24.4% (cost-weighted).
- My portfolio currently includes varying-sized positions including 28 closed-end funds, 23 REITs, 1 ETF, and 137 stocks across multiple sectors.
- I opened positions in 14 stocks for my portfolio in February and added to a few dozen existing positions.
- I also maintain a daily blog for followers that updates my portfolio activity.
In late 2017 I launched my Green Dot Portfolio here on Seeking Alpha. It was a small retirement investment that I managed in a Roth IRA account. I held a combination of income-generating Closed-end funds, ETFs, and REITs, and I did swing trading of stocks and, for part of the time, option premiums. The portfolio outperformed the S&P 500 and my total return goals for the first two years. I then took a break from tracking that portfolio here on Seeking Alpha. But I was busy increasing the portfolio size through rollovers from my 457 retirement plan, and fine-tuning some new tactics to increase the results from my swing trades.
So welcome to the new Green's Portfolio! I'll say up front that my style is not for everyone. I do a lot of active management (i.e., trading), both because I have the time and enjoy the challenge, and also because I think that I can enhance the returns from my efforts by more closely following price trends of individual, mostly high-quality, stocks.
I have some personal preferences that I'll mention up front, with which others may not agree. I do not hold mutual funds as I consider that they are mostly high-cost, inflexible, lower-return instruments for those who don't have the time or inclination to be active managers. The same goes for most ETFs. I am a long-only trader: I don't use margin and don't short stocks. I am a "disjointed incrementalist" in that I trade across the spectrum of stocks that fit my tactic (more on that soon), and I trade varying-sized lots based on changes in price. That means that I can sometimes add or sell even one or a few shares for a position, which is never a problem in a Roth IRA and in the era of zero commissions. I "average down" based on price by habit. I also use some simple technical analysis tools, including price trendlines and channels, pivots, Fibonacci retracements, volumes, and moving averages. I am actually fairly risk averse and do not usually commit thousands of dollars for a single purchase transaction. Except for my core income positions, I do not favor buy-and-hold investing as it tends to miss significant profit opportunities, especially in volatile markets such as those we have experienced over the past few years.
Management Approach and Trading Tactics
I try as best I can to practice the golden rule of investing: buy low and sell high. Managing risk and preservation of capital are also paramount. As with the former Green Dot Portfolio, I continue to rely on both income investments and swing trading.
I manage risk by holding a large number of investments of mostly moderate-sized positions. I think that this is most important when investing in individual stocks. So a portfolio of about 150 total holdings including a hundred or more individual stocks does the job. If one or a few tank or fail to rebound, it will not blow up my overall portfolio.
The tactic that I have used increasingly over the past year is to buy individual under-performing stocks in under-performing sectors, and to swing trade those stocks as sectors rotate. I'm familiar to a degree with the theory and models for sector rotation and market cycles, but I don't make trade decisions based on those. Instead, I trade based on "observed" behavior of stocks in the standard sectors. Most readers have probably seen graphs such as this below from Bloomberg that demonstrate clearly that the major sectors rotate quite a bit over the years.
For the first step in my stock selection method, I use the TD Ameritrade tool provided with my account that ranks the major sectors for varying time periods. I would think that investors can find similar tools from other on-line brokers. Below is a screen shot of sector performance for the past 3 months, compared to the S&P 500. I monitor the 1, 3, and 6 month periods most frequently. For the past 3 months, the Utilities, Consumer Staples, and Real Estate (REITs) sectors have under performed the most compared to the S&P 500.
(Source: TD Ameritrade)
Three to six months ago, Financials, Energy, Utilities, and Industrials were the most under-performing sectors. I loaded up on names in these sectors from spring through fall.
The second step in my method is to select stocks within the under-performing sectors. For that I use the "TD Market Monitor" that displays S&P 500 stocks in the major sectors by user-defined time periods. This tool ranks the S&P 500 stocks in each sector, by performance, and also indicates the relative market cap of each stock by its width along its sector's bar on the graph. Below is an example, with Walmart (WMT) highlighted (the yellow outlined rectangle), showing that it is the 8th worst performing stock in the Consumer Staples sector for the past 3 months.
For the final step of my method, I look at price charts and use some technical analysis to determine which ones to buy. I also often just skim or even check titles of articles on the stock by authors here on Seeking Alpha to glean their sentiment. I always also look at the analyst reports provided by my on-line broker, especially New Constructs and CFRA. That said, many times under-performing stocks will not be well-rated, but I often overlook that if the technical price patterns look more like they are typical, oversold positions. Perhaps like many investors, I have personal preferences and often pass on some stocks even if they are potentially good candidates.
Another source for stocks to buy comes from my free access through my TD Ameritrade account to The CFRA Outlook, a weekly newsletter that provides featured stocks and commentary, and that rotates coverage for about a half dozen model portfolios.
My strategy is to trade the price dips and rebounds, and not get attached to the stocks. Many times the shorter term profits are the equivalent of 5-10 years or more of dividends. Letting hundreds or even thousands of "unrealized" gains come and go is not an efficient way to grow the bottom line in my view. I can always buy stocks back again on pullbacks.
One thing that gives me confidence in this approach is that I'm mostly trading S&P 500 stocks, even if the worst-performing. My experience is that, in time, these well-known, high-quality stocks will regain their momentum and investor interest. Most pay dividends, so I at least get some income if I have to wait for a rebound. The S&P 500 technically includes the 500 largest (by market cap) U.S. publicly traded stocks, and they become large by their success, so it has what is called a "survivorship bias." Stocks that fail to perform over time are dropped from the index. Overall, I find that this is an easy system to use.
This whole approach is really nothing new. It can be considered a variant of value investing except that I use the sector and price charts instead of any fundamentals such as intrinsic value.
My portfolio is comprised primarily of income investments and individual stocks, as well as cash. Income investments include Closed-end funds, REITs, ETFs, and individual stocks. The cash balance is large now because of a recent rollover from my 457 retirement plan and because of the large number of closed stock trades to date this year. The pie chart on the top shows the allocation among CEFs, REITs, ETFs, stocks, and cash, and the pie chart on the bottom shows the allocation not including cash.
For a more traditional view of asset allocation by market cap, domestic v. international, and fixed income v. equity positions, the TD Ameritrade "Portfolio Planner Tool" provides an analysis. This shows, in addition to the large cash balance, that my portfolio is comprised primarily of domestic equity holdings, with much smaller amounts of fixed income and international holdings. The tool is not perfect and does not classify some holdings, so the percentage of cash differs from my pie charts above.
My preference over time is to be rather fully invested. I especially want to increase my income portfolio, but I need to see prices come in a lot at this point as many of my CEFs are very over-bought.
Income investments in my portfolio are mostly Closed-end funds and REITs. REITs are technically real estate stocks, but I group them here with my CEFs because I hold them for continuing income. I previously owned a number of ETFs but now only hold one, the WisdomTree U.S. MidCap Dividend fund (DON). Until the pullback this past week, this fund had recovered the spring COVID selloff. I may take profits if it regains the high soon, especially as it does not pay a high dividend.
Closed-end funds are my primary means for generating steady, mostly-monthly, high-yield income for my portfolio. I currently hold a total of 28 CEFs, including 7 funds that are primarily bond funds, 19 that are mostly equity funds, and 2 that are hybrids. The former Green Dot Portfolio was comprised mostly of bond funds, and they still comprise 5 of the 7 largest fund positions by cost. This past year I have added more equity funds because I consider that the distributions are more stable, and that they have greater price appreciation potential with uptrending markets, which I generally expect to be the case in the coming few years.
Overall, on a cost basis, my 7 bond funds comprise 51% of the portfolio's allocation to CEFs. The 2 hybrid funds comprise 5%, and the 19 mostly-equity funds comprise the remaining 44%. I'm looking to add significantly to my equity funds on any larger pullbacks as it's difficult to add to funds that have increased 20% or more in price.
The 5 largest bond CEFs in my portfolio by cost are:
- DoubleLine Income Solutions Fund (DSL)
- AllianceBernstein Global High Income Fund (AWF)
- KKK Income Opportunities Fund (KIO)
- BlackRock Multi-Sector Income Trust Fund (BIT)
- Blackstone Long-Short Credit Income Fund (BGX)
The 5 largest mostly-equity CEFs in my portfolio by cost are:
- Cohen & Steers Quality Income Realty Fund (RQI)
- Gabelli Dividend & Income Fund (GDV)
- Liberty All-Star Equity Fund (USA)
- BlackRock Enhanced Dividend Achievers Fund (BDJ)
- JHancock Tax-Advantaged Dividend Income Fund (HTD)
Using the TD Ameritrade Income Estimator tool, the "average" distribution yield of the 28 CEFs is currently 7.33%.
Ten of my CEFs currently have unrealized gains in share price of from 17-34%. I occasionally have taken some profits when the gains get sizeable, but I then have to re-build positions on price dips. Some of my smaller positions now are for funds for which I have sold shares in the past year, including:
- Calamos Strategic Total Return Fund (CSQ)
- Cohen & Steers Infrastructure Fund (UTF)
- Tekla Healthcare Opportunities Fund (THQ)
- Eaton Vance Tax-Advantaged Global Dividend Income Fund (ETG)
I am also starting some positions in smaller CEFs that are new to me and that I find interesting. Two in particular that I like are:
- Calamos Long/Short Equity & Dynamic Income Trust (CPZ)
- First Trust Enhanced Equity Income Fund (FFA)
CPZ is a smaller, well-diversified hybrid fund that has raised its distribution twice since inception in January 2020. FFA is a smaller covered-call fund that includes a select number of multi-sector stocks.
In the past, I wrote about my criteria for buying CEFs. The most important, to which I still adhere, is to buy them at discounts to Net Asset Value, or NAV. The closer that the discount is to -10%, the better. I also like funds that have a record for the past decade of stable or increasing distributions, mostly coming from earnings, so the so-called "income-only" funds are preferable. I try to avoid funds with destructive return of capital. There are several good sources for data for CEFs, but I like the CEFConnect.com website the best (despite a few occasional data errors).
Most investors are probably aware that REITs have struggled at times, and some have cut or suspended paying their dividends following the COVID selloff in spring 2020. As a result, they are not performing as they once did for generating reliable income. I currently hold 23 REITs, although the top 5 comprise 52% of the total REIT portion by cost, and the top 10 comprise 79%. The top 5 are:
- EPR Properties (EPR)
- LTC Properties (LTC)
- Tanger Factory Outlet Centers (SKT)
- Gladstone Commercial Corp. (GOOD)
- Simon Property Group (SPG)
Some of my REIT positions are larger and have been in my portfolio for a few years. I am not sour on this asset class and am waiting for pullbacks to add to others, including Digital Realty Trust (DLR), Equinix (EQIX), and Healthcare Trust of America (HTA).
Dividends for February
For consistency, I always track my dividends/distributions by the date that they appear in my account. The portfolio earned a bit over $1,100 in dividends/distributions for February, which was lower than the nearly $1,900 earned in January. With active trading, the dividends will vary from month to month. Also, some pay monthly and others pay on a quarterly basis.
Focusing on the dividends from CEFs, distributions totaled about $685 in February, which was lower than the $952 for January. Distributions from CEFs accounted for 50% of total income in January and 62% for February. Some distributions for individual CEFs were actually higher for February, such as those for which I added shares, including BDJ, CSQ, GDV, HTD, and HYT. Also, BGX paid a special distribution in February, and the distribution was increased for CPZ. On the other hand, there was no distribution in February for USA, a quarterly fund that paid in January, and there were no distributions for FAX in February, in addition to which the December payout occurred in January.
The TD Ameritrade Income Estimator tool shows that I should receive about $8,890 in distributions this coming year from my CEFs. The average distribution yield is currently 7.43%, which compares well to the 1.5% for the S&P 500 (using the index ETF, SPY). CEF income comprises about half of my total dividend income (including stocks).
Currently, 18 of my REITs are included in the Income Estimator tool, and they should earn about $1,760 this coming year. The current average dividend yield is 5.29%.
It not likely, but in the event that the other stocks in the portfolio were held through the year, the estimated income would be about $5,890. This part of the portfolio has an average yield of 3.8%, which is more than double that of the SPY, at 1.5%.
The Income Estimator tool is just an estimate and does not account for changes in the rate of payouts; also, the actual income received will be greater if I add to shares or add new income positions.
I also note that there are some individual stocks that I list in the sections on the Stock Portfolio below, which are intended as candidates for my sector swing trades but that also generate high, reliable income. I may hold these longer in any event, including such companies as Main Street Capital Corp. (MAIN) and Pembina Pipeline Corp. (PBA).
Closed Trades for February
In February, I closed 22 trades (21 stocks and 1 ETF) for a total net gain of 34.7% (median) or 24.4% (cost-weighted). This included dividends of nearly $1,400. These trades varied considerably in the number of shares, number of separate buy and sell transactions, total cost, and percentage gains. The average gain was $397 on an average cost of $1,629 per trade. The majority were held for about a year or less. Sometimes, after I enter a position, the stock starts to rebound and "gets away" from me regarding the price that I am willing to pay. This contributes to the smaller size of some of my trades, but in general I want to increase my position sizes especially as I now have more cash.
The table below presents the closed trades for February, including the average per share buy and sell prices, and sector. All trades except for Western Digital (WDC) include dividends collected.
As the table shows, 2/3 of these trades were for stocks in the Financials sector. Many financials bottomed in spring or summer and have since rebounded. I took profits on partial or full positions, including for some stocks that regained the previous pre-COVID highs.
It is easier to visualize the gains for these trades in the bar graph below.
I present one example below of what these rotation trades look like and how I mark my trading platform charts. This one is for M&T Bank (MTB). This is a daily 2-year chart for my TD Ameritrade 'thinkorswim' platform. This stock, like many Financials that tanked with the spring COVID selloff, caught my attention, and I opened a small position in early March. I added shares several times, including near the low in mid-May, and added even up to October. The heavy red horizontal line on the chart shows my lowest buy price, and the heavy gold horizontal line is my average share cost. As the stock rebounded in early 2021, I decided to exit, selling shares twice as shown by the heavy green horizontal lines. One never knows where the short term top will be, but in this case the stock has already pulled back below my last sell price. If this stock and others in the sector sell off in the future, I will consider re-entering the trade.
For readers who elect to Follow my articles, you have access to my free portfolio blog, usually updated daily, in which I provide details about what I'm buying and selling.
Current Stock Portfolio
As I have explained, I loaded up on stocks in the Financial, Energy, Utilities, and Industrials sectors in the past year as these sectors rotated to under-performing the S&P 500. More recently, I have been buying stocks in the Consumer Staples and Health Care sectors as their stocks have dipped. In many cases, I open a position when the stock drops below the daily 200 day Moving Average. I then add shares depending on how I see any follow-through selling. I vary the number of shares that I add based on the price of the stock, the relative position of the major MA's, and other factors.
Overall, for February I opened 14 new stock positions and added to several dozed existing positions. I deployed over $45k from my cash balance for these stock buys in February, following almost $12k in January.
In this section, I present the stocks that I am currently holding (and adding to) by major sector. Overall, the pie chart below shows the percentage by cost of the stocks held in each sector. The portfolio clearly is invested at this time in the most under-performing sectors over the past 3 to 6 months.
One question that is surely to arise is, why not just invest in the sector ETFs, such as the State Street Select Sector index ETFs, including Financials (XLF), Energy (XLE), etc.? That could work, especially for investors who have smaller amounts of funds to invest, or less time, but as the "TD Market Monitor" above shows, there is actually a continuum of performance even within every sector. For example, within the Consumer Staples sector, the top S&P 500 stock over the past 3 months has been Walgreen Boots Alliance (WBA), up 22.9%, while the bottom stock is Walmart Stores (WMT), down -14.3%. So my approach focuses on looking for rebounds in the most under-performing stocks within each sector that is also under-performing.
The Utilities sector is my favorite, not only because many stocks here have been on sale these past months but also because, when purchased at low prices, their yields are even higher than normal. I could just as well hold these stocks as swing trade them on rebounds.
I currently hold 17 Utilities stocks, and they comprise 20% or the largest portion of my stock portfolio. The top 5 by cost, which comprise 55% of the Utilities positions, are:
- Dominion Energy Inc. (D), WEC Energy Group Inc. (WEC), Consolidated Edison Inc. (ED), Sempra Energy Inc. (SRE), and Alliant Energy Corp. (LNT).
The 5 positions that are currently most profitable are:
- Brookfield Renewable Partners (BEP), Exelon Corp. (EXC), The Southern Company (SO), Duke Energy Corporation (DUK), and Black Hills Corporation (BKH).
I have been adding shares more recently to several others in this sector, including:
- American Electric Power Company Inc. (AEP), Pinnacle West Capital Corporation (PNW), Atmos Energy Corporation (ATO), and Entergy Corporation (ETR).
Consumer Staples is currently my second largest group, at about 16%. Many stocks in the sector are on sale and I am actively acquiring shares as prices drop. I currently have 18 stocks and the top 5, which comprise 69% by cost of my positions in the sector, are:
- Costco Wholesale Corp. (COST), Tyson Foods Inc. (TSN), Kraft Heinz Co. (KHC), The Procter & Gamble Company (PG), and The Clorox Company (CLX)
Among my smallest positions, still under acquisition, are:
- PepsiCo Inc. (PEP), Kimberly-Clark Corporation (KMB), Colgate-Palmolive Company (CL), Church & Dwight Company Inc. (CHD), and Walmart Stores Inc. (WMT).
I still hold partial or full positions in 19 stocks in the Financials sector. The top 5 by total cost, which comprise 51% of the Financials positions, are:
- Wells Fargo & Co. (WFC), WesBanco Inc. (WSBC), Main Street Capital Corp. (MAIN), Heritage Financial Corp. (HFWA), and Bank of New York Mellon Corp. (BK).
The 5 Financials in the portfolio that are currently the most profitable are:
- JP Morgan Chase & Co. (JPM), American Express Co. (AXP), Bank of America Corp. (BAC), Zions Bancorporation (ZION), and MetLife Inc. (MET).
The 5 Financials for which I currently have the largest number of shares are:
- First Horizon Corp. (FHN), Wells Fargo & Co. (WFC), Capital Southwest Corp. (CSWC), WesBanco Inc. (WSBC), and Heritage Financial Corp. (HFWA).
I currently hold 10 stocks in the Energy sector, which is my 4th largest group at about 14% of my stock portfolio. The top 5 by total cost, which comprise 85% of the Energy sector positions, are:
- Exxon Mobil Corp. (XOM), Chevron Corp. (CVX), Enterprise Products Partners (EPD), Pembina Pipeline Corp. (PBA), and Occidental Petroleum Corp. (OXY).
The 5 positions which are currently the most profitable are:
- ConocoPhillips (COP), Pembina Pipeline Corp. (PBA), Sabine Royalty Trust (SBR), Enbridge Inc. (ENB), and Williams Companies Inc. (WMB).
The 13 Health Care sector stocks comprise 11% of my total stock portfolio. The top 5 by cost, which comprise 60% of this group, are:
- Gilead Sciences Inc. (GILD), GlaxoSmithKline (GSK), Regeneron Pharmaceuticals Inc. (REGN), Pfizer Inc. (PFE), and Biogen Inc. (BIIB)
In addition to BIIB, the 4 most profitable are currently:
- CVS Health Corp. (CVS), Amerisourcebergen Corp. (ABC), Baxter International Corp. (BAX), and Bristol-Myers Squibb Co. (BMY)
I currently hold 10 stocks in the Industrials sector. The top 2 by cost, General Electric Company (GE), and Macquarie Infrastructure Corporation (MIC), are stocks that I have held for some time now. I'm still biding my time and don't have to worry about what happens given that they are not even a half percent each of my total portfolio. MIC is an interesting example of what can happen even to beaten down stocks: this company (not a S&P 500 stock) suspended its dividend after the spring selloff last year, which was previously cut from $1.44 to $1.00, but this January it paid a special dividend of $11/share. That said, it still has a long way to go to recover the losses from the past three years.
After these two stocks, the 5 largest holdings in this sector, which comprise 50% of the total Industrials positions, are:
- Lockheed Martin Corp. (LMT), General Dynamics Corp. (GD), Roper Technologies Inc. (ROP), Northrop Grumman Corp. (NOC), and Raytheon Technologies Corp. (RTX).
Along with RTX, the 3 stocks that I hold in this sector which are the most profitable are:
At 6.4% by cost, the 7 stocks that I hold in the Materials sector rank near the middle of my portfolio groups. The top 4 by cost comprise 58% of the total investment in this sector:
- W.R. Grace & Co. (GRA), Celanese Corp. (CE), CF Industries Holdings Inc.(CF), and International Paper Company (IP).
The smallest 3 by number of shares and cost are:
Because this sector has generally performed well in recent months, I only have 4 stocks in my portfolio, at about 4% by cost. The 2 largest are actually old buys, Six Flags Entertainment Corp. (SIX) and Royal Caribbean Cruises Ltd. (RCL). The other, much-smaller positions are Meritage Homes Corp. (MTH) and Tractor Supply Company (TSCO).
The 5 stocks that I currently own in this sector comprise the second smallest group in my stock portfolio, at 2.6% by cost. They are:
- Intel Corp. (INTC), Akamai Technologies Inc. (AKAM), Cisco Systems Inc. (CSCO), Fiserv Inc. (FISV), and Western Union Co. (WU).
All of these except AKAM are currently profitable, up from 12-31%.
The 5 stocks that I hold in this sector are the smallest group by cost in my portfolio, at about 2.5%. They are:
- AT&T Inc. (T), Verizon Communications Inc. (VZ), BCE Inc. (BCE), Omcicom Group Inc. (OMC), and Telus Corp. (TU)
I am waiting for lower prices to add to these positions and to add new stocks from this sector.
It's hard to go wrong buying top-quality, mostly dividend paying, stocks in the S&P 500 index. It's also hard to go wrong buying them when they go on sale. My bias here is to not necessarily hold them for the long term but to use swing and position trading to capture profits along the way. I can always buy them back when they go on sale again. Using readily-available data that indicates when various sectors rotate to under-performing the S&P, and looking at the continuum of performance of stocks in each sector, provide an easy-to-apply tactic for finding stocks to add to my portfolio. Adding a core of longer-term positions comprised of reliable high-yield CEFs and REITs helps assure that the total return of my portfolio will continue to increase.
I hope that readers will perhaps find something here of interest. As always, please do your own due diligence.
Best to your investing/trading!
This article was written by
Analyst’s Disclosure: I am/we are long AKAM, REGN, FMC, WMT, PG, CERN, BMY, CHE, ETR, CL, XEL, MDLZ, LNT, CMS. 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.
I am also long all of the other stocks and funds that are indicated as part of the portfolio.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.