What follows is a review of the performances of Value Line’s four Model Portfolios for the month of August. The effects of recent market action and any changes to the Model Portfolios’ respective holdings are found in each week’s Selection & Opinion (free sample here). Portfolios I, II, and III share a common benchmark, the S&P 500 Index (adjusted for dividends), which declined 5.4% in August. Portfolios I and II reported losses for the month. And although the declines were each less than their benchmarks, Portfolio I’s performance is best characterized as holding its own. Meanwhile, Portfolio III finished the month with a deeper loss than its benchmark. Portfolio IV recorded some red ink, as well, with its decline also being deeper than its benchmark, the Mergent Dividend Achievers (U.S. Broad), which fell 2.3%. (Read the description of each portfolio’s general investment strategy.)

Portfolio I  reported a loss of 5.3% in August. The month was quite difficult for the portfolio, with its performance generally trailing its benchmark through most of the period. However, the downward swing in the stock market presented an opportunity to bring in new blood, and four changes to our holdings were made in August. The new selections included members of the Toiletries/CosmeticsAerospace/DefenseShoe, and Trucking industries, which replaced (in order) Molex (MOLX), Tiffany & Co. (TIF), Analog Devices (ADI), and Avnet (AVT) shares. As August drew to a close, investor enthusiasm in the wake of an earnings report from our holding in the Apparel industry and market support for three of our four new additions combined to bring the portfolio’s performance in just ahead of its benchmark.   

Portfolio II ended August with a loss of 3.5%. The sharp decline in the stock market in the first two weeks of the month did not leave the portfolio unscathed, with its positions in the industrial sector experiencing more pain than most, though they recovered some with investors’ short-lived optimism as the month ended. By and large, the conservative composition of Portfolio II worked to its advantage, and the defensive nature of many of its constituents cushioned the blow.  Indeed, selections from the Restaurant, Beverage, and Retail Store industries held up reasonably well, as did our two stocks from the Drug group. In keeping with the portfolio’s conservative orientation, there was only one trade in August, wherein Procter & Gamble (PG - Free Procter & Gamble Stock Report) shares were exchanged for another hailing from the Household Products industry.

Portfolio III found the going tough in August, posting a loss of 6.9%. Most of the weakness was due to its holdings in energy and commodity-related names, as oil prices dropped and talk regarding a recession began circulating. Unfavorable investor reaction to a proposed acquisition by our position in the Internet industry was also a factor in the portfolio’s loss. Meanwhile, our selection from the Life Insurance industry remained under pressure in August, given its exposure to the Japanese market and its investments in European financial assets. Despite the difficulties mentioned, we made no changes to Portfolio III in August, though, as always, we remain on watch for quality companies whose stocks are selling at favorable prices relative to their underlying long-term growth prospects.

Finally, Portfolio IV recorded a loss of 2.8% in August, matching its performance in July. Many of the portfolio’s holdings are ranked well for Safety (ranks 1 or 2) and they all have above-average dividend yields. The combination tended to cushion the downward swing in the stock market in August. However there were some setbacks, most notably arising from our holdings in the Telecom Utility, Basic ChemicalPaper/Forest Products, and Aerospace/Defense industries. We made two changes in the last week of the month,  purchasing stocks hailing from the Power and Natural Gas Utility industries and selling Quaker Chemical (KWR) and Molex shares. Adding it all up, we continue to believe Portfolio IV should remain of interest to investors focused on current income. At better than 4.8%, Portfolio IV’s yield on cost basis remains quite favorable.

Although the Model Portfolios found August to be a challenge, all remained ahead of their respective benchmarks through the first eight months of the year. Nonetheless, at this writing in mid-September, it appears that the investment waters are set to remain rough for some time yet, suggesting that the final toll has not been taken on the Model Portfolio’s returns. That said, the portfolios should continue to appeal to a range of investors with varying appetites for risk and return desiring exposure to the equity markets. Alternatively, the Model Portfolios can serve as a source of some of our best investment ideas.


As of this article’s writing, the author did not have positions in any of the companies mentioned.