23 Feb Portfolio Update January 2018
Jenna here in my office recently updated our performance numbers for January 2018 versus the 4 indexes we measure ourselves against. The DVI portfolio was down 8.5% versus the TSXs -1.6%. As is normally the case with our portfolio, due to the concentrated nature of our investments, major moves in one or two holdings will either drag or push the performance numbers ahead or behind the indexes. In January, it was Hovnanian’s turn to bring us into the red, with that one holding dropping a whopping 30%. No negative news to speak of and we are still excited about continued recovery in the US home sector, so we are holding.
More concerning is the continued underperformance of the Canadian equity markets versus US peers, the S&P, Dow 30 and the Nasdaq. Once again, the Nasdaq was up significantly, and the S&P and Dow put in solid performances. 5 stocks make up over half of the gains in these indexes, namely Amazon, Netflix, Microsoft, Nvidia. When you add in names like Apple, Alphabet and Facebook, these stocks make up the bulk of gains in the Nasdaq over the past 12 months. It is a concentration that most investors don’t perceive when they invest in market tracking indices such as an ETF. It works perfectly when things are going up.
The Canadian market’s performance is a disaster. By our calculations, $10,000 invested in the TSX in 2007 is now worth $11,500. I think you would have been better off buying a painting from your local starving artist. Ganja has been the lone positive in the TSX (I never thought I would ever write that line, lol) – without a sustained recovery in mining and oil and gas, I expect the TSX to continue to plod along.
Historically, the DVI portfolio has outpaced all major indices over the long-haul, due to a focus on investing in Value. $10,000 invested in the DVI portfolio in 2007, would be worth over $35,000 at the end of January 2018. As I peruse the current portfolio make-up, about 70% of the portfolio is invested in what I would consider deep-value plays – these are investments in businesses where many shareholders have written the firms off and wouldn’t touch it with a ten-foot pole. Think of our investment in Sherritt (TSX:S). About 30% is invested in firms with earnings which are likely to be growing this year and may get out of the “value bin” later this year – these include Hovnanian, Career Education and AIG.
I remain on the hunt for new investments…please stay tuned.