Stock Market Smarts: Big Gain For Growth Portfolio

Here, a portfolio with 100 per cent exposure to the stock market and its inherent risks — but big on returns.

Over the years, we have created a variety of portfolios in my newsletters for investors with varying goals and stress levels. Our Growth Portfolio, set up in August 2012, is by far the riskiest of the group, with 100 per cent exposure to the stock market. It has also been the most successful in terms of returns.

The original portfolio was valued at $10,000, distributed among eight stocks. Three were three U.S. companies while the rest were Canadian. We have switched some of the stocks over the four years since but we have retained the original mix of five Canadian and three U.S. securities. Our target average annual compound rate of return is in the 12 per cent range.

Here are the securities that make up the portfolio, with an update on how they have performed since my last review in February. Prices are as of the morning of Aug. 4.

Simon Property Group (NYSE: SPG). SPG is the largest retail property group in the United States, with interests in shopping malls across the country. The stock performed well for us after it was added to the portfolio, then retreated last winter. After a rally, it slumped again in May but since then it has been in a strong uptrend. The net result of all this activity is a gain of US$31.58 in the share price since the February review. We also received one dividend of US$1.60 for a total return over the period of 17.5 per cent.

Alimentation Couche-Tard (TSX: ATD.B, OTC: ANCUF). After a terrific run, this stock has been marking time for the past year or so. It is currently at the same level as when we last reviewed the portfolio in February, although it dipped below $52 a couple of times in the interim. The stock does not pay a big dividend but we did receive a boost of one cent per quarter to $0.0775 in July. Despite the recent flat performance, we have a total return of about 255 per cent on this one, and it is the second best performer in the portfolio.

WSP Global Inc. (TSX: WSP, OTC: WSPOF). WSP Global is one of the world’s leading professional services companies, providing technical expertise and strategic advice to clients in the property and buildings, transportation and infrastructure, environment, industry, resources, and power and energy sectors. After a bumpy period the share price has strengthened recently and is up $3.59 since the last review. We received two dividends totalling $0.75 per share.

Stella-Jones (TSX: SJ, OTC: STLJF). This is another high-flyer that has been marking time recently. The company makes railroad ties and utility poles, a dull business but a profitable one. The shares are trading at about the same level as in February but we did receive a 25 per cent dividend boost to $0.10 per quarter. Total return since inception is about 222 per cent.

Here is how the portfolio stood on the morning of Aug. 4. Commissions are not taken into account and the U.S. and Canadian dollars are treated as being at par but obviously gains (or losses) on the American securities are increased due to the significant exchange rate differential.

Comments: The current portfolio value (including dividends) is $24,894.78. That is an increase of $3,319.53 or 15.4 per cent over our last review in February. Only two of our positions lost ground and then only by a small amount: Alimentation Couche-Tard and Stella-Jones. Those losses were more than offset by big gains from New Flyer Industries, Simon Property Group, and UnitedHealth Group.

Since inception four years ago this month, the portfolio has gained 148.9 per cent. That works out to an average annual compound rate of return of 25.61 per cent, well in excess of our 12 per cent target. That’s a great result and readers who have been tracking the portfolio in their own accounts have been well rewarded. However, don’t expect the returns to continue at this rate. There will be a market correction at some point, which may pull the overall return back closer to target.

Changes: New Flyer has done very well for us, so well in fact that it now comprises almost one quarter of the portfolio. That is too large a weighting for a single stock so we have to take some profits here. We will sell 50 shares a total of $2,025 and redistribute the money as follows.

Simon Property Group: We will buy three shares at a cost of $662.85. That will increase our total position to 10 shares.

TransForce: We will add 23 shares for a cost of $587.19 to bring our total to 80.

UnitedHealth: We’ll purchase another six shares for a cost of $859.56, bringing our total position to 25 shares. We’ll use $84.60 from our cash position to make up the difference.