Helical Portfolio Doubles!
Helical Portfolio Doubles!
I have really enjoyed the self-imposed exercise of investing my Roth IRA entirely in the health care sector. Days like this make it all the more fun, being able to report that the portfolio has doubled. This occurred in a surprisingly (to me) short period of time. It was just 3 years and 1-1/2 months ago that I converted my Roth to be fully invested in the healthcare and began commenting on it (public notebooking of sorts) in my CAPs blog. The Roth was worth $50,173.96 at the close of 2010, and as a couple of days ago doubled to close on 2/18/2014 at $100,766.29, for my ‘first bag’ increase of $50,592.33. [It fell back on the 19th, but is again screaming ahead today thanks largely to ICLR]. The market beating CAGR of 24.9% and IRR of 19.6% are way ahead of my target “goal 8-10% annualized long term”. While the overall market has staggered a bit at the start of 2014, the Helical Portfolio’s momentum has continued since I last commented on performance, and is up > 7% year to date.
Before going through the exercise of determining where these gains came from, I have a housekeeping item. On 1/27/2014 I bought Medtronic (MDT) for $5,738.99. I had previously owned MDT in the Helical Portfolio, but had exited the position in September 2011. My concern at that time was delayed payment from Europe could be an issue for big pharma and medical equipment makers. Medtronic is a low risk, diversified health device / equipment provider that has been operationally performing well of late. I tired of ‘waiting for a better price’ so jumped on a recent dip. In hindsight, I should have built the position more slowly, but may still add on more weakness.
The exercise of determining ‘where my gains came from’ was not a simple one (hence a couple day delay). First, I had to adjust my tracking spreadsheets for the 12/31/2010 ‘start of the portfolio’, though some of the healthcare positions predated that somewhat arbitrary date. Even with adjustments, I found myself off by ~$26 (0.05%) in cumulative tracked returns ($50,618.20 spreadsheet worksheets) and the portfolio reported value at the close of 2/18/2014 ($50,592.33 brokerage snapshot). Since it would likely drive me crazy tracking that down, I am going to ignore it.
The $50,618.20 increase in the portfolio value broke down as follows:
$10,000.00 19.8% Contributions to the Portfolio.
$836.56 1.7% Divdends and Interest.
$12,768.33 25.2% Booked gains on closed or previously closed positions.
$26,986.31 53.3% Gains on open current positions.
I think this is a nice mix. Obviously going forward with a Roth, I won’t be able to ‘contribute’ my way to a portfolio double at the same rate. Still, the lesson that the very best way of increasing your portfolio value is by saving and contributing is an important one to reinforce.
The booked gains of $12,768 are from a combination of 3 sources. Booked gains on companies no longer owned in the portfolio accounts for $7,351.83. This is 57.6% of the booked gains, and 14.5% of the total portfolio gains. Gains of more than $2K were realized with PPDI (went private), Cepheid, and Mindray, but there were also substantial losses with MAKO (~$3K), and complete genomics ($1.5K). The MAKO losses helped guide toward my position sizing strategy. The second largest source of booked gains was from partial sales of companies still in the portfolio. This is typically done to adjust position sizing in accordance with risk perception and accounted for 30.7% of the booked gains, and 7.8% of the total portfolio gains. Gains of > $2K were booked on ICLR and > $1.5K with AFAM. One could argue that I was premature to book gains on ICLR, and should have ‘let it run’, but I’ll take sensible portfolio risk management over regrets any day. ICLR is today my second largest holding at ~9.4% of the port, and that is plenty.
The last source of booked gains are gains from companies that are current holding but were once fully sold from the portfolio. These include the aforementioned Medtronic as well as Athenahealth, Wellpoint and few others. Altogether these accounted for $1491.46 or 11.7% of the booked gains and 2.9% of the total portfolio gains. Rebuying companies like Wellpoint and Athena has been profitable, so ‘sell but continue to watch’ is a good investing mantra.
I do try to maintain a ‘buy to hold’ investing mindset, so it pleases me that > 50% of the gains are from positions currently held in the portfolio. But to be fair, there is not a single position that has been ‘held unchanged’ through the portfolios still short 3+ year tracking period. CVS and Cardinal health are closest, but both saw sales during 2011, only to rapidly return to the portfolio. I was certainly skittish in 2011. I am less so now, but not convinced it is to my benefit to lack paranoia. All but one of my current holdings are ‘in the money’, and that one is recently acquired Medtronic. The best overall gains have been in ICLR (>$6K), MCK, ATHN, CVS, and CAH respectively.
I also considered the portfolio gains from a risk perspective. I do think of risk a ‘perspective’ and not a measure, so my perceived risk doesn’t always coincide with metrics like beta (it roughly clusters, but doesn’t always agree). High risk holdings accounted for just 18.7% of the total portfolio gains. Surprisingly low given the market has embraced risk the last few years. The 18.7% high risk component was split as 12.1% derived from the current holdings, and 6.6% from previously ‘booked’ gains. I seem to constantly have to push myself to take more investing risk (maybe age?, I am 50). ‘High risk’ as a percentage of the portfolio has been below the 1/3 target since early 2012. Medium risk has done the heavy lifting, accounting for 47.2% of the portfolio gains. The perception of ICLR as medium risk has been a driver here. The split is 34.4% from current holdings and 12.8% from booked gains. Low risk contributed 34.2% of the total gains. A majority, 19.8%, of this came from the contributed funds of $10,000. I also considered dividends and interest (1.7% of gains), as low risk regardless of the risk level of the company that paid them. The remainder of the 34.4% low risk component included 6.9% of returns derived from current positions (like CVS) and 5.8% from booked gains.
- Continue to contribute funds (as I can)
- Add risk as called for (prudently?)
- I think I have done a good job with the difficult task of balancing booking gains and ‘buying to hold’
Thanks for reading, comments welcome.