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Performance of the Model Portfolios: September, 2012
What follows is a review of the performances of Value Line’s four Model Portfolios for the month of September. 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 advanced 2.6% in September. Of these, none gained more than the S&P 500 Index. Meanwhile, Portfolio IV was also unable to keep pace with its benchmark, the Mergent Dividend Achievers (U.S. Broad), which moved up 2.1%. (Read the description of each portfolio’s general investment strategy.)
Portfolio I reported a return of 1.7% for September. Although there were more winners than losers, our holdings did not receive the kind of support needed for the portfolio to outperform its S&P 500 benchmark. True, there were notable gains in our positions in the Aerospace/Defense, Apparel, and Drug industries, but they were insufficient to put our group over the top. Meanwhile, trading activity was high in September, with five trades having been made. We sold our holdings in Coinstar (CSTR), Dana Holding (DAN), Helen of Troy (HELE), Kennametal (KMT), and Norfolk Southern (NSC) shares. The profits realized from the sale of CSTR, DAN, and HELE far outweighed the losses sustained from holding KMT and NSC. The open positions were taken by members from the Beverage, Diversified Chemical, Toiletries/Cosmetics, Information Services, and Biotechnology industries.
Portfolio II advanced 1.5% in the month of September. Many more of the portfolio’s holdings made positive contributions than not, with our positions in the Telecom Services and the Drug industries being notable. That said, our holding in Intel (INTC - Free Intel Stock Report) proved difficult during the month, and we decided to go separate ways. We made a very handsome profit on the sale of the stock, though, and replaced it with a company hailing from the Household Products arena. We once again point out the importance that dividend income has on this portfolio’s return. Indeed, the dividends received during September accounted for nearly one-third of Portfolio II’s advance for the month.
Portfolio III posted a gain of 2.3% for the month of September, recording the best performance of the four Model Portfolios but still just short of its S&P 500 benchmark. A number of the portfolio’s holdings added nicely to its performance in September, including our positions hailing in the Internet, Restaurant, and Pharmacy Services industries. ITT Educational (ESI) also made a positive move in the month, and we took the opportunity to sell our position. Unfortunately, the gain at the end was insufficient to overcome the drubbing this stock had already taken in the wake of new governmental regulations placed on the for-profit education business, and we realized a hefty loss on the sale. The open position was taken by a stock from our Diversified Metals and Mining industry.
Finally, Portfolio IV registered an increase of 1.4% in September. If not for the declines in our holdings in the Environmental and Tobacco industries, Portfolio IV would have matched its Mergent Dividend Achievers benchmark’s performance of 2.1%. Nonetheless, there were a number of upward moves in September, with our positions in the Telecom Utility, Property Management, and Paper/Forest Products sectors being notable. In keeping with our desire to keep turnover low, there were no trades in September. We note the portfolio continues to provide a healthy dividend stream, and so remains of interest to those focused on current income.
Through the first nine months of 2012, the market value of each of the four Model Portfolios has advanced. However, the portfolios have so far found the second half of the year to be much more difficult to navigate than the first, and their performances have been mixed relative to their benchmarks. Indeed, as it stands now, it appears that Portfolios II and IV have the best chances of matching their benchmarks this year. That is not to say that Portfolios I and III may not put together strong finishes to 2012, but both have a fair amount of ground to make up. 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.
As of this article’s writing, the author did not have positions in any of the companies mentioned.