Model Portfolio - Day 1
The model portfolio had a good first day it was up 0.4% on a day the S&P 500 was down 0.4%.
We actually had two Wall Street downgrades on the first day, Wells Fargo cut TAP and B of A cut ETR on regulatory concerns in Louisiana. There was also a negative Seeking Alpha story on NG. Royal Gold was the star performer up 4%.
We start the year with the model portfolio looking like this:
Median price/book of about 2.0, I would prefer this to be under 1.5
Median market cap of $5 billion, I would prefer this to be under $2.0 billion
The average dividend yield is 2.5%, I would prefer under 1.5%
The median PE is about 12x, with only 5 stocks with negative earnings
10% gold stocks - this will be the case until gold in over $2,500
10% technology - this is less than the market, and about average for me
5% health care - about average for me
10% utilities - in a perfect world this would be 0%
In a perfect world Roche, Intel, Corning, Walgreens, and Omnicom would be replaced by market cap’s under $1 billion, but I have done enough research to find these names just yet.
About 20 years ago I was a consultant to a $1 billion manager that used this strategy, primarily as part of the Merrill Lynch “WRAP” program. When a potential client brought in a top consultant to look at that portfolio he said;
“ In 30 years in the business, I have never seen a portfolio like this”
That was a great complement. That portfolio had 75% with either negative or non-meaningful PE ratios.
This model portfolio has only 25%, with negative or non-meaningful PE ratios. I am really looking for about 10 more stocks like Matrix, Viad, First Watch, or Kirby to replace the large cap stocks.
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In the real world it would be difficult, but no impossible, to manage institutional money with this model portfolio. The “tracking error” to the S&P would be just to high.
You could run a $100 million mutual fund with this portfolio, but the risk of outflows after a bad 6 months would be too high.
In reality, this portfolio would need to be a $100 million dollar hedge fund. That would make the average position size $5 million, or no more than 5% of a $100 million dollar market cap stock.