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Actual Portfolio Management - A Work In Progress 06/30/16 Update

|Includes: American Tower Corporation (AMT), CG, EEQ, ENB, JNJ, MOAT, NSH, PCEF, RAD, RSP, SO, T, VER, VZ

As an avid reader of Seeking Alpha articles, I don't see a lot of articles about running an actual portfolio. By running an actual portfolio I mean: a) portfolio policies and rules, b) investment allocations and rationale, and c) long-term portfolio performance including discussion. By publishing semiannually, I hope to at least somewhat fill that gap.

Model Portfolio: 20 Plus Years to Retirement - Nontax Managed

This portfolio is long-term in nature and it is not managed to minimize the impact of taxes. The portfolio was started on January 1, 2014.

The Score Board - Portfolio Returns vs Benchmark

The Score Board: 20 Plus Years to Retirement - Nontax Managed

Year

Portfolio

Morningstar Total Stock Market Index

Gross Difference

2016-YTD

20.24%

2.61%

17.63%

2015

-15.98%

-1.29%

-14.69%

2014

12.81%

10.71%

2.10%

Since Purchase*

4.78%

4.82%

-0.04%

* Annualized returns. Because of the nature of the way annualized returns are calculated, summing the years will lead to different results from the since purchase line.

Performance and Commentary

What a difference six months make. I took a beating in 2015 but I am whooping it up on the index this year - so far that is. A quick look at my picks shows that they have done well across the board. The worst performer was Rite Aid (NYSE:RAD) and it just got added so it really does not factor into performance. The next worst performer was Guggenheim S&P 500 Equal Weight ETF (NYSEARCA:RSP) which beat the benchmark by three percent. This is in range of what I expect from RSP. The biggest reason for the increase is market performance in the energy sector. Last year the high stake allocated to energy stocks caused the portfolio much angst. This year it is just the opposite. Carlyle Group LP (NASDAQ:CG) was down 33% in 2015 but up 7% this year. This is not as much as I expected but CG remains a good long term buy.

Other factors responsible for the difference in performance:

  • REITS have been on a roll. A lot of this is investors chasing yield. American Tower (NYSE:AMT) is more a growth than an income REIT. It still benefited from the tail winds in the sector. VEREIT (NYSE:VER) continues to work its way back to respectability. That alone has pushed up its share price but the tail winds in the sector have certainly helped as well.
  • The US as compared to other places in the world is seen as a place of stability and prosperity. This has helped push the stock market upwards otherwise it might have gone down.

The cash position has been trimmed to zero. In reality, there will always be cash in the portfolio and we will deploy that cash as needed.

The performance of each investment for 2016 and since purchase is below.

Investment

2016 Performance
Total
Return
2016 Performance
Over/(Under)
vs Benchmark
Cumulative
Total Return
Since Purchase
Cumulative
Total Return
In Excess of Benchmark

American Tower

18.22%

15.61%

42.24%

37.55%

AT&T (NYSE:T)

28.36%

25.75%

33.21%

28.52%

Carlyle Group LP

7.43%

4.82%

-29.54%

-34.23%

Enbridge Energy Management LLC (NYSE:EEQ)

9.58%

6.97%

-7.36%

-12.05%

Guggenheim S&P 500 Equal Weight ETF

5.61%

3.00%

17.97%

13.28%

Johnson & Johnson (NYSE:JNJ)

19.60%

16.99%

38.76%

34.07%

Kinder Morgan Inc. (NYSE:KMI)

27.14%

24.53%

-36.49%

-41.18%

Market Vectors Wide Moat ETF (NYSEARCA:MOAT)

28.56%

25.95%

19.48%

14.79%

NuStar GP Holdings LLC (NYSE:NSH)

26.38%

23.77%

-30.37%

-35.06%

PowerShares CEF Income Composite Portfolio (NYSE:PCEF)

8.17%

5.56%

7.88%

3.19%

Rite Aid

-1.71%

-6.82%

-1.71%

-6.82%

Solar Winds (NYSE:SWI)

7.38%

7.72%

7.38%

7.72%

Southern Company (NYSE:SO)

16.97%

14.36%

41.29%

36.60%

Spectra Energy (NYSE:SE)

56.39%

53.78%

14.75%

10.06%

VEREIT Inc (VER -formally ARCP)

31.50%

28.89%

1.13%

-3.56%

Verizon (NYSE:VZ)

23.26%

20.65%

26.87%

22.18%

Benchmark Note:

The best benchmark would be the Vanguard Total Stock Market ETF (NYSEARCA:VTI). Since Morningstar is used to track the portfolio and VTI is not one of the options Morningstar offers to as a comparison, the benchmark will be the Morningstar US Market Index (MUSMI). MUSMI is very similar to VTI so it makes for a good substitute.

It will be interesting to see if the second half of the year is as good as the first half. I am expecting another energy slump as prices have come up too far too fast. With my time horizon, I see no trades coming but I do expect it to negatively impact the portfolio.

In closing, 30 months are now in the books. A good or poor six months or a year does not make a trend. The next review point will be December 31, 2016. There is not enough of a track record to state anything definitively yet. Until there are three to five years on the record, any over or under performance should be attributed to luck.

Open Positions

The current investment summary:

Model Portfolio Open Positions Summary: 20 Plus Years to Retirement - Nontax Managed

Core/
Overlay
Super Sector Investment Name and Symbol Target
Allocation

Core

Cyclical

American Tower

7.50%

Core

Cyclical

The Carlyle Group LP

7.50%

Core

Defensive

Johnson & Johnson

7.50%

Core

Defensive

Southern Company

7.50%

Core

Sensitive

Kinder Morgan Inc.

7.50%

Core

Sensitive

Verizon and AT&T /1

7.50%

Subtotal - Core Investments

45.00%

       

Overlay

Not Applicable

Market Vectors Wide Moat ETF

7.50%

Overlay

Not Applicable

Guggenheim S&P 500 Equal Weight ETF

5.00%

Overlay

Not Applicable

PowerShares CEF Income Composite Portfolio

5.00%

Overlay

Sensitive

Enbridge Energy Management LLC

10.00%

Overlay

Sensitive

NuStar GP Holdings LLC

7.50%

Overlay

Sensitive

Spectra Energy

7.50%

Overlay

Defensive

Rite Aid

5.00%

Overlay

Cyclical

VEREIT

7.50%

Subtotal - Overlay Investments

55.00%

   

Cash/Money Market

0.00%

   

Total Invested

100.00%

/1. Buy in pairs. Allocate 3.75% to each investment. The sum of both should equal the amount allocated to AMT.

The current investment detail is below. The table is sorted by date from earliest to latest.











 

Model Portfolio Open Positions Detail: 20 Plus Years to Retirement - Nontax Managed

Date Added

Investment Name, (Symbol) and Other Data

Rationale/Comment

01/10/14 American Tower
Target Allocation: 7.5%
Core/Overlay: Core
Super Sector: Cyclical
Sector: Real Estate
Current Rating: Buy < $92
06/30/16
Thesis continues to play out; stock fairly valued. Other competitors like Crown Castle (NYSE:CCI) richly valued.

12/31/15
If buy level reached, I would strongly consider increasing allocation which would automatically increase the holdings in T and VZ as well.

06/30/15
Dividend yield looks measly but has grown dramatically since converted to a REIT. Growing like a weed. A strong buy for growth and income.

12/31/14
Unchanged from 06/30/14.

06/30/14
AMT is the tower provider Verizon, AT&T and others and has ongoing growth outside the USA. This is a REIT but the primary reason is growth.

01/10/14 VanEck Vectors Wide Moat ETF
Target Allocation: 7.50%
Core/Overlay: Overlay
Super Sector: N/A - Varies
Sector: N/A - Varies
Current Rating: Buy < $31
06/30/16
Name change to VanEck Vectors Wide Moat ETF. Performing well YTD. No longer subject to broker limitations so target allocation raised to 7.50%.

12/31/15
This strategy was not favored by the markets in 2015 but I am comfortable with it over the long haul.

06/30/15
Unchanged from 12/31/14.

12/31/14
Target allocation trimmed to 5%. Otherwise, unchanged from 06/30/14.

06/30/14
MOAT is a best ideas fund. MOAT is a convenient way to copy a strategy that would result in a lot of trading. If buying for a taxable account, consider replacing MOAT with ELEMENTS Linked to the Morningstar Wide Moat Focus Total Return Index (NYSEARCA:WMW) unless you don't feel comfortable with the credit risk than an ETN brings.

01/17/14 Spectra Energy
Target Allocation: 7.5%
Core/Overlay: Overlay
Super Sector: Sensitive
Sector: Energy
Current Rating: Buy < $30
06/30/16
One of the better names in the midstream sector.

12/31/15
The energy sector has tanked taking the company with it which is a bit of surprise to me considering it is a midstream company with stable cash flows. Like NSH and EEQ, a stronger buy now than it was on 06/30/15 but the buy target has been lowered. If you have a choice between SE and NSH and taxes are not a factor, SE would be the better choice because of its pipelines feeding the Northeast US.

06/30/15
Moved to overlay bucket on 03/30/15 in a swap with Verizon and AT&T. May add to position if price continues to drop.

12/31/14
Unchanged from 06/30/14.

06/30/14
SE is the general partner of Spectra Energy Partners (NYSE:SEP). As the limited partnerships grow, the general partner grows with it but at a faster rate. The current inflation worries have impacted midstream partnership prices but the partnerships are ruled by the Federal Energy Regulatory Commission which allows much higher return than state utilities. SE has wide sustainable competitive advantages and is effectively on sale now. Buy and sleep well at night.

01/17/14 Kinder Morgan Inc.
Target Allocation: 7.5%
Core/Overlay: Core
Super Sector: Sensitive
Sector: Energy
Current Rating: Buy < $17
06/30/16
Expect it to continue to shore up balance sheet ahead of dividend increases. On the positive side, company funds most of its capital expenditures from operating cash flows.

12/31/15
In spite of the damage in the energy sector, until recently, KMI was able to raise capital on favorable terms. When that changed, KMI was forced to make decisions that resulted in the destruction of the dividend but eliminated the need to access external funding sources. The underlying businesses of KMI are strong and the stock will recover. When? Who knows but it and is a better buy now than at 06/30/15. If you are tax planning for 2016, sell KMI and rebuy after 31 days. You should have good base for future profits.

06/30/15
Performing better than peers in tanking energy sector. Dividend growth will be strong.

12/31/14
KMI has withstood better the freefall in energy sector stock prices. Now that all the limited partnerships have been merged, dividend growth is likely to resume in earnest.

06/30/14
KMI is the general partner for Kinder Morgan Limited Partnerships and El Paso Limited Partners (KMP and KMR, EPB). As the limited partnerships grow, the general partner grows with it but at a faster rate. The current inflation worries have impacted midstream partnership prices but the partnerships are ruled by the Federal Energy Regulatory Commission which allows much higher return than state utilities. KMI has wide sustainable competitive advantages and is effectively on sale due to short seller attacks. Buy and sleep well at night.

02/03/14 Johnson & Johnson
Target Allocation: 7.50%
Core/Overlay: Core
Super Sector: Defensive
Sector: Healthcare
Current Rating: Buy < $91
06/30/16
Currently overvalued. If it gets high enough, may sell.

12/31/15
Continues to represent the healthcare sector in the portfolio. May increase allocation to health care sector by adding Tekla Healthcare Investors (NYSE:HQH), a closed end fund, or VCA Antech (NASDAQ:WOOF). May also add a healthcare related REIT.

06/30/15
With selling of VCA Antech , increasing allocation from 5.0% to 7.50%.

12/31/14
Unchanged from 06/30/14.

06/30/14
The stock market swoon is providing an unexpected opportunity to buy quality stocks at a discount. JNJ is a name you've heard of unless you have lived on Mars. JNJ is one stop investment across all parts of the medical sector. JNJ is a relative value play but one to hold for a long time.

02/03/14 Southern Company
Target Allocation: 7.5%
Core/Overlay: Core
Super Sector: Defensive
Sector: Utilities
Current Rating: Buy < $45
06/30/16
Unchanged from 12/31/15.

12/31/15
Had a solid year soundly beating the sector's performance. Enters into agreement to buy AGL Resources to diversify into regulated markets beyond electrical generation. Should continue to show solid performance in 2016 including an expected dividend increase.

06/30/15
Cost overruns on Mississippi and Georgia projects and future higher interest rates creating a drag on stock price. Expect both issues to fix themselves with time. Strong buy below limit.

12/31/14
Same as 06/30/14. Industrial growth is another plus.

06/30/14
The stock market swoon is providing an unexpected opportunity to buy quality stocks at a discount. Not fully on sale but still a good buy is Southern . SO is the best run electric utility and is partially on sale due to two factors: a) the construction cost overruns at its coal gasification facility and b) the misconception that utilities like SO are poor performers when interest rates rise. In reality, it is company performance and relations with regulators that matter.

02/26/14 Guggenheim S&P 500 Equal Weight ETF
Target Allocation: 5.0%
Core/Overlay: Overlay
Super Sector: N/A - Many
Sector: N/A - Many
Current Rating: Buy < $77
06/30/16
Beating market index this year. Because of its cost, may sell and just get a cheaper ETF that focuses on midcap ETFs unless combine with other ETFs to equal weight the entire S&P 500 line up.

12/31/15
Finishes year trailing benchmark. Leading benchmark since purchase.

06/30/15
Slightly trailing the benchmark this year. Not an unexpected event when growth stocks lead the market.

12/31/14
Target allocation trimmed to 5%. Otherwise, unchanged from 06/30/14.

06/30/14
RSP is a best ideas ETF that has trounced the S&P 500. RSP was inserted due to limitations on buying the CAPE ETN (NYSEARCA:CAPE). CAPE is a best ideas exchange traded product based on the ideas of Robert Shiller. The Cyclically Adjusted Price-Earnings Ratio measures P-E values over a ten year horizon. The CAPE ratio will not tell you what the stock market is doing next year but rather what securities and sectors are historically cheap. The CAPE ETN is a way to capture this in one bucket. This is a value tilt investment for the long run and is an overlay holding. If your broker does not allow the purchase of CAPE, buy Guggenheim S&P 500 Equal Weight ETF instead. Once CAPE becomes available, I plan on replacing RSP with CAPE.

02/26/14 PowerShares CEF Income Composite Portfolio
Target Allocation: 5.0%
Core/Overlay: Overlay
Super Sector: N/A - Varies
Sector: N/A - Varies
Current Rating: Buy < $20
06/30/16
Dividends provide a good portion of the total return. Still a high cost fund.

12/31/15
Continues to perform as expected. Sell YYY if you own it and replace it with PCEF which has shown to be the better fund by far.

06/30/15
Unchanged from 12/31/14.

12/31/14
The recommendation to use the YieldShares High Income ETF (NYSEARCA:YYY) has been removed. It looks like the provider has done a poor job of preventing front running of upcoming changes by market participants. Now use PCEF instead of YYY. If you own YYY, I would hold but would not add money. If you were planning to add money to YYY, buy PCEF instead.

06/30/14
PCEF is a replacement, due to broker limitations, for the original choice of purchasing the YieldShares High Income ETF . YYY is another best ideas fund that is actually a closed end fund (NYSEMKT:CEF) not an ETF. It is a newer (started in June 2013) than PCEF which debuted in February 2010 and is obviously smaller. YYY tracks the YYY tracks the ISE High Income Index comprised of 30 closed-end funds chosen for their combination of yield, discount to net asset value and liquidity. No holding can exceed 4.25% at the time the portfolio is constituted or when the annual rebalance is done. The index has a 59% weighting in equity CEFs, 26% in debt CEFs and 15% in asset allocation CEFs which include CEFs that don't fit into the equity or bond categories. Like PCEF, this a fund of fund concept that assumes that when professional investors go against individual investors, the professional investors will win. Since most CEFs are held by individual investors, I look at this as reasonable assumption. PCEF has a higher expense ratio, should provide less income than YYY and there is no duration data available (YYY has a duration score of less than two years). If your broker does not allow you to buy YYY, buy PCEF instead. Once the broker allows YYY to be bought, sell PCEF and buy YYY.

04/07/14 Verizon and AT&T
Target Allocation: 3.75% each
Core/Overlay: Core
Super Sector: Sensitive
Sector: Communication Services
Current Rating : Buy < $49
Current Rating : Buy < $37
Note: Buy in pairs.
06/30/16
Both VZ and T are a bit overvalued. Expect only modest dividend growth from T. T may be sold and the proceeds moved to VZ.

12/31/15
Both companies are better buys now than in 06/30/15. T may be removed and replaced solely with VZ as its management has shown poor capital allocations.

06/30/15
Moved to core bucket on 03/30/15. Likely to have these picks for a very long time.

12/31/14
VZ and T have been caught in investor myopia because of the market actions of Sprint and T-Mobile. Ignore the market action and add to positions. VZ is a growth and income stock. T is more of an income stock than growth.

06/30/14
VZ and T need no introduction. They are the biggest and are effectively the duopoly of the controlling mobile communications in the US and large parts of the world. In spite of all the hype about a consumer price war from Sprint and T-Mobile, both are small fry in the US market and even if they combined, it is questionable if they could challenge VZ and T. VZ and T spend more in one quarter on network improvements then they spend in a year. Sprint and T-Mobile are also making a splash to gain customers but killing their margins in the process. Sprint also has a heavy debt load. T's solid foray entry into the prepaid market through its purchase of Leap Wireless will only put further pressure on Sprint and T-Mobile down the road. Buy these in pairs. The unusual percentage sums to same allocation as American Tower giving the portfolio a 15% allocation to the communications industry that has utility like defensive qualities.

05/16/14 Enbridge Energy Management LLC
Target Allocation: 10%
Core/Overlay: Overlay
Super Sector: Sensitive
Sector: Energy
Current Rating: Hold
06/30/16
Weak results; buy rating pulled as dividend cut may be possible.

12/31/15
Like SE or NSH, I am bit surprised at the thumping midstream companies have taken. Because of its parent, EEQ has what it takes to thrive in a low price energy environment. A solid buy at current prices.

06/30/15
Unchanged from 12/31/14.

12/31/14
With Kinder Morgan Management (NYSE:KMR) being merged to Kinder Morgan , EEZ is the last institutional share on the market. EEQ is still in turnaround phase. Buy when below limit price.

06/30/14
EEQ is one of two MLP institutional shares on the market (KMR is the other). EEQ is purely a turnaround situation capitalizing on the fact that cash flow coverage of distributions to partners will improve as more projects come on line with eventual distribution increases as well. The parent of EEQ, Enbridge, is a well-known name that can also drop more projects down to EEQ. However, the primary driver will be the improving distribution coverage.

09/04/14 VEREIT Inc. (VER - formally American Realty Capital Properties, ARCP)
Target Allocation: 7.50%
Core/Overlay: Overlay
Super Sector: Cyclical
Sector: Real Estate
Current Rating: Buy <$9
06/30/16
Continues on path of recovery may get credit rating upgrade this year.

12/31/15
Continues slow but steady turnaround. Moved from Hold to Buy. Dividend restored. New name meaning truth. Likely to remain in a trading range $7.50 to $9.00 for 2016. Preferred stock paying high dividend and may be considered as a substitute for the common stock.

06/30/15
New CEO taking stock and financials issued on time. Looks like on the path to recovery. Likely to remain in a trading range (i.e. dead money for us) for the remainder of this year or until insight into any future dividend is restored. Preferred stock paying high dividend.

12/31/14
What difference three months makes. ARCP has been the subject of lawsuits, executive turnover, and accounting questions. The dividend has been suspended as well. ARCP is a good example of what can go wrong with an investment. No longer an income and/or growth play. Now a special situation turnaround play. Activist investor, Keith Meister via Corvex Management LP has taken a big stake. Mr. Meister has a well-deserved reputation for unlocking value. On hold for now but don't expect a rapid recovery in 2015.

09/04/14
American Realty Capital Properties, ARCP, has grown rapidly to become one of the largest net (triple-net) REITs in the U.S. It has been on my watch list for some time. I did not buy it because there were no open slots in the portfolio until SDRL was sold. Buy ARCP and collect a yield of 7.54 percent and enjoy some capital appreciation to boot. ARCP is an undervalued REIT that recently bought real estate leased by Red Lobster restaurants. The market did not like that transaction so the stock has struggled since that announcement in spite of great execution by ARCP management. Once the market understands that the transaction was a good deal and that ARCP management is executing according to plan, the discount as compared to its peers should lessen. ARCP is an overlay investment.

10/06/14 NuStar GP Holdings LLC
Target Allocation: 7.50%
Core/Overlay: Overlay
Super Sector: Sensitive
Sector: Energy
Current Rating: Buy < $30
06/30/16
Covers payout but unlikely to raised anytime soon. A potential takeover candidate. If you have a profit, consider taking some money off the table.

12/31/15
The energy sector has tanked taking the company with it which is a bit of surprise to me considering it is a midstream company with stable cash flows. Buy target lowered to $30. Ironically, a stronger buy now than it was on 06/30/15. If you have a choice between this one, SE, and EEQ with taxes not being a factor, SE would be the first choice because of its pipelines feeding the Northeast US while EEQ would be the second choice because of the support it receives from its general partner, Enbridge.

06/30/15
Restructuring plan continues to succeed as dividend has been covered by cash flow for a few quarters now. Still a strong buy as a lot more good things to come.

12/31/14
Unchanged from 06/30/14.

10/06/14
NuStar GP Holdings LLC is the general partner of NuStar Energy (NYSE:NS). NS has had cash deficiencies for years which now appears to be ending. New management has returned NS to its roots as a pipeline and storage terminal businesses which continues to provide organic growth opportunities (especially with growth of oil and gas production in the United States). NSH sports a dividend yield of 5.14% which is among the higher ones within the limited pure GP universe. NSH may also be bought out by a bigger player such as Kinder Morgan . The buyout is just icing on the cake if it were to occur. The thesis here is that the turnaround will result and an increased the stock price with resulting gains like we have seen Enbridge Energy Management .

03/13/15 The Carlyle Group LP
Target Allocation: 7.50%
Core/Overlay: Core
Super Sector: Cyclical
Sector: Financial Services
Current Rating: Buy < $15
06/30/16
Unchanged from 12/31/15.

12/31/15
Stock battered by negative sentiment in second half of the year but stock has become a better value than it was before. If you don't own, I would strongly consider this one.

06/30/15
Unchanged from 03/31/15.

03/13/15
The Carlyle Group LP is best known for its private equity offerings and it should benefit increasing allocations to alternative assets from individuals and institutions both in emerging and established markets since it has a great reputation for asset performance versus some of the other providers. CG also pays a substantial dividend (currently 7.79%) based on 75-85% of distributable earnings. CG is a partnership so it issues a K-1 instead of a 1099. Within retirement accounts, some of the tax benefits of partnership are lost but there is less complexity since no K-1 reporting is required. If you are putting enough money, to have unrelated business taxable income (UBTI) issues, then investment tax planning is a must.

06/27/16 Rite Aid
Target Allocation: 5.000%
Core/Overlay: Overlay
Super Sector: Defensive
Sector: Consumer Defensive
Current Rating: Buy < $15

The British vote on exiting the European Union has created a down draft in the stock market. Use it to buy Rite Aid which is being bought out by Walgreens for $9 a share in cash. This deal is not impacted by what is going on "across the pond" as the Brit's say. Deal is likely to close in December.

Closed Positions

Below is the history of sales from the latest to the earliest.


 

Model Portfolio Closed Positions: 20 Plus Years to Retirement - Nontax Managed

Buy Date
Sell Date
Investment Name, (Symbol) and Other Data Rationale/Comment
02/03/14
03/13/15
VCA Antech
Target Allocation: 5.00%
Core/Overlay: Core
Super Sector: Defensive
Sector: Healthcare
Basis Gain/Loss%: 69.73
Total Return Gain/Loss %: Same

06/30/15
Sold because the price of the stock had gotten ahead of itself. When the market drops, we will look to purchase this stock again.

12/31/14
Buy price raised to $35 from $32. Expect higher price in 2015.

06/30/14
The stock market swoon is providing an unexpected opportunity to buy stocks at a discount. VCA Antech is part of the medical sector but the focus is on fido and fluffy. If you have a pet requiring major surgery, chances are you have been at a VCA hospital or used a vet that relied on VCA support. People today treat their pets like kids. WOOF is a major beneficiary of this trend.
01/13/14
02/19/15
Alliance Holdings General Partners (NASDAQ:AHGP)
Target Allocation: 7.50%
Core/Overlay: Core
Super Sector: Cyclical
Sector: Basic Materials
Basis Gain/Loss%: -3.69
Total Return Gain/Loss %: 4.15
06/30/15
Coal as energy source will be used for a long time. Sold because of the high chance of increased environmental regulations, the availability of cheap natural gas for the foreseeable future which makes it easier for utilities to meet tougher environmental regulations, and the current valuation concerns. Looking like a good call as the price has been dropping ever since. Will look at again when the risk-reward ratio is better.

12/31/14
Unchanged from 06/30/14.

06/30/14
AHGP completes our holdings in the Cyclical Super Sector. AHGP is the general partner for Alliance Resources Limited Partners (NASDAQ:ARLP). The main product of both is coal which is under attack from the Obama Administration and environmentalists. In spite of the purge to get rid of coal, it will be with us for a long time in electric generation. AHGP has a three year dividend growth rate average of 17.70 percent and has had six years of consecutive dividend increases. AHGP is nice long term compliment to American Tower . Both supply essential service companies but are not limited to the rates of return they can buy.

03/11/14 09/04/14

Seadrill Limited (NYSE:SDRL)
Target Allocation: 7.50%
Core/Overlay: Overlay
Super Sector: Sensitive
Sector: Energy
Basis Gain/Loss %: -0.33
Total Return Gain/Loss %: 5.27
12/31/14
Sold because of market trends for drillers. A great company that will be periodically reviewed for future purchases.

06/30/14
SDRL is a deep water driller known for its high dividend yield, high debt, its young rig fleet and its expertise in deep water drilling. Normally a stock with high debt would concern me but after the BP disaster in the Gulf of Mexico, the age of SDRL's fleet is a major plus in that it can command higher rental rates than its competitors because of better safety equipment. The short sighted ness of the market has created an opportunity in that orders for the current year are soft but longer term outlook is solid. Oil prices are stable and the shale oil and gas revolution has not impacted the deep water companies due to US regulations on exports of oil. The company has an order backlog that looks to be stable and is the general partner of a limited partnership. The recent dividend increase may be last one for a while. Company management has indicated that the dividend won't materially increase until the order backlog expands and the market conditions support an increase. I have purchased this security in managing personal accounts for other family members and been very happy. Take advantage of the markets short-term thinking and buy SDRL.

05/16/14
10/23/15
On Assignment (NASDAQ:ASGN)
Target Allocation: 5.00%
Core/Overlay: Overlay
Super Sector: Sensitive
Sector: Industrials
Basis Gain/Loss %: 18.60
Total Return Gain/Loss %: Same

12/31/15
Sold because of valuation concerns and to raise cash for future market dips. Fine company and will revisit if price drops enough.

06/30/15
Top performer so far this year. Thesis beginning to play out. When market reaches overbought territory, it will be a sale candidate.

12/31/14
Trends have not developed as fast as I hoped. Sticking with it for now.

06/30/14
ASGN provides short and long term staffing solutions, including direct hire, to firms in the health care, life sciences, and IT fields. ASGN specializes in the highly skilled personnel with multiple years of experience. The eventual implementation of the Affordable Care Act, aka Obama care, is one factor in limiting the flexibility of employers to right size their firms. With the improvement in the economy, employers cannot continue to stretch their employees much further because of overtime costs and employee burnout. They will either have to hire or add temporary staff. ASGN will benefit from both of these trends.

01/29/16
02/08/16
Solar Winds
Target Allocation: 5.00%
Core/Overlay: Overlay
Super Sector: Sensitive
Sector: Technology
Basis Gain/Loss %: 7.38%
Total Return Gain/Loss %: Same
01/29/16
SWI is being bought out in an all cash deal. If you have some cash aside and don't mind some risk, purchase some shares. This deal should close in early February. Not a great profit but currently beats the interest on short term bond funds. This is a special situation and if you are risk averse, skip this one.

Model Portfolio Rules and Methodology

The portfolio rules and methodology are below:

  • The minimum timeline before the portfolio is dissolved is 20 years.
  • The portfolio will follow Morningstar super sector and sector groupings. The groupings are shown in the table below (super sectors are underlined):
Defensive Cyclical Sensitive
Consumer Defensive Basic Materials Communication Services
Healthcare Consumer Cyclical Energy
Utilities Financial Services Industrials
  Real Estate Technology
  • The portfolio will be benchmarked.
  • A minimum 15% equal stock allocation to stocks in the defensive, cyclical, and sensitive super sectors (45% of the portfolio total).
  • Within each super sector, the individual investment allocation can be 15%, 7.5%, or 3.75% as long as the sum equals or exceeds 15%.
  • The stock choices will be specifically identified.
  • Will maintain at all times except if go to 100% cash or if in the process of changing picks in a super sector.
  • Only equity investments (common stock, preferred stock, and/or exchange traded funds) can be a super sector choice.
  • The remaining portion of the portfolio will be considered overlay investments.
  • The overlay investment choices will not be the same ones as the core investment choices.
  • The overlay investment choices can includes: common stock, preferred stock, individual bonds, mutual funds, exchange traded funds, exchange traded notes or other investments.
  • Can go to 100% cash if necessary.
  • An investment can move from super sector to overlay and vice versa as long as the percentage limits are maintained.
  • Max number of investments is 25.
  • Tax implications will not be considered.
  • Broker limitations will apply.

Disclosure: I am/we are long AMT, MOAT, JNJ, VER, T, VZ, RSP, PCEF, EEQ, SO, RAD, CG, NSH, SE.

Additional disclosure: This is an actual money portfolio.