Falling Further – Our portfolio followed the S&P 500 straight down from the May 21 all-time closing high. Unfortunately, the portfolio did not recover as sharply as the index when it bounced off its 50-day moving average on June 6, nor did it rise as smartly as the S&P 500 did on June 7, following the May employment report. Over the past four weeks our portfolio lost 1.4% while the S&P 500 gained 0.6%. Our stock positions gained 1.1% (despite a 12.7% loss in Facebook (FB)), but a 14.9% loss in mortgage REIT American Capital Agency (AGNC) combined with a 6.8% loss in our ETF positions (SPDR Gold Trust (GLD), SPDR S&P China (GXC), and Wisdom Tree Japan Hedged Equity (DXJ)) put our portfolio on the losing side of the ledger since May 10. Since its January 10 inception our portfolio has gained 4.89% while the S&P 500 has gained 12.06%.
Our stock positions were led by Ford (F), which gained 11.5% on very good North American sales reports and evidence that European operations are stabilizing. Ford is just the kind of company traders will rotate into on any sign of economic strengthening. Boeing (BA) gained 8.8% as new sales of 737 airliners were announced and Dreamliner production increased. Boeing is now our best performing position with a gain of over 31%.
American Capital’s loss resulted from the decreasing value of its mortgage portfolio as the 10-year Treasury rate vaulted from 1.8% to 2.2%. Higher interest rates will continue to hurt the mortgage REITs. Higher interest rates also drove SPDR Gold Trust down 4.5%, since gold—which has no yield—is less attractive when interest rates increase. Japan Hedged Equity lost 9.7%; the Nikkei has fallen almost 20% since mid-May as the Yen has strengthened and the latest re-flation measures were met with skepticism. SPDR S&P China lost 4.7% as concerns grow that the Chinese economy is faltering and that the measures taken by the new government there are not going to be effective.
And then, there’s Facebook, our largest position. Several factors caused the stock to lose almost 13% over the past four weeks. First, high-multiple stocks were severely punished as interest rates rose. Second, with no dividend or stock buy-back program in place, Facebook shares have no defense against short sellers. Third, COO Sheryl Sandberg lavished praise on rival Twitter in a recent interview that made her and the company appear amateurish. Ever since the botched IPO, the stock of Facebook has suffered from the perception that the company cannot do things right. Unfortunately, our portfolio needs Facebook to right the ship.
2013 MODEL PORTFOLIO
(As of June 7)
Stock Amount Change Index Amount Change
F $ 786.50 12.2% FB $ 745.31 (26.1%)
BRK-B $ 807.17 20.9% BGS $ 671.14 (7.2%)
BA $ 922.41 31.5% NWSA $ 836.42 18.2%
AIG $ 860.32 25.2% GLD $ 533.12 (18.9%)
GE $ 787.38 11.3% GXC $ 625.14 (10.5%)
AGNC $ 562.32 (18.2%) DXJ $ 807.48 16.7%
WFM $ 824.16 15%
STOCK TOTAL – $ 7,240.81; REIT/ETF TOTAL – $ 2,528.06; CASH TOTAL – $ 719.99
GRAND TOTAL $ 10,488.86 GAIN/LOSS since 1/10/13 4.89%
S&P 500 Index GAIN/LOSS since 1/10/13 12.06%