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A bit of portfolio rebalancing for my Jubak’s Picks portfolio

posted on January 14, 2014 at 2:08 pm
yuan & abacus

I’m going to take advantage of the early 2014 weakness in U.S. stocks to rebalance the Jubak’s Picks portfolio to reduce the cash position in that portfolio.

I’ll have the performance results for my Jubak’s Picks portfolio through the end of December (and with a quarter by quarter breakdown for 2013) posted within a week. (I’m currently deep into the September quarter.)

But while that’s still pending I’d like to announce a beginning of the year portfolio rebalancing.

I wasn’t able to reduce my cash position as much as I would have liked in 2013. (Nobody wants to carry 30% cash when the market is headed to a 32% gain for the year.) Back in January 2013 I made what was in retrospect a very bad decision not to increase the size of my positions in this portfolio across the board to soak up some cash. Market valuations were worryingly high, I worried, back in January.

Absent that kind of rebalancing, the only way to reduce cash positions in this portfolio is to add more positions. But the portfolio is at a size where adding a significant number of positions would push it toward an unmanageably large size.

So without a January 2013 rebalancing and without a decision to manage even more positions, I wound up stuck with too much cash in 2013.

The way I’ve rebalanced this portfolio in the past is to increase the size of each position by making an equal dollar amount purchase on an arbitrary date relatively close to the beginning of the new year. Last year a beginning position in each Jubak’s Picks stock was $12,000. This January, effective with the end of the day prices today January 14, I’ll be upping that initial position by $2,000 for each position to $14,000. In effect that means I’ll be buying $2,000 for each position in the portfolio at the January 14 closing price. Sells, when I make them, will reflect that larger position size.

Cold weather drives a hot natural gas trend–until it doesn’t

posted on January 7, 2014 at 6:45 pm

Natural gas futures continued to move higher as an Arctic vortex delivered cold, colder, and coldest air to the United States.

But hedge funds have apparently decided that this is as cold as it gets. Net long positions—bets on future rising prices—fell by 3% in the seven days ended on December 31, according to the U.S. Commodity Futures Trading Commission. Long positions have a lot of room to retreat since they were at a six-month high.

Spot natural gas prices hit a record yesterday in New York and climbed to 10-year highs in other East Coast hubs. Natural gas for February delivery rose climbed to $4.349 per million BTUs (British thermal units.) The futures are up 33% year over year and 23% from November 1 on expectations that cold weather will bring rising demand for natural gas. About 49% of U.S. homes use natural gas for heat.

The longer-term picture for natural gas, though, shows continuing growth in U.S. production. The Energy Information Administration projects that U.S. production will climb to 71.66 billion cubic feet a day in 2014. That would be a 2.1% increase from 2013 and is an increase from the 71.43 billion cubic feet the EIA projected in its prior report. I think it will take something more than cold weather—like the beginning of U.S. exports of liquefied natural gas in 2015 (which is why I have Cheniere Energy (LNG) as a Jubak’s Picks http://jubakpicks.com/the-jubak-picks/ )—to push natural gas prices higher from here on a sustained basis.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/, I liquidated all my individual stock holdings and put the money into the fund. The fund may or may not now own positions in any stock mentioned in this post. The fund did own shares of Cheniere Energy as of the end of December. For a full list of the stocks in the fund see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/.

Japanese stocks keep climbing as the yen keeps falling

posted on May 15, 2013 at 4:36 pm

A weaker yen continues to drive Japanese stocks higher.

Japan’s Nikkei 225 closed above 15,000 for the first time since December 28, 2007 today. The index is now up 77% from its November 2012 bottom. Toyota Motor (TM) and Mitsubishi UFJ Financial Group (MTU), two members of my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ , were up 3.7% and 3.1%, respectively in Tokyo trading.

The yen fell as low as 102.42 to the U.S. dollar, the lowest level for the Japanese currency since October 2008, before closing at 102.24 in Tokyo.

The financial markets seem to be betting that the yen has a clear path down to 105 to the dollar.

Part of that is confidence that the Bank of Japan and the Abe government want to push the currency at least that low in their efforts to revive the Japanese economy and increase inflation. The recently concluded meeting of the G7 group of the world’s largest economies gave Japan a green light on its efforts.

But part is the continued strength of the U.S. dollar. The Dollar Index (DXY) climbed as far as 84.09 today, its highest level since July 2012, before easing to 83.80. (The Dollar Index measures the U.S. dollar against a basket of currencies that include the euro, the yen, the pound sterling, the Canadian dollar, the Swedish krona, and the Swiss franc.)

The strength in the dollar today is yet another reminder that to climb the dollar doesn’t have to be a perfect or even a good currency; it just has to be less bad than the alternatives, the yen and the euro.

U.S. economic data released today were generally weak on an absolute basis but better than the news from the EuroZone. Industrial production in the United States decline 0.5% month over month in May—but that was pretty much what economists had been expecting. The Producer Price Index didn’t show a hint of future inflation that might inhibit the Federal Reserve’s $85 billion a month in debt purchases. The National Association of Home Builders index of strength in the housing market climbed to 44 in the month from 41. That was exactly the consensus among economists surveyed by Briefing.com.

But compare that anemic U.S. performance with the EuroZone GDP numbers released today. GDP across the EuroZone as a whole fell 0.2% in the first quarter. The French economy showed a second straight quarter of contraction with a 0.2% decline. Germany managed to scratch out a 0.1% gain, but that was less than economists surveyed by Bloomberg had expected. For 2013 the European Commission is now projecting that EuroZone GDP will fall by 0.4%. That comes after a 0.6% drop in 2012.

By the way, Japan is scheduled to release GDP data today.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , I liquidated all my individual stock holdings and put the money into the fund. The fund did own shares of Mitsubishi UFJ Financial Group and Toyota Motor as of the end of March. For a full list of the stocks in the fund as of the end of March see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/



A small-ball strategy for the uncharted territory that is 2013

posted on April 30, 2013 at 8:30 am
stocks down 1

Selling on valuation has felt like a mug’s game for the last six months or more.

The question now is this about to change. The last significant drop we’ve had in the U.S. stock market came in late spring/early summer of 2012. Wall Street is clearly worried about a replay of that late spring drop and it’s not overstating the case to call the current market jittery.

Are we about to see a drop that’s large enough in volume and long enough in duration so that selling on valuation will finally pay off? Or is this just enough head fake from a market that will keep on going up until global central banks take the punch bowl away?

If you’re sitting on cash do you keep sitting on it looking for drop? If you don’t have much cash should you be raising it hand over fist?

I wish I could give you one of those big dramatic “Sell everything” or “Buy everything” calls that make the headlines and sell lots of newsletter subscriptions. But I think this market is way more complicated than that. Valuations are high, economic fundamentals in much of the global economy are weak or weakening, but then cash flows from global central banks are simply off any recent scale.

We’re in uncharted territory. And that makes big calls tempting. But it also makes it very easy to get them wrong.

This post is instead a little call. Read more

My long-delayed report on the Jubak’s Picks portfolio for 2012

posted on April 29, 2013 at 6:22 pm

How you feel about the 7.3% return on my Jubak’s Picks portfolio for 2012 at least partially depends on what you think about the value of risk-adjusted returns.

Yes, on an absolute basis the portfolio badly lagged the Standard and Poor’s 500. The return on that index was 16% for 2012.

However, a good part of that lag—about half—was a result of the big cash position in the portfolio. The portfolio ended 2011 37% in cash and, after a year of trying to put money to work at good value I ended the year at 29% cash.

Doing some rough what ifs for 2012 on the effect of holding all that cash I get an 11.74% return on the money that the portfolio actually had invested in the stock market in 2012. That still trails the return on the S&P 500 but not nearly as badly as the actual portfolio did.

Besides depressing returns for the portfolio that cash position also lowered the volatility and the risk in the portfolio. So in theory you got lower returns but slept better at night.

I’ve always felt a certain amount of ambivalence about risk-adjusted returns.

Yes, I do believe risk-adjusted returns matter. If you shoot for the moon and hit it, you’ve had a great year. But that doesn’t justify shooting for the moon all the time. It’s a high-risk strategy that will catch up to most investors over time.

But, on the other hand, I haven’t yet found a grocery store that will give me more groceries or a car dealer that will give me more car because I’m paying in risk-adjusted dollars. At some point, a dollar is a dollar is a dollar. Risk adjusted or not.

And then, of course, let’s not forget that even accounting for the big cash position in Jubak’s Picks, the portfolio still trailed the S&P 500 in 2012.

Certainly the portfolio’s high cash position wasn’t to blame for all of that underperformance—it’s hard to match the index when your picks include Nokia (NOK) and OncoGenex (OGXI.)

What else went wrong in 2012? Read more

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