Philippine Stock Portfolios Recommended Since Inception
April 9, 2014
One thing about reaching a milestone or a landmark such as our five-year anniversary is that we get to review and look back at our accomplishments, mistakes and the 592 reports we made for our clients. In those reports were recommendations and advisories to minimize risks and to seek value in Philippine stocks.
We particularly wanted to see the performance of stock portfolios we recommended in Special Reports we previously made. Did they do well since they were presented relative to the PSEi (Philippine Stock Index)?
Whether a research firm is big or small, old or new, institutional or independent, performance is everything. It is the bottom-line. Research is hard painstaking work, but if the research is performing optimally, then that is just the absolute reason why it must exist and continue.
The first Philippine stocks portfolio we made was the Pymwymi Fund. We wanted a memorable name (Put Your Money Where Your Mouth Is) for our first try in making stocks portfolios. The underlying component of this roster of stocks is a strong and sustainable free cash-flow.
Inception: January 4, 2010. 50% in equal weighting is composed of JFC, SMC, UBP, AC and ICT. The other 50% in equal weighting is composed of MWC, GMA7, URC, SECB, CHIB, ABS, AGI, RLC, AEV and SM. PSEi in inception was 3,005. Portfolios adjusted to stock dividends.
It was a pleasure watching this portfolio grow through the years. In its first three months, it underperformed the PSEi and then became more resilient than the PSEi when the Greek debt crisis first came about. Some stocks’ share prices surged, while others were stagnant. These stagnant ones eventually surged themselves lifting the portfolio higher and higher than the PSEi’s performance.
In the beginning, we were hesitant in putting a big weight and even including JFC in the mix. It was as I remember coining it, “the most boring stock in the planet”, at that time. JFC was sound but never went beyond PHP50 per share. Now it’s PHP167 per share. This is a lesson that fundamentals ultimately and eventually propel share price performance.
From the 592 reports we made, the second stocks portfolio we recommended was the Growth Stocks Fund. This came from our March 11, 2011 Special Report on the use of Price to Earnings Growth (PEG) Ratio made popular by fund manager Peter Lynch.
Interesting thing about this portfolio, that is currently underperforming the PSEi, was that three stocks or 30% of the portfolio was affected by flooding, fire, earthquake and mechanical failure. PX’s Padcal mine tailings dam flooded on August 2012. One of FGEN’s San Lorenzo power plant units had a fire on May 2013. EDC… well EDC was just being EDC with its delays, mechanical failures, low steam output, earthquake and storm surge. No matter how good an analyst you are, you cannot predict force majeure.
However, by being in a mix of low-PEG stocks, the paper losses from PX, FGEN and EDC were greatly offset by the performance of the other stocks. This is the main reason why stock portfolios are great than trading or even investing in just one or a couple of stocks. Looking at the portfolio, it still made a favorable 49% return or yield from inception. It is also already catching up with the PSEi as of March 2014.
The next portfolio, the ELV-Discount Stocks Fund came from our Undervalued Stocks Special Report last October 14, 2011. They’re made up of stocks with the biggest Estimated Liquidation Value discounts at that time. This portfolio is Graham-based of course and is also reminiscent of Marty Whitman’s “Safe and Cheap” value-investing style. If investors want to buy really undervalued stocks, then they can go for the stocks trading below their scrap values. Interesting thing about this mix is that heavyweights AC, AGI and MEG were trading below ELV at that time. This fuelled the strength of this portfolio against the PSEi. The lesson here is to be constantly aware of discounts especially if the stocks with huge discounts are sound ones and heavyweights.
The last portfolio is the Strong Buys Fund from our Strong Buys Special Report last October 11, 2013. Realizing over the years that strong free cash-flow was the major element of a strong stocks portfolio, we made a mix like the Pymwymi Fund but with the selection having bargain to reasonably-priced PERs and PBVs. The result in its young stage was favorable. There are lots of banks in this portfolio given that the financials index was and is still the cheapest in the Philippine stock market.
Inception: October 11, 2013. Equal weighting in BDO, AEV, AP, MBT, GTCAP, DMC, MEG, CHIB, UBP, SECB, FGEN, PSB, ANS, PBB, V, LOTO, FPH, SGI and MB. PSEi in inception was 6,436. Portfolios adjusted to stock dividends.
We also made and presented some more portfolios in early 2014 such as the High-Growth Stocks Fund, the High Cash-Dividend Stocks Fund and the Blended Growth and High Cash-Dividend Stocks Fund. But it is still too early to gauge their performance in their infancy. Later on we will also check on them. We would like to share our lessons in making stocks portfolios over the years.
- The important elements in making superior stock portfolios in the following order are Strong Free Cash-Flow, Growth and Big Bargain Levels.
- Be aware of sound stocks and their discounts to the market.
- A good mix for a stocks portfolio is Ten to 20 stocks.
- Sound stocks have the following elements: good management, sustainable growth, hefty margins, low debt and efficient cash management.
- Unless their fundamentals have changed, just leave the stocks in the portfolio in the long term.
The Philippine Stock Market Research report is solely for information. It should not be constituted as an offer for solicitation for the purchase or sale of securities mentioned. The information herein has been obtained from sources believed to be reliable. Whilst every effort has been made to ensure accuracy, we do not guarantee the accuracy or completeness of the report. All opinions and estimates expressed herein constitute our judgment as of this date made on a reasonable basis and are subject to change without notice. No liability can be expected for any loss arising from the use of this report or its contents. As this is general information, it does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may obtain this report.