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Performance of the Model Portfolios: March, 2012
What follows is a review of the performances of Value Line’s four Model Portfolios for the month of March. 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 rose 3.3% in March. Although each of the three portfolios continued benefiting from the market’s upward move that began in December of last year, none ended the month outperforming the S&P 500 Index. Meanwhile, Portfolio IV recorded its sixth consecutive monthly gain in March, but the performance fell short of its benchmark, the Mergent Dividend Achievers (U.S. Broad), which rose 1.9%. (Read the description of each portfolio’s general investment strategy.)
Portfolio I reported a 3.1% gain for March, just shy of its S&P 500 benchmark. Although the group benefited from the general market enthusiasm exhibited during the month, three holdings stand out for their contribution to its return. Our position in the Computer/Peripherals industry was our top performer, as ownership of the stock became as much a status symbol as the company’s products. Meanwhile, our holdings hailing from the Industrial Services and Trucking businesses performed nearly as well in March, adding support to the adage that return is where you find it. On the other side of the ledger, our positions in the Maritime, Railroad, Metal Fabricating, and Auto Parts industries each lost 3%, or more, during the month. Despite the weakness in March, our holdings in the Metal Fabricating and Auto Parts businesses were among our top gainers in the first quarter. In terms of composition, Portfolio I ended the month as it began, with no trades being made.
Portfolio II recorded a return of 2.7% for the month of March. Although this showing was short of its market benchmark, the growth and income portfolio has turned in a respectable performance so far this year, in our view. The overall quality of the group’s holdings and the resulting lower risk profile tend to set the tone for this portfolio. Nonetheless, a few of the portfolio’s positions stood out during the month—namely, our holdings in the Drug, Beverage, and Air Transport businesses. Meanwhile, there were only two losers worthy of note, with support for our selections from the Railroad and Integrated Petroleum industries turning soft. There were no trades during March, though a minor rebalancing was undertaken, wherein we lightened our holdings in the Integrated Petroleum business and steered the funds to our existing positions to the Basic Chemical and Restaurant sectors.
Portfolio III posted a gain of 1.7% in March. Although the advance was short of that recorded by the S&P 500 Index, the portfolio’s performance eased past its benchmark for the first quarter, aided by the strong showing recorded in the month of January. Despite the mixed market support for the portfolio’s holdings in March, there were three notable gainers. Our selections from the Restaurant, Telecom Services, and Steel industries advanced nicely, with the three each inking double-digit returns for the first quarter. Meanwhile, our positions in the Apparel and Oilfield Services/Equipment businesses took it on the chin during the month, though only the energy-related holding ended up showing a loss for the quarter. There was one trade in March, wherein we sold our position in Xilinx (XLNX) stock at a modest profit, using the proceeds to purchase shares in a company hailing from the Auto Parts sector.
Finally, Portfolio IV registered a gain of 0.8% in March, behind its Mergent Dividend Achievers benchmark. The portfolio has gotten off to a rough start in 2012. It began with its heavy exposure to the Electric Utility industry weighing on its performance early in January, followed by the sharp decline in our holding from the Coal sector in March. Indeed, the combination of warm winter weather and new, stringent government regulations on electric power plants sent investors running for the door. Nonetheless, there was a bright spot or two in the final month of the first quarter. The portfolio’s position in the Drug sector performed well, as did one of our selections from the Food Processing business. There was one trade in March, wherein we exchanged TransAlta (TA.TO) shares, taking a moderate loss, for a position in the Telecom Services industry. As it stands now, Portfolio IV should remain of interest to investors focused on dividend income.
The Model Portfolios have each moved forward through the first three months of 2012. True, only Portfolios I and III have recorded returns ahead of their S&P 500 Index benchmark. Nonetheless, Portfolio II picked up some ground in the month of March, and its composition may well start to work to its advantage should the stock market remain unsettled. Meanwhile, we are slowly repositioning Portfolio IV so that it is less reliant on any one industry or sector for its return, helping to reduce the chances of a reoccurrence of the difficulties experienced in the first quarter. At this writing in mid-April, the stock market appears rather headline-driven, with wide swings being the order of the day, at least so far. Still, the earnings season has just gotten under way, with a handful of quite visible companies reporting favorable financial performances for the first quarter. Whether this is a harbinger for the season as a whole is an open question. That said, the portfolios 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.
As of this article’s writing, the author did not have positions in any of the companies mentioned.