Portfolio A1 Doubles Down on Brazil

As a five stock portfolio that has sector concentration rules built in but no country or regional rules, there are occasional instances in which Portfolio A1 inadvertently takes multiple positions in a concentrated geographical area. This week is one of those instances, as the portfolio is selling fertilizer producer Terra Industries (TRA) after the company triggered an automatic sell rule by dropping 20% from the high during its holding period.

In lieu of TRA, the portfolio is adding Brazilian pulp and paper producer Votorantim Celulose e Papel SA (VCP), an ADR which I will henceforth conveniently refer to by their ticker. In Brazil Rallies While China Struggles, I recently noted how the Brazilian ETF (EWZ) had reflected the country’s recent superior performance relative to the more widely discussed China ETF (FXI); for those looking for individual Brazilian equities, you may wish to add VCP to you watch list, as it looks like it may have pulled back to technical support. VCP joins Brazilian telecom standout Tele Norte Leste Participacoes SA (TNE); together these two companies will now comprise approximately 42% of the portfolio.

In spite of some recent weakness, Portfolio A1 still holds net performance advantage of 16% over the benchmark S&P 500 index, with a 4.5% cumulative gain vs. an 11.5% cumulative loss for the SPX.

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

A snapshot of Portfolio A1 is as follows:

Brazil Rallies While China Struggles

As the chart below shows, speculative money has been cautious about China since late October, but still bullish on Brazil, as indicated by the strong performance in EWZ, the iShares MSCI Brazil Index ETF. Not only is EWZ showing a gain for the year, but in an impressive display of strength, it has rallied more than 30% off of the January low. This performance puts EWZ not only well ahead of the most popular Chinese ETF, FXI, but also considerably ahead of the broad market emerging market ETF, EEM, known formally as the iShares MSCI Emerging Markets Index.

While EWZ is a great way to play the Brazilian market, there are several ADRs that are worth singling out as well. My Portfolio A1 holds Tele Norte Leste Participacoes SA (TNE) and has also been long Brasil Telecom Participacoes SA (BRP) in recent months, but there are even better plays. In fact, of the handful of long-term global holdings that I believe you could almost buy and forget about, two of my favorites are Brazilian giants. At the top of the list is Petroleo Brasileiro SA (PBR), a.k.a. Petrobras, the superbly managed national oil company that is pushing the envelope in the ultra-deep recovery space with their massive Tupi oilfield. Close behind is Vale (RIO), formerly know as Companhia Vale do Rio Doce, the metals and mining giant that recently extracted a 65% price increase in iron ore prices from Baosteel, the largest steel company in China.

In a healthy global economy, PBR and RIO are two of the best blue chip oil and iron plays out there. For those wishing a broader, more diversified play, EWZ is hard to beat, especially as Brazil continues to outpace China.

WTI Continues to Lift Portfolio A1

In just three weeks in the portfolio, W&T Offshore (WTI) has demonstrated the beginnings of star power, logging weekly returns of 9.2%, 5.6% and, most recently, 9.6%. Also helping to increase Portfolio A1’s performance delta over the SPX was a strong performance this week from Tele Norte Leste Participacoes (TNE) (+8.6% for the week) and fertilizer high flier Terra Industries (TRA) (+3.0 for the week).

With the boost from WTI, Portfolio A1’s performance since the 2/16/07 inception now stands at of +12.3% vs. -7.0% in the benchmark S&P 500 index over the same period.

There no changes to the portfolio this week.

A snapshot of Portfolio A1 is as follows:

Portfolio A1 Makes Big Bet on Brazilian Telecoms to Start Year

For the first time in awhile, Portfolio A1 gave back some ground to the benchmark S&P 500 index last week. Even with last week’s sub-par performance, since the February 16, 2007 inception, Portfolio A1 now has a cumulative gain of 20.7%, compared to a 3.7% loss for the SPX.

After falling 7% last week, Sinopec, a.k.a. China Petroleum & Chemical Corp (SNP) has been dropped from the portfolio, victim of a rule whereby a position is automatically closed once it falls 20% from its high during the ownership period. Also dropped were Norwegian energy and aluminum giant Norsk Hydro (NHYDY), but in this instance as a result of a declining rank from the stock ranking system. The ranking system partly reflects several technical factors and picked up on the fact that NHYDY’s stock has also struggled and is down about 17% for the first two weeks of 2008.

Replacing SNP and NHYDY in the portfolio are returnee Fresh Del Monte Produce (FDP) and a second Brazilian telecom company: Tele Norte Leste Participacoes (TNE), an integrated fixed line and mobile telecom provider with a $9.5 billion market cap. TNE joins long-time favorite BRP to give Portfolio A1 an unusual mix of 2/5 Brazilian telecoms in this five-legged portfolio. By design a focused five stock portfolio is intended to make significant bets in specific sectors and regions, but it is unusual to find this type of concentration in the portfolio, which uses a maximum sector weighting of 30% to place sector limits on all new purchases. The reason there are currently two telecom companies in the portfolio is that Mosaic (MOS) has had such a strong run (up 175.7%) that it now comprises 42% of the portfolio, so that it is possible for the other four holdings to split the remaining 58% with two companies in one sector that do not total to 30%.

Note that the portfolio has no provision for limiting the concentration of holdings by country or region.

There no other changes to the portfolio this week.

A snapshot of Portfolio A1 is as follows: