A Tough Stretch

Our portfolio was hurt by growing market concerns over the past three weeks and, as a result, lost ground to the S&P 500. Large losses in Hertz Global (HTZ), Ventas (VTR), and Anadarko Petroleum (APC) could not be overcome by gains in International Paper (IP), Bank of America (BAC), and Facebook (FB). Over the past three weeks, our portfolio fell 1.3% while the S&P 500 lost 0.1%. Since its January 9 inception, our portfolio has risen 10.65%, while the S&P 500 has gained 8.06%.

Stock market traders are now increasingly concerned that interest rates will increase earlier in 2015 than previously expected, and this had a negative effect on the portfolio overall. For example, health care REIT Ventas lost 6.7%, as higher interest rates make high yield investments like REITs less attractive. However, the prospect of higher rates positively impacted Bank of America, up 4%, and Fifth Third Bancorp, up 1.6%, because higher interest rates allow banks to make more money on the spread between interest paid out to depositors and the interest paid to the bank on loans made to customers.

Declining oil prices is another concern impacting stocks, and our oil producers Anadarko Petroleum and Linn Co., LLC (LNCO) lost 3.9% and 2.6% respectively. The drop in oil prices has caused share prices to plummet throughout the energy complex as traders believe that large U.S. supplies, the strong and still strengthening dollar (oil is priced in dollars, so a stronger dollar lowers the price of oil in the U.S.), and slowing world demand will make oil prices continue to fall. Lower fuel prices did not help JetBlue Airways (JBLU), which lost 3.3% on a recent analyst downgrade. JetBlue is still our best performing position with a gain of 37%.

Hertz Global was our worst performer, losing 9.6% on continued fallout from its poor quarterly results and accounting problems. The resignation of Hertz’ CEO was not enough to turn the stock around, but it is a very good first step. Our best performer was International Paper, which rose 5.7%. The company announced a 14% dividend increase and said it may convert to a Master Limited Partnership. Facebook continues to chug along, gaining 3.9%.

I believe the market concerns that hurt our portfolio will persist for the near term. But by November, oil prices will rise and complacency about interest rates will return. When this happens bank stocks will remain higher and oil stocks will recover.

This entry was posted on Friday, September 26th, 2014 at 10:12 am and is filed under Economics, News Center, Spotlight. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.