We track several model portfolios in my Internet Wealth Builder newsletter. Each is designed for a specific type of investor. Our Growth Portfolio carries by far the most risk. It has also generated the highest return, an average of more than 26 per cent a year since it was launched.
There are two main reasons for these astonishingly high returns. First, it’s a small portfolio – only eight positions. That means we are making big bets when we select a security. If it performs well, it has a huge impact on our profits. If it goes sour, the loss can be substantial.
The second catalyst is momentum. We look for stocks that investors are driving up, despite what may be high p/e ratios and analysts’ cautions. I have observed over the years that when stocks develop a strong trend pattern, they tend to overshoot, either up or down. As a result, the philosophy of this portfolio is to dump the losers, ride the winners. It has paid off.
The Growth Portfolio was launched in August 2012. It had an initial value of $10,000 and a target annual growth rate of 12 per cent. The portfolio has 100 per cent exposure to the equity markets.
Here are the securities that make up the current portfolio, with an update on how they have performed since our last review in September. Prices are as of the close on Feb. 18.
iShares U.S. Aerospace and Defense ETF (ITA-A). Defence stocks are a good place for your money right now, as this ETF is proving. It invests in the U.S, defence and aerospace industry. We added it to the portfolio in 2021, and it has performed very well. The fund posted a gain of US$41.42 per unit in the latest period, and we received one distribution worth 75 US cents per unit.
Alimentation Couche-Tard Inc. (ATD-T). The stock is back on a growth track after management’s failed attempt to buy the 7/11 chain of convenience stores. The shares are up $9.47 since our last review. Plus, the company increased its quarterly dividend by 10.3 per cent effective with the December payout. We received two quarterly dividends for a total of 41 cents per share.
WSP Global Inc. (WSP-T). Montreal-based WSP is an international engineering and design firm. This stock had performed well, but took a big hit in the latest period, losing $57.83 per share. We received two dividends totaling $0.75 per share.
Fairfax Financial Holdings Ltd. (FFH-T). We added this Canadian conglomerate at the time of our last review. The company has international interests in property and casualty insurance and reinsurance. The shares are down $40.02 in the past six months, but that was partially offset by a dividend payment of $20.187 per share.
Nvidia Corp. (NVDA-Q). Nvidia makes computing chips for AI processors, and its sales keep beating even the most optimistic expectations. We added it to the portfolio in February 2023, and it is up 685 per cent since. The stock pays a tiny quarterly dividend of a penny a share.
Costco Wholesale Corp. (COST-Q). Costco shares rallied, gaining US$39.79 in the latest period. We received two quarterly dividends for a total of US$2.60 per share.
iShares S&P/TSX Global Gold Index ETF (XGD-T). This ETF invests in a portfolio of gold mining stocks. We added it to the portfolio last September and it has been a strong performer, with the units gaining 48.6 per cent in the period since.
Celestica Inc. (CLS-T). After a remarkable run, Celestica shares pulled back recently. But they are still up $48.75 since the last review and 457 per cent since they were added to the portfolio.
Cash. Our total cash plus retained earnings was $3,544.91. We moved it to Tangerine Bank, which was offering a special promotion that paid 4.5 per cent for five months on new accounts. We earned interest of $66.47.
Here is how the portfolio stood at the close of trading on Feb. 18. Commissions are not considered. The U.S. and Canadian dollars are treated as being at par but obviously gains (or losses) on the American securities are increased due to the exchange rate differential.
Comments: Despite the slump in tech stocks, the Growth Portfolio added 7.16 per cent during the latest review period. The total value (market price plus retained distributions) now stands at $217,090.47, from the original $10,000 we invested in 2012. Since this portfolio was launched, we have a cumulative return of 2,070.9 per cent. That’s an average annual compound growth rate of 26.71 per cent.
Changes: Most of our securities generated strong returns. The notable exception was WSP Global, which was down 20 per cent during the period. There doesn’t appear to be any specific reason for this but rather a combination of general market weakness, mixed reactions to earnings, and high valuations. Many analysts continue to be bullish on the stock.
However, over the 13-1/2 years we’ve been tracking this portfolio, one thing is clear: momentum is a major factor in stock price. WSP Global is a good company but right now investors have tuned it out. It will undoubtedly recover but it could lose more ground before it turns.
Accordingly, we will sell our position. This gives us a total of $21,100.91 to reinvest, including retained earnings. We will use the money to buy 130 shares of Cameco Corp. (CCO-T) at $159.52 for a cost of $20,737.60. We’ll add the remaining $363.31 to cash.
Cameco is one of the largest uranium miners in the world, producing around 15-18 per cent of global supply annually. Its primary mines are in Saskatchewan, and it also has interests in the U.S. and Kazakhstan. It owns 49 per cent of Westinghouse Electric, a major supplier of nuclear reactors and fuel services.
With the growing interest in small nuclear reactors, the stock has showed strong momentum recently, with a gain of about 30 per cent year-to-date. It touched an all-time high at the end of January.
I also suggest we trim our exposure to AI by selling 20 shares of CLS at $399.50 for a total of $7,990. That will leave us with 150 shares. We’ll use the money to strengthen our defence position by buying another 35 units of ITA for a cost of $8,411.20. We’ll take $421.20 from cash to make up the difference.
That still leaves us with a large exposure to the AI boom through NVDA and CLS. But this is a high-risk portfolio and, despite recent pullbacks, both stocks continue to generate strong gains. We’ll revisit them at the next review in August.
Our total cash plus retained earnings is now $3,112.37. We will move it to Neo Financial, which is currently paying 3 per cent on savings accounts.
Here’s a look at the revised portfolio. I will review it again in late August.
Gordon Pape is editor and publisher of the Internet Wealth Builder and Income Investor newsletters.
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