Portfolio & Dividends Update : 3rd Qtr 2022
Wow, time flies !! we are in the last month of the third quarter of 2022 and I am sure all of us are experiencing a very different year in 2022. The market is full of F.U.D ( Fear /Uncertainty / Doubt) and so far we can see that it is very volatile, I have seen my portfolio up by almost 11% in early this year and tanked to more than -3% after the Russian-Ukraine war broke out in end Feb. Now my portfolio is up by only 3.1% YTD ( including dividends), so you may notice that most of the gain came from dividends.
All major economy ( or block) seems to have their own set of problems. For China, the main issues still are the slowing down of the economy due to the crackdown in the Tech sector and the cooling down of property investment. China's government is trying to boost the economy by increasing government spending on infrastructure and encouraging investment in sectors like New Energy / EV / Tech ( IC & Chips design and manufacturing ) etc, but as I mentioned before, with the "Zero-Covid " policy and recent lockdown of another big city Chengdu, I think it is hard to see any improvement on China's economy if such draconian and strict policy continue. Mobility is still the key to any economic activities and all the policies will not have much impact if we continue to see cities and people being locked-down from time to time.
High inflation is still a major problem for all of us and the impact is much more severe in European countries with energy costs increased by almost 10 folds. Such high energy costs already caused thousands of mom-and-pop shops/cafes/bars to close shop and it also affected those SMEs with cash flow problems.
War / High Energy Cost / Weaker EUR / Capital outflow .... this winter will be really tough for European countries and is also a dilemma for ECB to be more aggressive in increasing the interest rate which may affect the smaller / weaker economy within the block, will the PIGS debts crisis happens again? Things to watch out...
As for the US, other than high inflation and a more hawkish FED, I think the bigger issue now will be the possible impact on FED's promise to "shrink " its balance sheet more aggressively from 1st Sep onwards. A stronger dollar and capital outflow from EUR and some Asian Countries due to geopolitical tensions may help to some extent, but the sentiment from the market is "unpredictable!
OK, enough talking about Macro issues, now back to my portfolio and dividend update :)
Before that, allow me to sidetrack a bit on my 2nd Qtr dividend.
As you know, whenever I bought a new stock, I will create an excel-sheet to track all my stock in XIRR format and measure the overall performance ( capital + dividend).
In June this year, one of my stocks ( BHP Group) gave out the in-specie dividend ( WOODSIDE Energy ) to its shareholders and I didn't update this as part of the dividend under BHP instead, I updated the cost of Woodside Energy as zero. I realized that this resulted in not accurate XIRR for BHP when the share price went XD, it dropped by almost -10% and it doesn't really show the true value for BHP as the dividend was not being counted initially.
So I decided to re-calculate the XIRR and add the dividend in specie ( value ) into BHP and reflect it as cost for Woodside Energy. So now the XIRR for my BHP increased to 38.3% as compared to before at 31.8% ( prior to adding the value of dividend in specie )
OK, for some, it is just a right pocket or left pocket, as it will be reflected in dividend ( BHP ) or capital gain under Woodside Energy. But I guess such an adjustment will be more accurate to reflect the true performance of BHP Group in the end.
Know or Measure Your Portfolio / Stock XIRR
I think all serious investors should at least know or measure your R.O.I. There are a few methods of measuring your investment performance be it "time-weighted" or "money-weighted", some using N.A.V or CAGR, and some using IRR or XIRR. You may use whichever criteria to measure your R.O.I, as for me since I track the cash flow movement ( Buy/Sell/Dividend ) in the long term, the XIRR method suits me well.
Keeping Track of Your Dividend < STE Blog 11 Oct 2016>
As I mentioned in my previous blog post, everyone should keep track of their dividend income as part of the R.O.I.
Returns can be in form of capital gain/loss ( mostly for growth stocks and some value stocks ), and dividends received.
OK, there is another form of return i.e share-buyback by the company. This is also one of the ways to increase shareholder value, by doing the share buyback and canceling it eventually, it will reduce the outstanding share and increase the EPS of the company. This is what most US companies are doing and is deemed more tax efficient as dividend/capital gain tax is higher in the US.
A company can decide which is the best for shareholders, either keep the profit and reinvest which may generate higher earnings and boost the share price, doing the share buyback to increase EPS if companies felt nothing good to re-invest the earnings or return the cash to shareholders in the form of as a dividend.
So the TSR (Total Shareholder Return) could be in Capital ( Gained / Lost ) + Dividend + Share Buyback
The Power of Dividend <STE Blog 11 Sep 2017 >
Dividends have played a significant role in the returns investors have received during the past 50 years. Going back to 1960, 84% of the total return of the S&P 500 Index1 can be attributed to reinvested dividends and the power of compounding, as illustrated in FIGURE 1.
As a Value / Income investor, I pay more attention to dividends, of course, other than the company's fundamentals like its debt level/ free cash flow / PE /PB, etc.
I do keep track of my portfolio performance based on sectors and markets breakdown as below:
If we compare it with my previous update here <Link> ( in 3rd Qtr 2021 ): vs 3rd Qtr 2022
You may notice that :
- During this overall % of dividend returns increased to 87.3% vs 80.7% in 3rd Qtr 2021, this is due to the drop in capital gain/loss in my portfolio from $476.6K to now $317.9K.
- But the dividend received increased by $190K which resulted in a net increase of $32K in total gain.
- Oil&Gas / Commodities contributed the most by around $90K and follow by Finance ( $49K) , REIT ( $30K), Conglomerate ( $19K)
- The big dropped in Capital Gain was mainly due to TECH sectors as I increased the purchases throughout the year, now, I am sitting on a "paper loss " of around -$197K. , an increase of around $150K over last year.
- The biggest gain is from Oil&Gas/Commodities with a total increase of +$121K.
- Overall XIRR dropped to 14.7% ( since inception) vs the last update of 15.3%, I think over the year, this is a kind of "diminishing return" where return may revert to "mean" if we can't consistently outperform the market.
- YES! is not a mistake, I am still sitting with a loss of -$14K for HKG Market after I made my 1st purchase of the stock from HKEX 3 years ago. This is even with the collection of a $200K dividend during the same period. It is a kind of "perfect storm" as far as the HKG market is concerned, crisis after crisis, from Trade War since 2016, followed by RIOTs 2019 ( 反送中运动), COVID-19 20199-2020, CHN Tech crackdown 2021, CHN Property crash 2021/2022, Zero-Covid Policy (Lockdown ) ......
I can feel and sense the "frustration" for investors investing in the HK market, I personally also don't expect such prolonged downward market corrections and sentiment. The "Regulatory Risk" is unpredictable and has such a deep impact on overall market sentiment, coupled with a weak global economy due to high inflation/ War / Geopolitical tensions/supply chain disruption, etc.
I don't expect any quick rebound from the HK market unless first and foremost, the CCP government will need to ease and get away with this " Zero-Covid" policy, then we may see the effect of stimulus start to kick in.
I can understand some already "jump-ship" and cut-loss on their investment in the HKG market, for me, I will just sit tight and wait. I don't think the government will implement this Zero-Covid policy indefinitely, at some point, it may have to ease and treat it as flu endemic like most of the countries are doing now.
As I said before, All Roads Lead To Rome, you can be a growth investor or an income investor, on your own preference and risk tolerance. It is just that for me, I choose the "path " of income investment with a bit of diversification in the TECH sector.
Now, allow me to show you the chart on both " Capital Gain/Loss " vs "Dividend Income " based on the above table. A more "visualize" format to explain both.
Over the period of your investment journey, your capital gain/loss may increase along the way. Once your Portfolio size became bigger, the fluctuation could be huge and you will need a strong "heart" and mentally prepare for such a situation during the "max drawdown" like in Global Financial Crisis or Covid-19 Pandemic. You can't really time the market by moving in or out from the market like a day trader, so you may end up sitting with a huge negative P/L in your portfolio, like for me, during the Covid-19 crisis, my portfolio value was down by more than -$700+K.
But If you know that the market is just like a pendulum and moves in a cycle, it will rebound and recover eventually, kind of reverting to mean, as long as the companies you invested in are sound and strong fundamentally. (like the chart on the left-hand side )
Capital Gain/Loss are just temporary and fluctuated quarter by quarter ( during earning announcement) or year by year (during the crisis), just look at how BRK or Temasek announced its quarterly loss in the recent results announcement. It doesn't affect the long-term view of these companies at all, the short-term impairment or value adjustment of their underlying asset is quite normal and happens from time to time.
Your portfolio value will swing up and down according to market sentiment and based on the mood of Mr. Market. It may end up in negative during extreme pessimism period like during any crisis and positive during good time and market is full of good news and at maximum optimistic.
Buffett’s firm reports a $44B loss but its businesses thrive <source: apnews.com>
With some additional purchases on CNOOC / Sinopec / Shougang Fushan Res/ Woodside Energy( dividend in specie ) and together with the increase in value, the total allocation for Oil&Gas/Commodity increased to 20.9% ( vs 12.1% same period last year ).
HKG/CHN market remains my top exposure with slightly more than 50% followed by SGX ( 34% ), LSE ( 13.3%), and NYSE (2.2%) but you can see from the below Regression Line Chart, that the market remains "depressed" and touching historical low, again and again.