My portfolio – February update

Earnings season is in full swing and so far results have gone as expected.

According to Factset, 67% of the S&P 500 companies that have reported have beat the mean EPS estimate and 52% have beat the mean revenue estimate. This isn’t a huge surprise as most quarters see companies beat earnings around that clip(67% in EPS beat and 53% revenue beat are the 5-year average for the S&P 500).

The Q4 growth rate now is estimated to be 5% versus an estimate of 3.1% as of December 31st which is good to see as growth is the true engine that drives market appreciation.

Assuming this holds it will also the first time the index will see q/q growth in two consecutive quarters since Q4 ’14 and Q1’15.

For all of 2016, the S&P is expected to see earnings growth of 0.5% and revenue growth of 2.4%. That’s not great in my mind and I’m hoping for a better 2017 if this hot market wants to keep chugging along.

There were a lot of earnings call this last month and a lot of discussion was around policies the new government might implement that will hopefully spur earnings like a new tax policy and fewer regulations for certain industries.

I think the market sees a lot of those as a catalyst for growth but it’s not clear when those will be implemented and if the benefit will really spur 2017 or if it’ll fall more into 2018 results.

As far as expectations go, 82 companies so far have issued guidance for Q1 2017 and 57 of them were negative. This may sound bad but isn’t out of the norm(5-year average is 74% negative) as companies prefer to set expectations lower so they can beat on the back end.

Still, this is a reactive market which has shown how punishing it can be when guidance/performance is lower than expected with companies like UnderArmour, Gilead Sciences and HanesBrands taking huge hits. On the other side, it has also rewarded handsomely those that perform well as seen by the recent surge in companies like Hasbro and Activision.

Overall, analysts are still optimistic about 2017 with projected earnings growth of 10.3% and revenue growth of 5.6%. I’ve mentioned before how analysts are often too optimistic as 2016 projects had us pegged at a 7% growth rate and we ended up close to flat.

It seems like the market still holds out hope that the analysts are right(and/or doesn’t care because there’s no great alternatives) as the S&P has continued to do well in the past month with a 2% increase since the last update.

It’s hard to gauge this market right now and a lot of future performance might depend on 2017 earnings. The market continues to price in pretty aggressive growth compared to what we have experienced in the past few years(no growth) and if that doesn’t materialize then we could be in for some pain.

We’re certainly entering a riskier period in the investment cycle when you consider some of these high valuations. Low interest rates and lack of alternative investments makes it more difficult to analyze these in a historical context but higher valuations generally affect long-term returns negatively.

I have no certainty that the market won’t just keep going up especially if earnings growth materializes so there’s no change to my investment thesis but I do understand people who get worried when they see this type of stock market appreciation without any material growth to support it.

I’ll be watching earnings closely and looking to pick up some values if any emerge. Work is slow right now so I have plenty of time to read earnings releases and follow the market which I quite like doing!

I haven’t been overly active in buying anything as my set it and forget strategy works well in markets like this one where individual values are hard to stomach.

Maybe I’m too conservative these days as a lot of companies I’ve liked and thought about buying have surged after earnings. I could kick myself about missing these opportunities but I feel like I also have a good strategy in place that allows me to benefit from market appreciation while optimizing my risk profile.

The market seems risky to me right now and while I certainly don’t want to exit it because it might keep growing, I’d rather be invested in a way where I’m spreading my risk across a bunch of securities versus just one. Yes if the market tanks then everything will tank in one way or another and I’m potentially missing out on upside by not sticking to certain securities but it’s a risk profile that fits my personality and I’m not all that eager to change it anytime soon.

That doesn’t mean I won’t buy any individual stocks(it is one of my 2017 goals after all) but it’ll have to be a really solid value for me to consider it.

The good news is that my portfolio has continued to grow and I’ve continued to funnel money into my accounts so I’ll take continued appreciation any day if the market gives it to me and hope for improving earnings to make sure it stays that high.

Let’s take a look at the portfolio this month.

2017 has been good for the portfolio so far as this second update shows a 5th consecutive month of growth.

My portfolio now stands at $384,161.09!

That’s an increase of ¬†$11322 in one month or a 3.04% growth rate m/m.

That compares favorably to the 2% increase in the S&P 500 and is driven by solid market performance as well as additional contributions.

My taxable accounts grew 3.4% this month with Apple’s strong results leading the way. Tax-advantaged accounts were up 2.9% and cash was up about 2.5% as well.

January and February are higher than average contribution months for me as I bump my 401k contributions to get a head start on eventually maxing it out.

I can’t max it out early as I’d miss out on my employer contributions by doing so but I do like to front load the 401k a little bit if I can.

I shoud also be getting my bonus soon – potentially by the time the next update comes around and that’ll be a big(ish) contribution to my 401k that should help drive this number higher next month.

Cash makes up 8.16% of my overall portfolio now so no real change from last month.

Let’s take a look at my asset allocation.

I think things are looking good right now on the asset allocation front.

My international equities were a bit lacking last month and the goal was to get those back in line via contributions which worked rather well as they’re both right on top of the target.

There are still a couple of areas that are either a bit too high or a bit too low but I can remedy those with future contributions rather easily.

Here’s the breakdown of each asset class versus its target this month.

  • US Large Cap at 42.4% versus 42.5% target(-0.08%)
  • US Mid Cap at 10.5% versus 10% target(+0.51%)
  • US Small Cap at 10.2% versus 10% target(+0.20%)
  • US REIT at 9.5% versus 10% target(-0.54%)
  • International Developed at 15% versus 15% target(+0.04%)
  • International Emerging at 4.9% versus 5% target(-0.11%)
  • US Bonds at 7.5% versus 7.5% target(-0.02%)
Strong growth in US and international equities has pushed the REIT allocation out of whack again so future contributions will be directed there.
I’ve barely made any contributions towards any small-cap or mid-cap funds and yet those have continued to be overweight for a few months now. That shows you how strong the US equities market has been as growth in those smaller companies has been tremendous.
All that great performance in equities had coincided with under performance in bonds which are pretty much right on target now.
If the stock market continues to perform well then I might have to start buying bonds again instead of stocks. That’s the whole point of this asset allocation strategy. It allows me to easily see which areas have outperformed and direct future cash flows(or transfer funds from one area to another) to areas that are now more attractively valued! If stocks continue to perform well then bonds will become underweight and I’ll start purchasing those rather than stocks since they now likely present a better risk/return opportunity.
The good news for next month is that I’ll have some big contribution inflows due to my bonus so I’ll try my best to direct those to areas that fix the small imbalance I still have in my assets.
The goal is to be as close as bonds are right now on every category! That’ll be near impossible due to market fluctuations but I’ll certainly try my best. I’m already very happy with where I am now versus where I was when I started tracking this data but any little improvement will help.
The plan for next month is as follows.
  • But REITs in tax-advantaged accounts
  • Cash pile at 8.2% – look for value
That’s it for this month. It’s always good to see the portfolio creep higher and higher and I’m right on the edge of another milestone – 400k!
Hope this month was solid for you as well and I’ll see you all in a bit for a savings rate update.

3 thoughts on “My portfolio – February update

  1. Hi timeinthemarket,
    Congrats on another month of growth and getting closer to $400k! You're very close to your target allocation. Getting a bonus is great too – I'll be getting one at the end of this month.
    Best wishes,
    -DL

  2. $400,000 seems right around the corner! It has got to be a great feeling to know the bonus is coming soon and that your 401k will be maxed out by the end of the year no problem. Also, a very wise to idea to build up the cash and seek out true value.

    Hope you reach $400k very soon!

    Best,

  3. The market is in a very interesting spot right now. I've also reduced my buys. I'm waiting to see how the market feels about Trump. Some sectors are hot, finances and energy, but I fear the market will reverse if Trump passes some of his import taxes.

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