The V20 Portfolio Week #1: Market Tailwind

By | October 11, 2015

Scalper1 News

Summary The V20 portfolio climbed 6% vs. 3% for the index. Poor news hit a major holding, causing a selloff. Discussion about volatility. 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. Week In Review It was a great week for the U.S. market, in fact it was the best week this year . With averages up around 3%, it shouldn’t be surprising that the V20 portfolio had a great time as well. You can see from my first article that almost all of the funds in the V20 portfolio was committed, except a 6% cash stake. With a net long exposure of 94%, the V20 portfolio was able to achieve a return of 6.09% over the past week. Not too shabby if I say so myself. This level of performance was achieved despite some “negative” news coming from one of the major holdings, Conn’s (NASDAQ: CONN ). On October 8th, the company released September sales and delinquency data. The sales performance was satisfactory with comparable sales increasing by a modest 1.8%. The “negative” news mainly involved the delinquency rate, which has troubled the company for a while now. After investors learned of the increasing delinquency rate, a selloff began. After the press release, the stock declined 8% from $26.60 to $24.48 where it closed on Friday. Should we be worried? Absolutely not. You can read a bit more about the mechanics behind the delinquency rate here . Its impact is a lot less than you think. Another thing that solidified my confidence in Conn’s is the CEO’s stock transaction. After Norman Miller took over as CEO, he bought half a million dollars worth of stock at an average price of $24.89 per share. Not too often do you see a CEO sink that much money voluntarily right after he or she takes over the helm. Portfolio Beta I touched on the idea of volatility in the introduction. Today I would like to go a bit into the details. I’ve compiled the data since the beginning of the year, and the beta of the portfolio against the S&P 500 thus far is 1.06. In other words, conventional wisdom would suggest that this portfolio should fluctuate roughly in line with the index. Of course, the actual result was very different. The actual performance of the portfolio significantly deviated from the expected return. I posted this chart during the introduction but I’ll use it here again to point out some of the anomalies. (click to enlarge) From January 15th to February 5th, the V20 portfolio suffered a loss of 11% while the index rose by 3%. But from April 30th to May 15th, the V20 portfolio increased by 26% while the index grew a measly 2%. As you can see, the actual volatility of the portfolio was much much higher than what was predicted by the portfolio beta. What does this mean? If you’ve been diligently tweaking your portfolio according to the beta of your individual holdings, do not add this portfolio for its “low” beta! As I mentioned in the previous article, the portfolio may be highly volatile, always keep that in mind when you invest. The Week Ahead There isn’t any scheduled announcements from any of the holdings. However there are a couple of things that I would pay attention to. On Wednesday, the Department of Commerce will release retail sales for September. While we know how Conn’s fared in September, poor industry data could foreshadow problems in the future. Another thing that I would look out for is any announcement coming from Dex Media (NASDAQ: DXM ). Since the company stopped paying interest two weeks ago, shareholders have been left in the dark as to the progress of the ongoing negotiation. The reorganization will significantly influence the future of the equity holders. If maturities are extended, then I think the equity holders will get a lot of value since bankruptcy can be delayed as the CEO tries to turn the company around. Scalper1 News

Scalper1 News