The V20 Portfolio: Week #30
The V20 portfolio is an actively managed portfolio that seeks to achieve an annualized return of 20% over the long term. If you are a long-term investor, then this portfolio may be for you. You can read more about how the portfolio works and the associated risks here . Always do your own research before making an investment. Read the last update here . Note: Current allocation and planned transactions are only available to premium subscribers . Bonus: Recently I was interviewed by Investor In The Family , a podcast that touches on all facets of the investment world. I talked about some of my investment philosophies and why the V20 Portfolio was able to outperform. I will dedicate another piece to elaborate on certain points, but you can listen to the podcast today right here . Over the past week, the V20 Portfolio declined by 3.7% while the SPDR S&P 500 ETF (NYSEARCA: SPY ) slipped by 1.3%. Portfolio Update Despite beating earnings on Tuesday, Spirit Airlines’ (NASDAQ: SAVE ) stock shed 11.6% over the past week. The decline reflected the general pessimism towards the airline industry, as demonstrated by AMEX Airline Index’s 2.9% drop. I believe that the biggest contributor to the loss was rising oil prices. While fuel expense was still down quarter on quarter, the rallying commodity market will inevitably increase the price of fuel should the current uptrend persist. This is a macro factor that every single airline is exposed to, but I believe that Spirit Airlines will be among the least affected. Its strong operating margin (~20%) means that increasing fuel prices will be less damaging to the firm’s bottom line. To illustrate, a 500 bps increase in fuel expense as a percentage of revenue will wipe out 25% of operating profits for Spirit Airlines, whereas the same increase will erase 50% of operating profits of a company running on a 10% operating margin (e.g. Virgin America). Despite the fact that oil was climbing to new highs, Conn’s (NASDAQ: CONN ) was not able to benefit. Given disappointing retail sales in March (-0.3% actual vs +0.1% expectation), sentiment may worsen next week. While we should not be overly concerned with these month-to-month reports, it is still worthwhile to understand how macro factors can affect investors’ perception in the short term. One company that did directly benefit (at least from a market perspective) from climbing oil prices was our helicopter transportation company. While shares have appreciated, it is very possible that the company’s oil and gas revenue will continue to deteriorate in 2016. In the long-run, rising oil prices will still benefit the company by increasing demand for air transportation. However, this does not preclude the company from suffering short-term setbacks. The market has been efficient enough to recognize that distinction, at least over the past couple of weeks. The title of being the second biggest position, which belonged to Spirit Airlines, was usurped by an insurance company when we carried out our major transformation at the beginning of April. Thus far, shares have traded sideways. No matter how well the company performs in Q1 and Q2, Investor sentiment may not reverse until hurricane season passes given the company’s exposure in Florida. In that sense, next week’s earnings release may not be as important as you think. Performance Since Inception Click to enlarge Disclosure: I am/we are long CONN, SAVE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.