Thoughts on shares portfolio and investment review for the 1st half of 2017. What went well, mistakes made, and expectations for the 2nd half of 2017.
Contents
Introduction
I had done a couple of articles before on my personal finances and journey to financial independence (my passive income is at 82% of my expenses, so I have a bit more to go!). This article though is focused on shares investing as we dive a bit deeper into the thought process and portfolio performance. The stocks below are based on my portfolio although many of the stocks mentioned are owned by our clients as well. We look at both Bursa and US markets with a focus on long-term investing and a personal goal of above 12% compounding returns per annum. Information is for sharing purposes only and not a recommendation to buy/sell shares.
Bursa Malaysia
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Performers
The overall best performing stock is AirAsia ($AIRASIA) with returns of 65.93% since we initiated a position in December 2016. AirAsia’s debt then was higher than we liked although it was later reduced to acceptable levels with the equity injection and debt reduction. Record 2016 earnings drove the stock price up and suffered a dip before continuing its positive trend with good quarterly results. We are bullish on the stock with the expected AAC sale, special dividend and plans for a single listed Asean company. Bearish factors includes increased competition from other low-cost carriers, and impact from oil & forex prices.
The next best performing stock is Magni-Tech Industries ($MAGNI) with returns of 51.71% since we went long in February 2017. Magni’s continued expansion in 2017-2018 appears to be paying off and also the disposal of their unprofitable packaging company (SIPP). We also like that Magni continues to carry zero debt and ROE is above 20% (10 year historical: 15.96%). Magni is very strongly dependent on Nike Inc (70% revenue). Nike is taking positive steps including teaming up with Amazon as the retail industry continues to decline and Nike’s competitors showing stronger performance. We continue as well to monitor the risk of increased manufacturing moving back to the states with Nike partnering with Apollo Global.
Misses
We were somewhat skeptical of CIMB’s ($CIMB) turnaround despite improved performance in Indonesia as we expected to see only modest growth in 2017 with the slower economic outlook. Thus we took profit from the CIMB position we entered in July 2016 by early 2017. CIMB then continued to rally and gained another 42% from the point that we exited.
We revised downwards our expectations for UOA Development ($UOADEV) despite their good dividend yield, growth in hospitality division, and large land back. The overall property sector continues to stay lethargic and lending policy/rate changes expected in 2018 may further damper the sector.
We expected PBA Holdings ($PBA) earnings increase with the water tariffs increase in Penang. However, we did not enter a position as we expected returns to be slightly just shy of 12%. PBA price has since appreciated above 9%. In hindsight, maybe we should have dumped whatever spare cash we had into the stock just for the pretty much guaranteed upside.
Changes
We finally entered a position in Ekovest ($EKOVEST) after a dip in price following negative news on Bandar Iskandar. Despite Ekovest’s debt (although supposedly ring-fenced) being a bit high for our liking, we view their last quarterly report and upcoming future projects positively and showing even better performance than last year if you look beyond the expenses of the employee shares program.
Overall
We are overall positive with our Bursa portfolio performance with overall IRR of 50.78%. We entered a couple of new positions as well in 2017 Q2 and will see if the next quarterly earnings reports are as positive as expected. We are also looking for 1 or 2 more stocks to add to our portfolio and possibly exiting a position in the property sector if better opportunities appear on the horizon.
NYSE -Nasdaq
Performers
The top performer is Facebook ($FB) with 17.49% return since we entered a position in April 2017. Facebook continues as the dominant social media with growing ad revenue and a hand in other upcoming technologies. Increased regulation and security continues to be a concern although Facebook has recently won a minor victory in this area. Facebook’s lower ROE and the slight dip in EPS in the last quarter continues to weigh on as a concern and we halved our position awaiting future catalysts.
Our second top performer was Google ($GOOG) until the tech FAANG sell off occurred which moved Berkshire Hathaway ($BRK.B) into 2nd place. Our position in Berkshire has given us returns of 12.29%. We entered our position right after Trump’s election victory, unexpectedly for most, drove US shares on an upward trajectory. Although Berkshire’s returns may not match previous years with the large company size, the large cash reserves and possibility of dividends raised by Buffett offer good potential long-term value.
Changes
We view financial transactions as increasingly valuable and entered a new position with Visa ($V) in 2017 June. Visa’s large market share being the market leader and investments in digital payment appears to bring positive returns (including growing dividends). The entire credit services industry does continue to face risk of global regulations, litigation, and fintech disruptions. Despite being at a high, we believe Visa still has upside value and potential.
We wanted to increase our exposure to the healthcare sector and went with Gilead Sciences ($GILD) at the end of 2017 Q2. Gilead’s share price has gone downwards in the last 12 months to 2013 levels with pricing pressure from competitors and HCV sales declines. We are however positive with the strong cashflow, dividends, and potential 30% upside with promising opportunities including nonalcoholic steatohepatitis (NASH) treatment versus the risks.
Overall
The tech slump had a material impact in our slightly tech heavy portfolio. Overall IRR is still meeting ourexpectations at 12.29%. We had also achieved our goal of increasing our foreign stocks holding to 50% of our overall stock portfolio while also increasing our high risk investments exposure towards our higher risk-adjusted goal of 77% high risk investments. We may increase some of our existing positions slightly or at the most look into 1 or 2 more new positions for the rest of 2017. We will also look into improving entry/exit timing to further maximize gains for new and closing positions respectively.
Active Advisory
We recently launched Active Advisory services at the request of our clients in April 2017. Here is how we have been doing in our first 3 months since we launched:-
- Total assets under advisory: RM250,000
- Markets: 60% Bursa Malaysia; 40% US Markets (NYSE & Nasdaq)
- Average Number of Holdings: 3.6 companies
- Average Returns (3 months): 8.1%
- Average IRR (annualized): 50.3%
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