My Portfolio – Q2, 2021 Update

And just like that, the second half of 2021 is already upon us. I don’t know about you, but I still can’t believe we’re already halfway through the year. Anyway, I digress. Time to chat about stocks!

With inflation in the air and talk of rising interest rates, the second quarter has been a bumpy one for the stock market. While it hasn’t been the smoothest of quarters, the major Australian and U.S. indexes ended the quarter higher than they started it. No complaints from me!

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While we’re on the topic of reading, cast your eyes over my list of best investing/business book recommendations including those also recommended by my guests on The Inside Word. Every book listed has helped me and my guests become better investors. I have no doubt they’ll do the same for you.

My Biggest Lesson Of The Quarter

I’m a firm believer that all investors need to do their utmost to understand a business inside and out before making an investment. Not knowing a business thoroughly increases your chances of receiving unexpected, and sometimes unwelcome news. I learned this through my investment in A2 Milk (ASX:A2M)

I always look for a sizable moat (competitive advantage) before investing in a company. In my view, A2M’s moat was their brand. There’s no doubt that A2M has done a great job of marketing its product, allowing them to create a reputable brand. The problem for me was that I thought the A2 Milks brand would stand the test of time, and the great times would continue rolling.

Unfortunately, that hasn’t been the case so far. Rampant competition (locally & abroad), and a languishing daigou trade thanks to the pandemic has resulted in a series of earnings downgrades for A2. 

Earnings downgrades usually result in declining share prices, and A2 is no exception. A2 Milk has seen over 65% of its market value erased over the past year. A2M peaked at $20 per share roughly one year ago, and I’m down about 35% to date from my $10 entry price in January 2021.

This Was My Downfall With A2

The lesson in all this? Understand the business. I knew A2 was facing headwinds with their highly popular daigou trade, which I believed to be temporary and would recover once international travel resumed. That’s why Invested, I saw a short term problem that scared the market, and may have presented an opportunity for long term investors willing to ride out the storm.

The longer-term, more structural issue I was less aware of was how quickly A2 Milks competition was mobilising to steal market share. Looking ahead, I think it will be difficult for A2 to maintain their premium pricing given the rise in alternative milks, and other A2 products hitting the market. 

For the long term investor A2 could still be a great buy at these prices if you think the daigous will return, and the A2 brand will stand up. Only time will tell! I’m holding my shares for now, but not confident A2M will return to their pre-pandemic highs. 

My Portfolio Strategy 

Before I begin unpacking my portfolio in more detail, it would be handy for you new readers to get a handle of my ‘Core and Satellite’ investing strategy before I move on into more detail. If you’re keen to learn more, I’d highly recommend heading over to my Q4, 2020 Portfolio Review to get a stronger grasp on my approach. 

Chart #1 - Q2, 2021 Satellite Portfolio Breakdown
Chart #1 – Q2, 2021 Portfolio Breakdown

Hold up Jesse, why on Earth are you carrying 22% cash?

Why all the cash you ask? Good question. I provide a pretty detailed answer to this question in my Q1, 2020 portfolio review, which you can read here. But in short, this cash position exists mainly to capitalise on any market, sector or company sell-offs. Whenever the sell-off happens is anyone’s guess, which is why I like to have some dry powder up my sleeve.

I don’t plan on adding to my cash position in the near future, so next by the end of Q3, it should be below 20% as I continue to invest monthly.

Core Portfolio

My core portfolio, which ideally should encompass the majority of my portfolio is designed to be totally passive. I consistently invest money into index-tracking ETFs that make up the core portfolio, and don’t plan on withdrawing any funds for years to come! (Boring, I know)

Not a whole lot has changed on this front over the quarter, which isn’t a bad thing! As I continue to dollar cost average into my three core ETFs (NDQ, VGS & VAE), the compounding snowball effect only gets more, and more powerful. Like my investing hero Warren Buffet once said, “Lethargy bordering on sloth remains the cornerstone of our investment style.” In other words, good long term investing is boring!

As I continue to invest monthly into my core holdings, I’ll eventually see the value of my core holdings surpass my satellite portfolio. Being reasonably new to fundamental analysis on individual stocks, I think it would be prudent of me to keep my satellite as roughly 20% of my portfolio as a risk mitigation measure at this early stage in my investing career.

Chart #2 - Q2, 2021 Core Portfolio
Chart #2 – Q2, 2021 Core Portfolio

Satellite Portfolio

Alrighty, let’s get stock specific with the satellite portfolio. This is the part of my portfolio where I put my investing skills to the test by trying to selectively pick companies I think will outperform the Aussie ASX 200 Index. You may have noticed the ‘others’ category, which is essentially a collection of US companies I hold through Stake like Visa and Ferrari.

Chart #3 - Q2, 2021 Satellite Portfolio
Chart #3 – Q2, 2021 Satellite Portfolio

Here’s what I’ve bought

Bought: Kogan.Com (ASX:KGN)

I made the decision to take advantage of Kogan’s short term pain, and take a relatively small position in April 2021.

In 2020, Kogan was one of the so-called ‘COVID winners’. The e-commerce giant had already built out the infrastructure required to operate an online-only retail business, so the pandemic was great for Kogan.

Kogan hit $25 per share from a base of $4 in 7 months ????

The combination of national lockdowns forcing online shopping, and job keeper stimulus put a rocket under Kogan’s sales, and subsequently their share price. At their highs last October, Kogan hit a mouthwatering $25 per share from a base of $4 in 7 months!

Since then Kogan’s share price has taken a hit as a result of some short term headwinds it’s facing. These include a backlog of excess inventory, slower growth rates and some one-off demurrage fees. As a result, Kogan’s share price fell to as low as $8 dollars, which is roughly when I started accumulating a small position after completing my assessment.

I’ll be releasing an article shortly that deep dives into how I complete an analysis of a company from four simple questions. You can sign up for my newsletter to be notified when it’s released.

I’m confident Kogan remains a long term winner

While Kogan’s performance is disappointing in the short term, I believe nothing has changed with regards to its long term growth prospects. Thanks to its strong market position and the structural shift towards online shopping, I’m confident Kogan is primed to continue taking market share over the long term.

I’m also confident they’ll continue growing their earnings and sales at a solid rate as we move towards more normal market conditions, albeit with the recent lockdowns in Melbourne and Sydney.

Here’s what I’ve sold

Sold: Scentre Group (ASX:SCG)

My only sale for the quarter was Scentre Group (ASX:SCG). Scentre Group owns and operates 42 Westfield Living Centres Across Australia and New Zealand. When I initially invested in Scentre way back in December last year they were trading at a 30% discount to their net asset value (NAV). In other words, I was buying $1 for 70c!

In a nutshell, my thesis behind investing in Scentre Group was that I was confident we’d all eventually return to shopping centres. Maybe not as frequently as we did in a pre e-commerce world, but I was sure the local Westfield still had an important role to play in society. So when I saw Scentre Group trading at such a discounted valuation, I smelt a short-term opportunity to capitalise on their mispricing. 

Sure enough, we did return to shopping centres, and as expected Scentre Group closed the gap to their NAV as foot traffic in their centres slowly started to return. 

In the end, I sold my shares after making a 15% gain, and have since rolled the proceeds into other longer-term opportunities. 

My portflio goals check-in

During my Q4, 2020 update I set some portfolio goals for 2021. Finally, Let’s check-in to see how I’ve been tracking.

Continue dollar-cost averaging into my core ETF portfolio. 

Yes, I haven’t missed a month. I’m really grateful for that given the uncertain times we’re living in.

Keep an eye out for any exciting opportunities for the satellite portfolio. 

I’d say so, yes!

Consolidate overlapping holdings, namely IHVV (S&P 500) and VGE (Emerging Markets). I’d like to roll all or part of those holdings into VGS and VAE given there’s a huge overlap with the underlying investments. 

Halfway there. To date, I’ve consolidated IHVV. I’m still contemplating whether it’s worth consolidating VGE into VAE given the two ETFs have different strategies. 

Achieve a 15% compounded rate of return (Excluding dividends). 

Not there yet, but plenty of time to go in the year!

Increase my monthly investment amount by about 10%. 

Done. I was fortunate enough to get a pay rise, which mostly facilitated the additional contributions.

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picture of the authort, Jesse.

About The Author – Jesse
Hi, I’m Jesse, but you can call me Jes for short. My passion is simple, I’m on a mission to make the world of investing easily understood by removing the ‘too hard basket’ stigma that surrounds it.

Disclaimer: This website (the “The Money Pal”) is published and provided for informational and entertainment purposes only.  The information in the Blog constitutes the Content Creator’s own opinions and it should not be regarded as financial advice.

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