What follows is a review of the performances of Value Line’s four Model Portfolios for the month of June. 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 advanced 4.1% in June. Of these three, only Portfolio II gained more than the S&P 500 Index. Meanwhile, Portfolio IV also outperformed its benchmark, the Mergent Dividend Achievers (U.S. Broad), which moved up 3.3%. (Read the description of each portfolio’s general investment strategy.)
Portfolio I reported a loss of 1.7% for June, well behind its S&P 500 benchmark. The portfolio’s performance was severely limited by particularly poor showings from three holdings. First, April-period financial results from Men’s Wearhouse (MW) were disappointing, and the stock was bid down sharply in the wake of the release. Then, just as the month was drawing to a close, our position in the Maritime industry and one of our holdings in the Trucking business issued earnings warnings for the second quarter. The damage these three holdings wrought would have been much worse had it not been for a handful of strong performances from our positions in the Industrial Services, Railroad, Cable TV, and Toiletries/Cosmetics businesses. Of the trio of stocks mentioned above, only Men’s Wearhouse stock was sold in June, with it being replaced by a member hailing from the Precision Instrument industry. The holdings from the Maritime and Trucking groups were sold just as the month of July began.
Portfolio II performed nicely in June, posting an advance of 5.0%. Although the conservative nature of the portfolio’s holdings acted as a bit of a constraint earlier in the year when the market was rising steadily, it has had a beneficial effect on its performance in the last few months, as investors worried about slowing global economic expansion and the financial problems in the euro zone. Specifically, of the 20 stocks held in the portfolio, only our holding in the Restaurant industry showed a decline in July. Meanwhile, there were some very good showings by a number of our holdings, with our top two performers coming from the Integrated Petroleum and Drug industries. We made no trades in July, though we took the opportunity to perform some minor rebalancing, wherein we took some profits in our holding in the Retail Store arena and invested them in our position in the Semiconductor business.
Portfolio III posted a gain of 2.3% in June. The performance was certainly a step in the right direction, given the difficulty the portfolio experienced in the months of April and May. Nonetheless, unlike Portfolio II, the price action of Portfolio III’s holdings was much more mixed for the month, with 12 positions moving up and eight taking steps down. However, the portfolio was spared any major disappointments, so the price declines were much more moderate than experienced by Portfolio I. On the plus side, we note that our holdings in the Apparel and Basic Chemical industries performed particularly well, recovering from uninspiring showings in May. On the other side of the ledger, our positions in the Drug and Telecom Services businesses found the going challenging. In the end, though, we made no changes to the portfolio’s composition in June.
Finally, Portfolio IV registered an increase of 3.4% in June, slightly ahead of its benchmark, and taking a large step toward reversing the decline it registered in the month of May. By and large, the portfolio’s holdings performed well in June, with 16 of its 20 positions showing gains for the month, while three of the four decliners inked only modest losses. Our top two performances for the month came from our positions in the Integrated Petroleum and Aerospace/Defense arenas, with each posting returns of nearly 10%. Meanwhile, we made one trade during June. We sold our position in Sara Lee (SLE) shares, which took a turn for the worse ahead of the company’s previously announced corporate restructuring, replacing them with a holding from the R.E.I.T. industry. The sale of SLE shares was made at a handsome profit.
Through the first half of 2012, the market value of each of the four Model Portfolios has advanced. And although Portfolio II has performed well of late, none of the four remain ahead of their respective benchmarks at the midyear point. At this writing in mid-July, attention has turned to corporate earnings for the second quarter. And, on balance, investors have not had much to cheer about. Still, expectations appear to be rather subdued, so the overall stock market seems to have so far absorbed the news without any marked declines. Despite the challenges of recent months, we note the Model Portfolios each have a unique performance objective, so they 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.
At the time this article was written, the author did not have a position in any of the companies mentioned.