Portfolio A1 Performance Update: 7/31/08

As previously promised, I am now providing a monthly performance update for Portfolio A1, which I launched live on the blog almost 1 ½ years ago.

The chart below shows the equity curve and some summary performance statistics for Portfolio A1 since the equities only (no ETFs or options), long only portfolio was created on February 16, 2007. During the 17 ½ months since inception, Portfolio A1 has posted a cumulative return (exclusive of dividends) of 14.6%, while the benchmark S&P 500 index has declined 12.9%. This adds up to a net performance of +27.5% for the portfolio vs. the benchmark.

As of July 31, Portfolio A1’s holdings included: Terra Industries (TRA); W&T Offshore (WTI); DreamWorks Animation (DWA); Synaptics (SYNA); and Hugoton Royalty Trust (HGT). For the record, Portfolio A1 also shares some common ancestry and has a stock ranking system that is similar to the VIX and More Focus Aggressive Trader model portfolio – one of the four model portfolios that I update transaction by transaction for the VIX and More subscriber newsletter.

As a reminder, Portfolio A1 was created with tools developed by Portfolio123.com and is managed via Portfolio123.com’s tool set. For more information on Portfolio123.com, please refer to an earlier post on the subject, Portfolio123.com: The Engine Behind Portfolio A1.

WTI Falters and Is Dropped From Portfolio A1

After racking up gains of 26.4% in just three weeks in the portfolio, it only took one week for W&T Offshore (WTI) to falter and be dropped from the portfolio. The culprit, as it often is, was earnings. More accurately, it was an analyst downgrade following WTI’s earnings report that helped to push the stock down 8.7% on Friday and trigger a sale. Interestingly, WTI’s stock traded up following Thursday morning’s earnings report and a generally successful conference call with analysts later that morning. It wasn't until Friday that the analyst's comments took their toll.

Friday’s slump in WTI and the rest of the portfolio undid what had been a very successful week to that point, with the result that Portfolio A1 end up losing 0.86% to the benchmark S&P 500 index for the week. Over the 1 year and 2 weeks since Portfolio A1’s inception, the cumulative return stands at 9.9% vs. -8.6% for the SPX.

In addition to WTI, Fresh Del Monte Produce (FDP) also bows out after several lackluster weeks. Replacing these two holdings are returnee StatoilHydro (STO), the state-owned Norwegian oil giant, and a new addition, San Juan, Puerto Rico-based Oriental Financial Group (OFG), a $500 million (market cap) bank whose stock is up almost 150% since August 2007.

There no additional changes to the portfolio this week.

A snapshot of Portfolio A1 is as follows:

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 Beats SPX by 15.5% in First Year, Helped by Commodity Theme

With two of the five focus positions in agriculture and energy, the commodities theme has been good to Portfolio A1. W&T Offshore (WTI), the oil and gas exploration and production company, is now up 15.4% in the two weeks it has been in the portfolio. Last week’s biggest winner was Terra Industries (TRA), which posted a 10% gain for the week, moving up with the red-hot nitrogen fertilizer space.

After one full year of performance (since the February 16, 2007 inception), Portfolio A1 officially goes in the books with a return of +8.23%, compared to a -7.25% move in the benchmark S&P 500 index over the same period, a net performance gain of 15.48% by the portfolio over the benchmark.

In terms of risk-adjusted return, the graphic to the right shows that Portfolio A1 has had an average beta of 1.48 and an impressive annualized alpha of 23.58% during the first year that the portfolio has been up and running.

In many respects, this portfolio was established to provided focused approach to "fishing for whales." That approach has been largely successful if a little inconsistent during the first year, landing such strong momentum stocks as of MOS, DRYS, TEX, PBR, RIO and others. Part of what makes finding so many big winners possible is a very high annual turnover. At 674%, this is clearly a trading portfolio, not a buy and hold approach. Losses are generally cut quickly and a new hook goes over the transom almost every week. I look forward to seeing how the portfolio fares in the second year, as we begin that year with what looks to be an extremely challenging investment environment.

WTI Boosts Portfolio A1

After a challenging start to the new year that resulted in a major reshuffling of the portfolio, it looks as if Portfolio A1 is now back on track with an interesting cross-section of holdings. Part of the credit for the performance turnaround should go to W&T Offshore (WTI), the oil and gas exploration and production company that gained 9.2% in the first week it was in the portfolio. A five stock portfolio is always a crap shoot of sorts, but given the current market environment and opportunities it presents, I am pleased with the current makeup of the portfolio.

After 51 weeks (since the February 16, 2007 inception), Portfolio A1 sports a cumulative performance of +4.8% vs. a -8.5% performance in the benchmark S&P 500 index over the same period.

Gone after just one week in the portfolio is Chattem (CHTT), which is being replaced by Invitrogen (IVGN), a lab testing and diagnostic company that just last week reported solid earnings and resolved some patent disputes. For those looking for more information on IVGN, a good place to start is with the conference call transcript from the February 5, 2008 conference call.

There no additional changes to the portfolio this week.

A snapshot of Portfolio A1 is as follows:

PBG Dampens Relief Rally at Portfolio A1

Last week provided a relief rally for most equities, but Portfolio A1 was barely able to eke out a gain, largely due to a poor earnings report from Pepsi Bottling Group (PBG). Tuesday’s report of flat case growth, increasing costs and guidance well below analysts’ expectations led to widespread dumping of the shares. Despite a rally in the markets, the bottler lost 9.1% for the full week.

In spite of PBG’s woes, Portfolio A1 is still up 6.8% for the 50 weeks since inception, as compared to a 4.1% loss in the SPX over the same period.

Not surprisingly, PBG has been dropped from the portfolio, along with LG Philips LCD Co. (LPL), a pick I was scratching my head about two weeks ago.

An interesting new addition to the portfolio is Chattem (CHTT), a consumer products company whose brands include many products advertised on late night TV (Dexatrim, Garlique, Gold Bond, Selsun Blue, pHisoderm, Kaopectate, etc.) The brands may not be sexy, but the stock has been on a tear. Back in 2000 the stock traded as low as 2.37; Friday it closed at 79.73. The other new addition is W&T Offshore (WTI), a Houston-based oil and gas exploration and production company, with geographical focus on the Gulf of Mexico.

There are no other changes to the portfolio this week.

A snapshot of Portfolio A1 is as follows: