Portfolio A1 Appears to Find a Bottom

After four weeks of performance that you wouldn’t want to be downwind of, it seems appropriate that it took a new addition to the portfolio – and a fertilizer company at that – to turn around Portfolio A1. The fertilizer company, Mosaic (MOS), surged 14% last week, while the other portfolio newcomer, agricultural equipment maker CNH Global (CNH) posted a weekly return of 5.7%. For now at least, the agricultural theme is working.

The aggregate portfolio statistics are still on the ugly side, with the portfolio down 12% since the February 16^th inception, well behind the benchmark S&P 500’s 1.6% gain during the same period. With a Sharpe ratio of -0.72, a winning percentage of 36%, and a maximum drawdown of 29.9%, one has to look long and hard to find a silver lining in the portfolio’s performance. Still, I will ride this portfolio out through the end of the year, at which time I will introduce a new portfolio with a strong discretionary component, as I outlined last week.

This week Portfolio A1 swaps BRIC telecoms by saying goodbye to Moscow-based Mobile TeleSystems OJSC (MBT) and replacing it with Brasil Telecom Participacoes (BRP), an ADR that the discretionary trader in me likes a great deal. There are no other changes to the portfolio this week.

A snapshot of the portfolio is as follows:

Portfolio A1 Last Seen in Woodshed

While the SPX, DJIA and NASDAQ Composite all feel somewhere in the 4.0 - 4.7% range during the past week, Portfolio A1 plummeted 9.2%, dragging the portfolio’s aggregate performance down below that of the benchmark S&P 500 index for the first time in four months.

Southern Copper (PCU) was the only holding to fare better than the indices, losing 3.3% on the week. The next ‘best’ performers, Mobile TeleSystems OJSC (MBT) and Terex (TEX), fell 7.7% and 8.6 respectively. Two other holdings logged double digit losses on the week, with Amkor (AMKR) off 11.9% and Pinnacle Airlines (PNCL) plummeting 13.6% by Friday’s closing bell. Pinnacle’s performance is largely responsible for it being dropped from the portfolio and replaced by Navistar International (NAVZ), a stock I owned some 23 years ago when it was International Harvester. While the company has had some extremely difficult challenges in the intervening years, a recent $623 million contract award to the military vehicles division suggests considerable upside potential. Navistar lost only 1.0% last week and has the potential for a significant upside surprise in more favorable market conditions.

There are no other changes to the portfolio for the coming week.

A snapshot of the portfolio is as follows:

Portfolio A1 Swaps Oils: PBR for TSO

For someone who is largely a discretionary trader, one of the more difficult aspects of a fully mechanical trading system is sitting on the sidelines trying to get up the enthusiasm to root for stock that you wouldn’t otherwise follow. Rarely do I watch Portfolio A1 dump one stock in favor of another, pump my fist in the air and yell at my monitor, “It’s about time, dammit!” Today is one of those days, however, as I can let my lukewarm feelings about the refiner Tesoro (TSO) depart along with the stock, while at the same time welcome into the Portfolio A1 fold Petroleo Brasileiro (PBR), the state-owned Brazilian whose stock has traced almost a straight line over the past five years in rising from 5 to 65, all while generally paying a 2% dividend in the process. PBR has been a favorite of my discretionary portfolios for several years and I can only hope that it hasn’t gotten ahead of itself at this stage.

Speaking of newcomers, last week’s strong portfolio performance was led by newcomer Mobile TeleSystems OJSC (MBT), whose 7.5% weekly gain helped to more than double the portfolio’s advantage over the benchmark S&P 500 from 1.5% to 3.3%. With Russia and now Brazil, 2/5 of the portfolio is invested in ADRs; and when you consider that portfolio stalwart Terex (TEX) has a strong China component, it is worth noting that Portfolio A1's stock ranking system is unwittingly endorsing the BRIC growth thesis, albeit with limited exposure to India.

Now that my discretionary portfolio overlaps this mechanical portfolio as far as PBR, TEX and AMKR are concerned, it will be interesting to see if Portfolio A1’s performance changes dramatically, for better or for worse.

There are no other changes to the portfolio for the coming week.

A snapshot of the portfolio is as follows:

Portfolio A1 Adds ORH and MBT; Drops IT and RKT

After a dreadful week that saw Gartner (IT) stock give up 10%, I was not surprised to see the company dropped from the Portfolio A1 holdings. On the other hand, I was surprised to see Rock-Tenn (RKT) dropped as well.

It turns out that the sale of IT was triggered by a significant drop in my stock ranking system, which was largely due to technical weakness. Even with last week’s disaster, we are still able to book a 6.5% profit in the stock over the course of our three month holding period. For RKT, the stock continues to be ranked very high in my stock ranking system, but it is sold because it has now dropped 20% from the post-purchase high, which automatically triggers a selling rule, one that kicks in now that RKT's gains have slipped to 2.8%.

By way of explanation, the 20% rule is designed to get me out of high fliers that may now be in the early stages of a large pullback; during a downturn, it will often also shift the portfolio from high beta stocks to more defensive holdings.

On that theme, I welcome Odyssey Re Holdings (ORH) a reinsurance company, to the portfolio, along with Mobile TeleSystems OJSC (MBT), an ADR for the Moscow-based cellular company.

There are no other changes to the portfolio for the coming week.

A snapshot of the portfolio is as follows: