25 Jul Portfolio Update – June 2018
Portfolio Update – June 2018
The DVI portfolio was up .66% in June 2018, slightly beating the Dow 30 Industrials (+.62%), the S+P 500 (-.46%), the Nasdaq (-1.49%) while slightly under performing the TSX which was up about 1% for the month. $10,000 invested in June 2007, along side the DVI portfolio picks, would be worth $37,288 at the end of June 2018. While the portfolio’s performance has been sub-par over the past couple of years, it still far exceeds the gains posted by the major averages. The TSX in particular has been a long-term poor performer. The largest Canadian market is still heavily weighted towards oil and gas, mining and other cyclicals. As the name implies, the market is very dependent on strong cyclical economic conditions to yield substantial returns. In some way, because of this multi-year under-performance in the TSX, I find myself drawn to the immense values offered by the Canadian markets. Where else can you find long-established businesses trading at 50% of their replacement costs? Even Teck, the giant Vancouver-based, strongly profitable, diversified industrial concern, trades at far less than what the business would cost to replace. I am more invested in commodities than at any time in my life (still only 15% of the portfolio, but, that underscores the point that I’ve never loved them too much). And I may buy more. Buying cheap has never failed me.
The US markets are lofty. There are strong pockets of opportunity. However, they are lofty. I am loving the cost inflation we are seeing with many of the well-run industrials in the US. As they are dinged by commodity price increases and the costs of tariffs trickle through the income statement, share prices come down. This is how I was able to buy Edgewell for 15% less than what it is trading at today. These firms will adjust their pricing and get their margin back, passing on costs to the consumer. I expect a lot of interesting times for the US market and I am holding 25% cash. I’ll probably keep it at around that level and would be even happier at 30%. There is no real need to be 100% invested right now. There is more than enough alpha out there to achieve good above-average returns. Be warned though…the DVI portfolio is still heavily concentrated in financials and commodities. A recession brought on by Trump-economics (a major fear of mine) will collapse returns (however, it will present great buying opportunities as well).