Rate of Return: 26.7%
We track several model portfolios, each designed for a specific type of investor. Our Growth Portfolio carries by far the most risk. It has also generated the highest return, an average of more than 26% a year since it was launched.
There are two main reasons for these astonishingly high returns. First, it’s a small portfolio – only eight positions. That means we are making big bets when we select a security. If it performs well, it has a huge impact on our profits. If it goes sour, the loss can be substantial.
The second catalyst is momentum. We look for stocks that investors are driving up, despite what may be high p/e ratios and analysts’ cautions. I have observed over the years that when stocks develop a strong trend pattern, they tend to overshoot, either up or down. As a result, the philosophy of this portfolio is to dump the losers, ride the winners. It has paid off.
The Growth Portfolio was launched in August 2012. It had an initial value of $10,000 and a target annual growth rate of 12%. The portfolio has 100% exposure to the equity markets.
Comments: Despite the slump in tech stocks, the Growth Portfolio added 7.16% during the latest review period. The total value (market price plus retained distributions) now stands at $217,090.47, from the original $10,000 we invested in 2012. Since this portfolio was launched, we have a cumulative return of 2,070.9%. That’s an average annual compound growth rate of 26.71%.
Changes: Most of our securities generated strong returns. The notable exception was WSP Global, which was down 20% during the period. There doesn’t appear to be any specific reason for this but rather a combination of general market weakness, mixed reactions to earnings, and high valuations. Many analysts continue to be bullish on the stock.
However, over the 13-1/2 years we’ve been tracking this portfolio, one thing is clear: momentum is a major factor in stock price. WSP Global is a good company but right now investors have tuned it out. It will undoubtedly recover but it could lose more ground before it turns.
Accordingly, we will sell our position. This gives us a total of $21,100.91 to reinvest, including retained earnings. We will use the money to buy 130 shares of Cameco Corp. (TSX: CCO) at $159.52 for a cost of $20,737.60. We’ll add the remaining $363.31 to cash.
Cameco is one of the largest uranium miners in the world, producing around 15-18% of global supply annually. Its primary mines are in Saskatchewan, and it also has interests in the US and Kazakhstan. It owns 49% of Westinghouse Electric, a major supplier of nuclear reactors and fuel services.
With the growing interest in small nuclear reactors, the stock has showed strong momentum recently, with a gain of about 30% year-to-date. It touched an all-time high at the end of January.
I also suggest we trim our exposure to AI by selling 20 shares of CLS at $399.50 for a total of $7,990. That will leave us with 150 shares. We’ll use the money to strengthen our defence position by buying another 35 units of ITA for a cost of $8,411.20. We’ll take $421.20 from cash to make up the difference.
That still leaves us with a large exposure to the AI boom through NVDA and CLS. But this is a high-risk portfolio and, despite recent pullbacks, both stocks continue to generate strong gains. We’ll revisit them at the next review in August.
Our total cash plus retained earnings is now $3,112.37. We will move it to Neo Financial, which is currently paying 3% on savings accounts.
Here’s a look at the revised portfolio. I will review it again in late August.