Friday, July 13, 2007

Portfolio Performances and Selections

Thursday was trading day for my equity strategy. As such, I didn't have time to write a thoughtful post on a relevant business topic.

Today, I want to discuss our stunning first-half performance. From early January, when I purchased the portfolio for the first half of this year, to mid-yesterday, it earned 21.35% vs. the S&P500's 10.43% for the same period. That's a margin of outperformance of nearly 11 percentage points, which is the long-term average of the strategy's margin over the index, net of fees.

Terex, Occidental Petroleum, and ATI, the former very heavily weighted, and the latter a major holding, returned 58%, 39% and 32% respectively. Network Appliance, with a smallish weight, was the worst-performing holding, at -26%, while Boston Properties and PCG were the only other negative performers, with returns of -3% and -1%, respectively, for the period.

Overall, the January, 2007 portfolio was substantially weighted in energy, finance, and commercial property holdings, with some commodity- and construction-oriented holdings as well.

Our new selections appear in the nearby table (please click to see a larger version).
Perhaps most notable is the increase in equities associated with technology, energy, and construction and components manufacturing. Aligent, Apple, Avaya, Autodesk, Adobe and Memc Electronic represent the technology sector, with a total weight of roughly 35%.
Noble Energy, Edison International, National Varco, Smith International and Williams Cos. account for nearly 16% of the portfolio.
ATI, Precision Castparts, Eaton, Ingersoll Rand, and Goodyear Tire compose roughly 13% of the portfolio's weighting.
A collection of healthcare-related issues (Cigna, Express Scripts), commodities (Freeport-McMoran), retail apparel (VFC, ANF, Nordstrom) and financial (TR Price) companies make up the rest of the portfolio.
Meanwhile, our adaption of the equity portfolio strategy into call options portfolios is working as predicted. Currently, the May portfolio's value, as invested, has a total return in excess of 100%, while the June options portfolio has a total return over 80%, after only one month. Our initial expectations are for monthly options returns of at least 100%, on average, during periods of positive expectations for market performance. July marks the third month in which we will have a live options portfolio controlling an initial $1MM of equity positions according to the selection process' weights.

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