Early last year, I started providing updates on the composition and performance of my personal portfolio. I have updated my subscribers on my portfolio on a quarterly basis since then. This is the update for the most recent quarter ended March 29, 2024.
Market performance 1Q24
Following strong performance for both US equities and US Treasuries in the fourth quarter of last year, the first quarter of 2024 was a return to quarters before with stocks continuing to push forward but bonds losing ground. Yields on US Treasuries were higher by around 50bps across the curve by the end of the quarter, leading to total-return losses on intermediate- and long-duration US Treasuries, and on investment grade rated corporate bonds. As strongly as US equities performed in the first quarter (the S&P 500 index was up 10.2%), the crown for the best equity market performance belonged to the Nikkei 225. The benchmark Japanese stock index powered ahead 20.6% in the first quarter, bringing its gain to nearly 42% over the last year. Similar to the surprisingly strong returns for Japanese stocks, European stocks also hit record levels (+7% in the first quarter), and the FTSE 100 danced with but did not reach its record high. Aside from equities, both gold (+7.5% 1Q24) and Bitcoin (+66% 1Q24) registered solid gains in the first quarter, also reaching record highs.
The table below shows returns for the five years 2019-2023, and for the 1Q2024, for the S&P 500 (total return), the 7-10 year UST total return index, and cash (UST bills < 3 months), along with blended returns assuming three portfolio mixes: 75/15/10, 65/20/15 and 55/25/20. As you might expect, the higher your portfolio allocation to equities and the lower to bonds, the better the hypothetical portfolio performed except in years in which equities declined in value. This was most certainly true in 2023 and the first quarter of 2024.
Although far from perfect, these are the benchmarks I use to look at my own performance for the quarter which I will cover towards the end of this article.
My portfolio attributes
Asset class mix
The table below shows the breakdown of my portfolio at the end of the first quarter 2024 by asset class, and the direction of change since the last quarterly update.
My portfolio mix as far as asset class allocation did not change materially in the quarter. Equities as a percent increased slightly, but mainly because the price of equities increased. The percentage of cash and cash equivalents (UST bills < 3 mos maturity) rose slightly, from 10.4% to 11%, mainly due to maturing UST bills. In fact, nothing has changed as far as my thinking from the time I penned the last update as far as portfolio mix, although naturally in retrospect, I wish I had been even more heavily invested in equities given what happened in the quarter. Hindsight is 20/20! The philosophy of my portfolio strategy will continue to be shaped by the following:
Financial markets will (eventually) get more challenging, so my stock portfolio will likely continue to gradually shift to a more defensive posture,
My corporate bond portfolio (credit) will remain focused on shorter-dated (i.e. less than two years) investment grade USD-denominated bonds and leveraged loans (latter meaning “top of the capital structure” high yielding, secured floating-rate loans),
Short-term yields will remain elevated, so I will keep a good mix of shorter-dated UST bills and cash to meet my own cash flow needs , since these are generating mid-4% to 5% returns, and
Stay long equities and employ options strategies to provide insurance / hedging, some on individual names and some on the S&P 500 index. I have always been an investor that recognises it is impossible to time the market. Therefore, my philosophy is that it is better to pay for downside protection via portfolio insurance than getting in and out of equities.
Top 10 equity holdings
The table below shows my top 10 equity holding at the end of 1Q2024:
My top 10 individual equity positions accounted for 43.9% of my total portfolio at the end of the quarter, 2% more than at the end of the year. Most of the changes in the top half of the chart mimicked the performance of the shares. For some positions in the bottom half oif the table (CSCO, PG), I added scraps to existing positions. Berkshire has been an outstanding performer, but I will lighten on this name in the second quarter because it is becoming too concentrated of a position in my portfolio. AMZN, MSFT and GOOG have performed well, AAPL less so. LULU dropped out of the top 10, not because I sold shares, but because they are down circa 30% YtD.
At the end of the quarter I held positions in 25 individual stocks, which in total represented 66.1% of my total portfolio including gold and alternatives. In addition to individual stocks, my other equity exposure (7.9% of total portfolio) was through stock ETFs, mainly in energy (XLE) and certain countries / blocs where I want exposure through indices including Japan (Nikkei 225), China (Shanghai Composite) and Europe (STOXX 600).
Major 1Q24 equity trades
Major equity trades during the fourth quarter included:
Sold KMB and MKC because the stocks have both been drifting lower for months. In a nutshell, I had had enough and felt returns could be better earned elsewhere.
Added to VISA, CSCO, PG, JNJ, CRWD and LULU on weakness, mainly scraps / add-ons.
Started a position in Novo Nordisk (NVO) after doing work on obesity drugs, and also re-entered LLY with a tiny toehold just to keep an eye on the shares of this major and diversified pharma company.
Options strategy to hedge
During the quarter I employed some hedging strategies, mainly involving writing covered calls and using the proceeds to buy puts (flat trade) on what I considered to be the most vulnerable positions. These included MSFT, AAPL, ABNB, LULU and CRWD. In all cases, my use of covered calls + long puts represented concerns with (over)valuation. My timing wasn’t perfect on some of these, but it rarely is. During the first quarter, I lost shares of CRWD because of a covered call position (which I replenished), and unfortunately timed my hedging strategy on LULU wrong because the puts would have come in very handy later in the quarter. I currently have options hedging strategies in place on AAPL, ABNB and GOOG. I also have covered calls open on AMZN and MSFT, set to expire mid-April and both well out of the money.
As far as market protection, I extended S&P 500 index puts (SPX) to June and raised the strike to 465, as a form of downside protection / insurance. I will likely continue to roll these forward, because the cost is modest compared to the forgone opportunity cost of not being fully invested. This insurance covers circa 30% of my equity portfolio.
Equity sector breakdown
The table below contains a stratification of my equity portfolio by sector, including all 25 individual stocks and one sector-specific ETF.
The only significant shift was in consumer staples, which declined sharply (from 17.6% at the end of 2023) because I exited positions in KMB and MKC during the first quarter, for reasons discussed earlier.
As far as geographic exposure, 85% of the stocks I own have their headquarters in the US or Canada, 11% in Europe (including the UK), 2.1% Japan (country ETF) and 1.6% China (country ETF). Keep in mind that headquarters aside, most of the companies are global players regardless of where they are headquartered, although the exchange on which the various companies’ shares are traded of course matters.
Fixed income holdings
My fixed income holdings at the end of 1Q2024 are summarised in the table below:
Major 1Q2024 fixed income trades
I had a fair amount of UST bills that matured in 1Q2024. I generally left the proceeds in cash since I am earning 4.75% or so on these balances. I will redeploy some of this early in the second quarter, probably into a combination of UST bills (especially given the level of rates at the moment), short-dated corporate bonds and/or targeted maturity (investment grade, less than two years) corporate bond ETFs.
Portfolio returns: 1Q2024
I have looked at my returns in a simplistic manner for my combined stock, bond and cash portfolio only (i.e. ignoring alternative investments). On this basis, my $ portfolios (US accounts only) had a total return (price change + dividend/interest income) of 5.6% in the first quarter, versus FY2023 return of 17.1%. My £ portfolio had a total return (£) of 4.9% in the first quarter, versus 3.1% for FY2023. The £ portfolio does not includes currency fluctuations. However, when my £-denominated holdings are converted into USDs, my blended return across all of my accounts in USD-equivalent for the first quarter 2024 was 5.5%. Recall that a 75/15/10 portfolio mix (see first table in this article) returned 8.2% for the quarter, so the performance of my portfolio underperformed this hypothetical portfolio. The underperformance can be attributable to at least three things (and perhaps more):
Although I own four of the Mag 7 stocks, I do not own either of the big runners in 1Q2024, namely META and NVDA.
LULU – a top 10 position at year-end – was down sharply (30%) in the quarter because it became over-valued, and then it revised its revenue guidance down in mid-March. (As an aside, I added slightly on the weakness late in the quarter.)
I have consciously tilted towards a more conservative portfolio, or at least I would like to think so, and this has a bearing on returns. The current return (dividends + interest income) on my portfolio in the quarter was 0.55%, or 2.2% annualised, compared to an annualised yield of 1.35% for the S&P 500 in 1Q2024.
To help you think about your returns in 1Q2024, these were returns in the quarter across several asset classes:
S&P 500: 10.2% index only, 10.6% total return
US Treasury 7y-10y total return: -1.4%%
Corporate bonds, investment grade: -0.1%
Corporate bonds/loans, high yield: 1.5%
Cash (more or less): 4.6%
What’s ahead
To the surprise of many investors, equities continued to have strong momentum in the first quarter, not only in the US, but also in Europe and Japan. The appreciation in US equities was arguably more balanced than in 4Q2023, although NVDA and META were key drivers of the indices overall. Not owning one or both of these stocks in the quarter was costly. Even more surprising, yields edged back up the entire quarter as investors started to reflect the “higher for longer” mantra. Without question, the strong and resilient US economy is making the “final mile” in the inflation fight more difficult, bad for bonds but positive for stocks. Stocks are certainly priced for perfection, and any shift in sentiment for any reason could cause valuation multiples to compress, which would push stocks lower even if corporate earnings remain strong. I am cognisant of the major risks on the horizon, specifically geopolitical risk around two ongoing wars and the upcoming US election. Combined with rich valuations, these concerns will probably keep me more conservatively positioned as we move through the second quarter, although I remain willing to add to core positions at lower levels in select cases.
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