What follows is a review of the performances of Value Line’s four Model Portfolios for the month of October. 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 declined 1.8% in October. Of these three, Portfolios I and II lost less than the S&P 500 Index. Meanwhile, Portfolio IV also fell back less than its benchmark, the Mergent Dividend Achievers (U.S. Broad), which declined 1.6%. (Read the description of each portfolio’s general investment strategy.)
Portfolio I reported a loss of 0.9% for October. The tally at the end of the month showed that there were as many winners as losers. Nonetheless, the large gains from our holdings in the Apparel and Trucking businesses were not enough to keep the portfolio in the black, and it slipped into the red as October drew to a close. It was a busy month for Portfolio I, with eight changes having been made. Although trading was heavy, it gave us a chance to take profits in some of our holdings while clearing out a couple of positions that had not performed well. Of these two, our position in Caterpillar (CAT - Free Caterpillar Stock Report) did by far the most damage; the loss sustained from holding NCR Corp. (NCR) was modest. Meanwhile, the sales of Thermo Fischer Scientific (TMO), Genesco (GCO), DIRECTV (DTV), Triumph Group (TGI), Oracle Corp. (ORCL), and Omnicare, Inc. (OCR) all resulted in handsome profits. Our replacements hail from a broad range of industries, including the Telecom Equipment, Machinery, Metal Fabricating, Food Processing, Semiconductor, E-Commerce, Retail (Softlines), and Diversified Co. sectors.
Portfolio II recorded a modest loss of 0.12% in the month of October. All things considered, it was a respectable month for the portfolio, with slightly more of our holdings advancing than declining. Still, the top performance turned in by our holding from the Machinery industry was more than offset by the poor showing from our position in the Basic Chemical business. As always, the dividends received during October were a positive, though the income was insufficient to keep Portfolio II on the plus side of the ledger for the month. Meanwhile, there were two transactions in October. The first was a one-for-one trade, wherein we replaced our position in Chevron Corp. (CVX - Free Chevron Stock Report) with a stock from the Household Products sector. The second resulted from the recent corporate action taken by Kraft Foods. We decided to keep the spinoff of the company’s North American grocery and wholesale food business, augmenting that position by the proceeds from sale our holdings in the surviving company Mondelez Int’l (MDLZ).
Portfolio III posted a loss of 2.8% for the month of October. The decline was larger than that posted by its S&P 500 benchmark, and more than offset the good showing that was recorded in the month of September. Nonetheless, there were some strong performances in the month, notably from our holdings in the Recreation and Auto Parts businesses. Still, Wall Street soured on our positions in the Computers/Peripherals, Restaurant, Basic Chemical, and Oilfield Services/Equipment industries, dragging Portfolio III into the red. We note here that Portfolio III’s objective is long-term capital appreciation, and that even though 2012 has so far been a challenge, the portfolio’s performance relative to its objective is quite respectable. The composition of Portfolio III was unchanged in October.
Finally, although Portfolio IV registered a loss of 0.4% in October, it was much less than the red ink recorded by its Mergent Dividend Achievers benchmark. There were an equal number of winners and losers in the month, with the top honors going to our position in the Environmental industry, while our holding from the Basic Chemical business performed the worst. Meanwhile, the portfolio continues to generate a healthy dividend stream, making it of interest to those focused on current income. Indeed, the income received in October worked to offset about 45% of the unrealized decline recorded by our holdings in the month. There were no trades in October.
Through the first ten months of 2012, the market value of each of the four Model Portfolios has advanced. As it stands now, though, only Portfolios II and IV look to be within range of matching their respective benchmarks for the year. That is not to say that Portfolios I and III may not put together spirited performances in the last six weeks of 2012. Still, the prospects for economic growth do not inspire, and there is much uncertainty regarding the ongoing troubles in Southern Europe and the resolution of the so-called fiscal cliff here in the United States. Nonetheless, we note the Model Portfolios, taken as a group, have a good historical track record. Moreover, each has 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 of this article’s writing, the author did not have positions in any of the companies mentioned.