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Performance of the Model Portfolios: November, 2011
What follows is a review of the performances of Value Line’s four Model Portfolios for the month of November. 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 fell 0.2% in November. Although Portfolios I and III both benefited from the market’s enthusiasm as November drew to a close, each ended the month underperforming the S&P 500 Index. Meanwhile, Portfolio II’s conservative composition worked in its favor, cushioning the market’s volatility, and it posted a modest gain for the month. Finally, Portfolio IV also recorded a gain for November, but the advance was short of its benchmark, the Mergent Dividend Achievers (U.S. Broad), which rose 3.3%. (Read the description of each portfolio’s general investment strategy.)
Portfolio I reported a loss of 0.7% for November. Although the portfolio lost ground through the first three weeks of the month, with the days leading up to Thanksgiving being particularly painful, the surge in investor enthusiasm in the wake of the four-day holiday helped push our group back to near where it was at November’s open. The upswing was a positive for all of the portfolio’s holdings, with the increase in our positions in the Trucking industry being noteworthy. There were two trades in the early part of November. Eastman Chemical (EMN), which netted a modest gain, was replaced by a stock from the Railroad industry. Meanwhile, ScanSource (SCSC) shares were sold at a moderate loss and were exchanged for an additional holding from the Trucking business, bringing the count to two.
Portfolio II recorded a return of 0.5% for the month of November. The overall quality of the portfolio’s holdings was once again an important factor in its performance. The resulting lower risk profile, which tempered the group’s rise in October, worked to its favor in November. Indeed, the effect of the market’s downturn prior to the Thanksgiving holiday was muted, by and large, leaving the portfolio well positioned for the upturn that followed. In fact, a number of Portfolio II’s holdings were trading near their 52-week highs as the month ended, with one of its positions from the Drug industry being of note. There was one trade in November. ITT Corp. (ITT) was sold as the month began at a very handsome profit, and replaced with a stock from the Environmental industry.
Portfolio III posted a loss of 1.2% for November. Nonetheless, the month ended on an up note, as positive developments on the geopolitical and macroeconomic front came to the fore, and, as a result, the portfolio’s commodity and energy-related holdings picked up market support. Our issues hailing from the Auto Parts and Medical Services industries were also on the advance as November came to a close; trading in our tech holdings also perked up. Adding it all up, though, our position in the Restaurant industry remained one of our top performers. We continued to stand pat in November, making no changes to Portfolio III. As always, though, 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 registered a gain of 1.3% in November, with the group’s concentration in high-yielding stocks working to cushion the overall market’s volatility. Our holdings from the Tobacco, Restaurant, and Food Processing industries made some respectable gains in the month. And although there were not many large decliners, our position in the Coal industry showed some weakness. We made no changes to the portfolio’s composition in November. We continue to believe Portfolio IV should remain of interest to investors focused on current income. As the month of November ended, Portfolio IV’s yield on cost basis was 4.9%, which is quite favorable.
In the end, the Model Portfolios found November to be mostly a draw. That said, their respective monthly performances do not reflect the market volatility that each experienced during the month, as investors wrestled with the festering sovereign-debt problems in Europe, the potential for slower growth in China, and the less-then-stellar prospects for expansion in the United States. Meanwhile, with one month remaining, each of the Model Portfolios is nicely ahead of its benchmark for 2011. At this writing in mid-December, though, market sentiment seems to be more on the pessimistic side, so a celebration is clearly premature. Still, recent experience suggests that market psychology can change rapidly for the better. Whatever the case, 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.