The Retire In Peace portfolio, or R.I.P. portfolio, was first introduced to the Seeking Alpha community in December 2015, and I have published quarterly articles that captured the activity and performance of the portfolio since that point in time. The companies that I write about on SA are largely the holdings of the R.I.P. portfolio, so the main purpose for the quarterly articles is to allow for my SA followers to track the performance of the stocks that I write about on this platform.
See the article linked above for additional details on what I would like to accomplish with these quarterly updates. Additionally, the goals for the portfolio and my long-term strategy are identified in the sections below.
The S&P 500 (SPY) posted another strong quarter, as investors continue to focus on the reopening of the economy and the prospects of booming Corporate earnings.
Source: JPMorgan Asset Management
Higher-than-anticipated inflation readings have caused some concern lately but *most* investors have been willing to look past the transitory headwind and, instead, hang their hats on hopes that the Federal Reserve will maintain its easy policies and that the economy will benefit from the declining risk of another pandemic-related disruption. To this point, the S&P 500 have ticked 33 new all-time highs so far in 2021, which equals the total (33) achieved in the prior year.
Source: LPL Financial
So far, so good. With the impressive performance of the S&P 500 on a YTD basis, the second half of 2021 may turn out to be a strong period of time from a total return perspective based on historical figures. For example, the SPX has had a median return of 9.7% whenever the index is up greater than 12.5% over the first 6 months of a year.
Source: LPL Financial's Ryan Detrick
There is obviously no guarantee that the broader market will have a strong second half of 2021 but I do believe that investors should have a bullish view of the next 6 months given the improving backdrop (the historical results help, too).
From a sector perspective, there were a few new winners in Q2 2021 (most notably Energy and Financials) that really improved the YTD performance for what I would call the notorious laggards.
Source: Ziegler Capital Management
As shown, Energy, Financials and Industrials have been the strong performers so far in 2021 (mostly as a result of the Q2 2021 performance). I have been overweight Financials and Industrials in the R.I.P. portfolio since 2018/2019 so I have greatly benefited from the recent run-up, as these weightings are the main reason the portfolio has outperformed the S&P 500 since the March 2020 lows.
Over the years, I have been heavily invested in Technology (positive), Industrials (negative), Financials (negative, outside of the last few quarters), Materials (negative) and Healthcare (mostly positive), which should explain the decent portfolio performance since inception.
So what does all of this mean for how I am positioning the R.I.P. portfolio for the future? Not much, as I plan to stay the course and invest in the three broader themes that I identified in late 2018/early 2019 (see the "Looking Ahead" section below).
In this article, I will highlight the recent changes to the R.I.P. portfolio and describe how the portfolio performed for the most recent period end.
I am building this portfolio with retirement in mind, so I have 30-plus years to invest and make adjustments; therefore, the quarterly (and annual) volatility is not a major concern. These funds will stay in the market for the foreseeable future, so the portfolio will have the luxury of compounding for many years.
"Compound interest is the eighth wonder of the world. He who understands it, earns it... he who doesn't, pays it." - Anonymous
It is also important to note that this is a real-money portfolio. The R.I.P. portfolio consists of five different accounts: a Roth IRA, a Traditional IRA, and three taxable brokerage accounts. These are not my family's main retirement assets, but it is a portfolio that I hope will greatly contribute to a stress-free and relaxing retirement.
The Goals and Strategy section was last updated in June 2020 (increased exposure to the Funds category and decreased exposure to the Industrial category).
Main Investments (i.e., core holdings) - The companies that are considered core holdings should have established management teams that have proven track records of creating value. Furthermore, the companies should have competitive moats and be above-average operators within the respective industries. The core holdings are mainly large-cap companies that are widely held by the financial community and this is by design.
Goals & Strategy - The portfolio seeks primarily long-term capital appreciation by investing mainly in equity securities of high-quality companies that have already shown the ability to produce sustainable earnings growth.
The portfolio aims to beat the benchmark, the SPDR S&P 500 ETF, by at least 1% on an annual basis.
Missing out on short-term gains and/or having paper losses are not my main concerns, because I plan to stay committed to my long-term strategy of utilizing a bottoms-up investing philosophy to select companies that I plan to hold for many years.
The portfolio has the following allocation targets and acceptable ranges:
|Industry||Target Allocations||Acceptable Range|
* The Other category comprises of speculative investments in companies that have the potential to create outsized gains over the next three to five years (what I like to refer to as "investing in seedlings"). The investments within this category could eventually become longer-ranged holdings if after further analysis it is determined that the companies indeed have the attributes that I look for.
Contributions - I plan to contribute at least $1,000 of new capital per month to the portfolio and I typically put the new capital to work each and every month, regardless of the performance of the broader market.
Below you will find the portfolio and its performance, and the activity for the second quarter of 2021.
|Company||Ticker||# of shares||Price At 6/30/2021||Beg. Value - 4/1/2021||Activity - Purchases (Sales)||Quarterly Unrealized G/L||Quarterly Realized G/L||Current Value||Unrealized Gain (Loss)||Portfolio Weighting||YOC||Current Yield||Annual Income|
|General Electric||(GE)||362.416||$13.46||$4,480||272||126||-||$ 4,878||$ (1,811)||2%||0.2%||0.3%||$ 14|
|Westinghouse Air Brake Tech.||(WAB)||15.25||82.30||1,205||-||50||-||1,255||261||0%||0.7%||0.6%||7|
|WisdomTree U.S. Divi Growth ETF||(DGRW)||296.36||59.67||16,895||-||789||-||17,684||5,011||6%||2.6%||1.9%||332|
|iShares Core Divi Growth ETF||(DGRO)||28.55||50.36||1,371||-||67||-||1,438||440||0%||3.0%||2.3%||33|
|Fidelity MSCI Real Estate ETF||(FREL)||74.84||30.46||2,044||-||236||-||2,280||495||1%||4.3%||3.4%||77|
|Vanguard EM ETF||(VWO)||69.37||54.31||3,394||207||166||-||3,767||818||1%||3.0%||2.6%||96|
|Schwab US Dividend ETF||(SCHD)||52.08||75.62||3,784||-||154||-||3,938||1,238||1%||3.7%||3.0%||119|
|Schwab US Large-Cap ETF||(SCHX)||42.70||103.97||4,087||-||352||-||4,439||1,149||2%||2.1%||1.8%||80|
|Vanguard Dividend Appre||(VIG)||27.35||154.79||4,004||-||228||-||4,233||496||1%||1.6%||1.6%||68|
|ARK Innovation ETF||(ARKK)||1.00||130.78||-||108||23||-||131||23||0%||0.0%||0.0%||-|
|Bank of America||(BAC)||413.51||41.23||15,927||-||1,122||-||17,049||11,099||6%||5.0%||1.7%||298|
|Fifth Third Bank||(FITB)||51.95||38.23||1,945||-||41||-||1,986||1,254||1%||6.8%||2.5%||50|
|Johnson & Johnson||(JNJ)||43.43||164.74||7,092||-||62||-||7,154||2,890||2%||4.3%||2.6%||184|
|Charles River Labs||(CRL)||11.00||369.92||3,188||-||881||-||4,069||2,935||1%||0.0%||0.0%||-|
|AIG Warrants - Expired||(AIG)||0.00||-||-||-||-||(492)||-||-||0%||0.0%||2.1%||-|
|Principal Financial Group||(PFG)||1.15||63.19||68||-||4||-||73||18||0%||4.6%||3.5%||3|
|Procter & Gamble||(PG)||9.11||134.93||1,226||-||3||-||1,229||587||0%||4.9%||2.6%||32|
|Ollie's Bargain Outlet||(OLLI)||8.00||84.13||696||-||(23)||-||673||197||0%||0.0%||0.0%||-|
|Wabash National Corp.||(WNC)||93.35||16.00||1,752||-||(258)||-||1,494||247||1%||2.4%||2.0%||30|
|Industry/Portfolio Companies||Value||Portfolio Weighting||Goal Weighting||Over (Under)|
|Industrials/Conglomerates - GE, HON, BKR, WNC, BRK.B, SFTBY, RTX, WAB||$33,716.93||12%||10%||2%|
|Healthcare - JNJ, PFE, VTRS, AMGN, CAH, MRK, CRL, TDOC||31,131.94||11%||10%||1%|
|Financials - BAC, C, KEY, FITB||25,355.52||9%||10%||-1%|
|Insurance - MET, BHF, PRU, PFG||8,931.22||3%||5%||-2%|
|Technology - AAPL, CSCO, INTC, CAN, MSFT||28,635.83||10%||10%||0%|
|Communication Services - T, VZ, DIS, TWTR, FB||32,535.65||11%||10%||1%|
|Basic Materials - DD, DOW, CTVA||8,745.13||3%||5%||-2%|
|Funds - FKINX, DGRW, DGRO, FREL, VWO, SCHD, SCHX, VIG, ARKK||45,390.99||16%||15%||1%|
|Consumer - KR, GM, TGT, UA, BABA, PG, SBUX, SYF, OLLI, TSLA, Z, HD||51,530.89||18%||20%||-2%|
|Other - XIN, RHE, FSI, MTZ, AVD, GPRE, KTOS, GE call options, APPN, NIO, GTX, REZI, LYFT, UBER, OTIS, CARR, U, ABNB, OGN, DIDI||24,407.49||8%||5%||3%|
Below is a graphic from Morningstar that captures a high-level snapshot of the R.I.P. portfolio as of the period-end.
Full Disclosure: The GE options are not included in this Morningstar analysis.
There are a few data points that should be highlighted: The holdings of the R.I.P. portfolio are attractively valued when compared to the S&P 500 on a price-to-book basis, but, on the other hand, the portfolio holdings also have a significantly lower-than-average ROA ratio. More simply put, the portfolio is still positioned higher on the risk spectrum.
Lastly, the R.I.P. portfolio is highly levered to the Financial Services sector and Large Cap value, although the Large Cap value-tilt now only makes up approximately 19% of the total assets (down from 60% at the end of fiscal 2018). See more below about how this value-tilt has impacted the portfolio.
Portfolio Performance for the current period and since the portfolio was first introduced to SA community (December 4, 2015)
|Return (Q2'21)||Return (YTD)||Return (Intro)|
|This period||YTD||Since Intro|
Full Disclosure: The American Association of Individual Investors, or AAII, prescribed calculation (The Beginning Vs. the End) was used for calculating the portfolio's return for each period-end.
From an income standpoint, the portfolio's annual dividend income has grown significantly since 2016 (portfolio was first introduced in December 2015).
The portfolio's dividend income was $1,230 in Q2 2021, which is slightly higher than the year-ago quarter ($1,111 in Q2 2020). The portfolio's dividend income for 2021 is projected to be approximately 7% higher than the total income received in 2020, and this is after factoring in the dividend cuts announced in the first half of 2020 (Disney, GM, etc.). It should also be noted that I do not have a specific income goal for the portfolio, but I have purposefully focused on investing in high-quality, dividend-paying stocks since late-2015.
For the most important metric, the R.I.P. portfolio has outperformed its benchmark (S&P 500) since the portfolio was introduced to the SA community on December 4, 2015.
There are two main factors that contributed to the portfolio's underperformance in 2018 and 2019 (let me stress that these are reasons, not excuses): the portfolio had a value-tilt and was overweight financials - both factors have been out of favor for several years now. See my full-year 2018 article for additional detail on these contributing factors. However, these factors, in my opinion, contributed to the outperformance in late-2020 and early-Q1 2021.
From a sector perspective, Industrials and Basic Materials have been the most significant drags to the portfolio's performance since inception.
During the most recent quarter, the top performers and under-performers for the portfolio were: Performers -  Bank of America,  Synchrony Financial, and  Tesla; and underperformers -  Teladoc,  Disney, and  AT&T.
I consistently write about all of these positions, so please see my current thoughts on each company/stock at my Seeking Alpha profile.
Buybacks and/or Dividend:
Other Noteworthy News:
1. DiDi (DIDI) was banned from app stores in China because the Cyberspace Administration of China found that the company "severely violated the laws by illegally collecting and using personal information". The timing of this ban (i.e., only days after the company IPO'ed) really soured my view on investing in Chinese companies. I do not plan to liquidate my Chinese investments (BABA, NIO, XIN or DiDi) but I also do not plan to add to any of the positions either.
In a broader context, I have been positioning the R.I.P. portfolio to capitalize on three major trends:
See this quarterly update article for detailed explanations for my thoughts on each of the major trends. The following companies in my stock universe are the ones that I see being the biggest beneficiaries of these trends:
For the R.I.P. portfolio, Q2 2021 was another strong quarter from a total return perspective. The portfolio continues to outperform its benchmark since inception as it has directly benefited from holding a few big winners - e.g., Bank of America, General Motors and Twitter. I have been in risk-off mode since mid-2018 (adding ETFs, value and high-dividend paying stocks) and I believe that this strategy will pay dividends over the next 18-24 months. Barring another market meltdown, I expect for the R.I.P. portfolio to post solid returns over the next four quarters.
The portfolio's value tilt, including the heavy investments in the financial and healthcare sectors, has been out of favor for a while now (with the exception of late-2020 and early 2021), but I believe that it will be a different story over the next few years. I still believe that Bank of America, Tesla, Apple and Pfizer will likely have the greatest impact to the portfolio's outperformance over the next few quarters, as all of the companies have promising business prospects in the current environment. Plus, it helps that all of these companies are top-10 positions.
Teladoc, Lyft, UBER, MasTec, Appian, Unity Software and Zillow are a few of the "smaller" market cap stocks that investors should add to their watch lists.
Author's Note: I plan to still write about these companies on a regular basis. And lastly, I always have these two quotes in mind whenever I make an investment decision:
"Behind every stock is a company. Find out what it's doing." - Peter Lynch
"Successful investing takes time, discipline and patience. No matter how great the talent or effort, some things just take time..." - Warren Buffett
This article was written by
Disclosure: I am/we are long GE, HON, WNC, BRK.B, RTX, WAB, JNJ, PFE, VTRS, AMGN, CAH, MRK, CRL, TDOC, BAC, C, KEY, FITB, MET, BHF, PRU, PFG, AAPL, CSCO, INTC, ACN, MSFT, T, VZ, DIS, TWTR, FB, DD, DOW, CTVA, FKINX, DGRW, DGRO, FREL, VWO, SCHD, SCHX, VIG, KR, GM, TGT, UA, BABA, PG, SBUX, SYF, OLLI, TSLA, HD. 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.