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The V20 Portfolio Week #8: Relative Calm

Summary The V20 Portfolio declined by 0.51%, less than S&P 500’s gain of 0.04%. The share repurchase program will continue to support Conn’s. I wouldn’t worry too much about MagicJack. Despite lower activation, the company continued to produce good cash flow. The V20 portfolio is an actively managed portfolio that seeks to achieve 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 last week’s update here ! The S&P 500 was essentially flat this week, rising only 0.04%, beating the V20 Portfolio’s performance of -0.51%. While the V20 Portfolio didn’t beat the index, considering its historical volatility, the “decline” was inconsequential. Portfolio Update Our biggest position, Conn’s (NASDAQ: CONN ), continued to rally, rising 5% from $25.72 to $27.02. This echoes my sentiment in my previous update, that the company’s share repurchasing activity will continue to buoy the share price. As the company inches closer to its Q3 earnings in December, it would appear that investors are quite optimistic (or at least more optimistic than before). Month to date, shares have risen by 42% from its low in October. Last week I also mentioned that we should pay attention to the consumer sentiment index, which could impact investor expectations, especially for the retail sector. Recently we’ve seen several retail stocks fall (e.g. Walmart, Best Buy). The final consumer sentiment index for November was 91.3, which was higher than October’s reading of 90.0. This hasn’t stopped investors from dumping retail stocks however. Fortunately for us, Conn’s buyback program will offset this near-term downward pressure. MagicJack (NASDAQ: CALL ), previously our largest position, continues to account for a substantial portion of the entire portfolio (~20%). It was quite surprising when I heard of news of a short attack on the stock. MagicJack can possibly take the title for the worst short candidate in the world with its high cash balance and high cash flow generation. These are the reasons why I still want the V20 Portfolio to get some exposure to the stock in the first place. I haven’t bothered to write a piece rebuking the short pitch, since it doesn’t reveal anything that we don’t all know already. The facts are right, but everyone is entitled to their own interpretation. Ever since day one, I believed that MagicJack’s value is derived from a core group of customers that will renew year after year. Now that shares have appreciated from a few months ago, more value has to come from growth. But this doesn’t change the fact that the company still has a good business (albeit declining) that is generating cash flow year after year. Furthermore, growth opportunities come at almost no cost to MagicJack. There aren’t expensive projects that would require a truckload of cash or any upfront commitments that would put a drag on the company’s current operation if things don’t go their way. In other words, the company can’t really lose with these expansions Looking Ahead Conn’s will report Q3 earnings next month. From a sales perspective, we know that Q3 numbers will experience a boost from new stores. The company releases monthly sales data, so the revenue increase should be expected. The determining factor will be the company’s bad debt expense, which forecasts future delinquency rates. The company has made significant improvements in its credit policy, so I believe that the number could improve. After all, the company is now lending to more credit-worthy customers. Dex Media (NASDAQ: DXM ) is still undergoing restructuring negotiations. The forbearance period was supposed to expire on Monday, but it was extended since the negotiation is still ongoing. It would seem that the forbearance period is really just a legal nuisance, and could be dragged on while negotiations take place. Nevertheless, I do believe that Dex Media is very close to its end-game, and shareholders will soon know the results of the restructuring. The amended forbearance period expires on December 14th, so keep your eyes peeled for any new developments. Editor’s Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

November ETF Asset Report

The month of November was all about heightened Fed lift-off bets and geo-political flare-ups on the Paris terror attacks. While the first confirms the U.S. growth momentum, more so after the upward revision in the Q3 GDP numbers (from 1.5% to 2.1%), the second points to lingering geopolitical threats in the coming months. Investors seem to have reacted along the headlines. At least, the asset flow pattern says that. Let us explain the trend below. ETF Asset Gainers U.S. After nagging speculations on the rate hike timeline, direct hints from the Fed this time were well digested by the market. Investors appeared to have paid more attention to the improving economy than to the fears that cheap money will now call it quits. As a result, several U.S. ETFs found a place in the top-10 asset gatherers’ list with the large-cap U.S. ETF iShares Russell 1000 ETF (NYSEARCA: IWB ) being at the helm. The fund added over $2.6 billion in assets in the month. This propelled its AUM to $15.1 billion. Three other U.S. ETFs, small-cap iShares Russell 2000 ETF (NYSEARCA: IWM ), large-cap blend Vanguard S&P 500 ETF (NYSEARCA: VOO ) and large-cap growth ETF iShares Russell 1000 Growth (NYSEARCA: IWF ) added about $2.26 billion, over $811 million and over $717 million, respectively, to their asset base. Total Bond Market Probably to spread out the risk and earn returns in the face of an impending rate hike, investors opted for the total bond market approach. This increased investors’ lure for iShares Core U.S. Aggregate Bond (NYSEARCA: AGG ) which has exposure to both government and corporate bonds. Maturity-wise, the fund follows a diversified approach. AGG hauled in about $2.45 billion to exit the month with about $30 billion in assets. Developed Markets The wave of easy money polices across the international arena, be it in Europe or the Asia-Pacific, has brightened the appeal for the developed market. In fact, the Euro zone is mulling over further policy easing if deflationary risks shoot up. This is why funds like iShares Core MSCI EAFE (NYSEARCA: IEFA ) and iShares MSCI EAFE (NYSEARCA: EFA ) have attracted about $1.53 billion and $1.02 billion, respectively. Another ETF Vanguard FTSE Developed Markets ETF (NYSEARCA: VEA ) also added about $755.7 million in assets. ETF Asset Losers Short-term U.S. Bonds The Fed’s plans to raise the benchmark interest rates in December after almost a decade, will no doubt hurt the short-term bond ETFs the most. As expected, investors rushed to leave the zone and as much as $1.36 billion in assets gushed out of the short-term bond ETF iShares 1-3 Year Treasury Bond ETF (NYSEARCA: SHY ). Another ETF SPDR Barclays 1-3 Month T-Bill (NYSEARCA: BIL ) lost $552.8 million in assets. Gold As the Fed is gearing up for policy tightening, the greenback has gained strength and is weighing on gold. Prices of gold slipped to the six-year low in the month. Even a safe haven appeal in the wake of the terrorist attacks in several parts of the globe in November could not hold back investors from fleeing the yellow metal. SPDR Gold ETF (NYSEARCA: GLD ) had to sacrifice about $1.3 billion in net assets. High Yield As the yield on the benchmark 10-year U.S. government note rose to 2.23% (as of November 25, 2015) from 2.20% at the start of the month, investors started to dump all high-yield bond ETFs. Junk bond ETF SPDR Barclays High Yield Bond (NYSEARCA: JNK ) witnessed outflows of about $1.02 billion and took the third spot. Original post