Before I move onto looking at future buy and sells for this long-term portfolio, let me take a look at where the 50 Stocks Portfolio has been over the last two years.
It makes some sense to treat your portfolio returns for 2018 and 2019 as one giant two year period because the near bear market at the end of 2018 dashed returns for that year but set up the recovery and high returns for 2019.
My results in my long-term 50 stocks portfolio certainly followed that pattern with an 8.22% loss for 2018 and a total return of a positive 21.19% in 2019. (The performance numbers for both years include the dividends paid by the stocks in the portfolio–a 1.43% yield in 2018 and a 1.73% yield in 2019.)
The results for each and both years, however, trail those for the Standard & Poor’s 500 as a whole.
For 2018 the total return for the S&P 500 including dividends showed a loss of 4.23%.
For 2019 the price appreciation on the S&P 500 stocks was 28.88%. Including dividends pushes the total return to 31.47% for the year.
My 21.19 total return for 2019 wouldn’t be any too shabby in most years. But in 2019 this portfolio trailed the S&P 500 index by more than 10 percentage points. (I would note that the recent positive annual returns on this portfolio–absent the 8.22% loss in 2018) have been solidly consistent at 21.5% in 2016 and 28.1% in 2017 and now 21.19% in 2019.)
So why did this portfolio trail the index?
The short answer is energy. The portfolio was overweighted in the sector in both years and paid the penalty when energy stocks fell in 2018 and then fell some more in 2019.
I had reduced the energy exposure in this portfolio by selling ExxonMobil (XOM) back in February 2017 but that still left me with sizable direct and indirect exposure to the sector in 2018 and 2019.
In 2018 I finished the year with a 47% loss on Chesapeake Energy (CHK), a 23.9% loss on Pioneer Natural Resources (PXD), a 20.5% loss on Enbridge (ENB), a 61% loss on Fluor (FLR) with its big exposure to energy infrastructure construction, a 46.5% loss on Schlumberger (SLB) and its oil services business, and a 33.1% loss on Tenaris (TS) and its oil pipe unit. 2018 wasn’t kind to emerging market stocks either and the portfolio took a 42.4% loss on shares of China Southern Airlines (ZNH) and a 41.3% loss on India’s Infosys (INFY).
For 2019 the energy sector didn’t participate in the year’s big rally. Chesapeake Energy dropped another 56.3% on the year as the company raised doubts that it would be able to survive as a continuing firm. Fluor retreated an additional 41.4% as oil company capital budgets didn’t recover. And despite my August 19 sells of Schlumberger and Tenaris I still would up with losses of 49.4% and 31.6% for the year in these stocks. (It didn’t help that Infosys continued to fall (down 36.4% in 2019) and that Brazil’s economy went into reverse sending Brazilian banking leader Itau Unibanco (ITUB) down 21.6% for the year.)
That was enough to take some of the gilding off gains of 33.9% for Cummins (CMI) in 2019. Or the 48% gains at Vulcan Materials (VMC). Or the 82% at Applied Materials (AMAT). Or the 86% at Apple (AAPL). Or the 56.6% at Facebook (FB). Or the 54.7% at Alibaba (BABA).
We’re at work here at Jubak Asset Management on an improvement to the display of this and some of the other portfolios that, by adding a column to show the gains/losses for the year to date, should make it easier to track the performance of these long-term picks in the current year. We’ll get that column up as quickly as we can get it coded.
And now onto the sells and buys to rebalance this portfolio for 2020.