Portfolio Changes Boost Commitment to International Stocks

During the first week of November, the mutual fund model portfolio eliminated its real estate income fund position, which was primarily a bond fund but also included some preferred and Real Estate Investment Trust securities, in order to increase its commitment to international equities, which now comprise nearly 37 percent of the total portfolio.

The model portfolio added a fund that focuses on Latin America’s emerging manufacturing industries, although the fund’s largest holding is the Mexican cellular phone company, American Movil. With this purchase, U. S. stocks now comprise 44 percent of the total portfolio, with international stocks making up 37 percent of the mix, and high yield bonds another 15 percent.

The portfolio is dominated by large cap stocks (66 percent, versus 35 percent in mid-cap or small-cap names), and the “growth stocks” are more prevalent than what Morningstar classifies as “value stocks.” The “growth” label comes more from the portfolio’s 12.7 percent projected 5-year growth rate (30% faster than its S&P 500 benchmark projected growth), than from valuations. Selling at 12.7X projected earnings, the forward P/E ratio is very reasonable, and nearly identical to that of the benchmark.

The portfolio’s current dividend yield, at 2.5%, is higher than the benchmark yield.

U.S. and Canadian companies make up 60% of portfolio holdings. Asia and Australia holdings comprise over 16% of the portfolio, with Latin American companies making up another 13%. European companies make up only about 6% of the total equity holdings.
 
Broken down by industry, health care companies make up almost 23% of the portfolio, followed by industrial companies (17%) and then by computer hardware companies (15%).

Note:  These portfolio weightings are viewed at a snapshot in time, on November 6, and could change without notice as a result of our active management discipline. 

 Douglas B. May, CFA, is President of May-Investments, LLC and author of Investment Heresies .

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