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2020 Portfolio Year-End Review

Updated: Jan 9, 2021

Luke Chapter 2, verses 8-12 state, "Now there were in the same country shepherds living out in the fields, keeping watch over their flock by night. And behold, an angel of the Lord stood before them, and the glory of the Lord shone around them, and they were greatly afraid. Then the angel said to them, Do not be afraid, for behold, I bring you good tidings of great joy which will be to all people. For there is born to you this day in the city of David a Savior, who is Christ the Lord. And this will be the sign to you: You will find a Babe wrapped in swaddling cloths, lying in a manger."


Luke Chapter 2, verses 17-20 state, "Now when they had seen Him, they made widely known the saying which was told them concerning this Child. And all those who heard it marveled at those things which were told them by the shepherds. But Mary kept all these things and pondered them in her heart. Then the shepherds returned, glorifying and praising God for all the things that they had heard and seen, as it was told them."


The story of Jesus Christ's birth is always the true focal point during Christmas time, and at the end of each year, especially for Christian believers. Jesus birth is truly amazing and wonderful in that Jesus came to earth to offer peace and joy to all people. The physical circumstances of Jesus birth were not spectacular, but rather modest and plain. A manger (today a modern day animal feeding trough or cave); greetings from shepherds (today, the perceived lowest class of citizen whether homeless or living in poverty); and gifts oriented towards Jesus Christ's life purpose which was a sacrificial death.


And yet all who were involved marveled, were filled with joy, and praised God telling everyone around them what had occurred. Jesus Christ is the one true living God, and his life, death, and resurrection offers hope and peace to everyone in the world.


As 2020 has closed and I now look towards 2021, I find it important to consider what I have accomplished and where I am headed. Although investing is only one aspect of my life, I find it reassuring to consider Jesus life's purpose of forgiveness, peace and joy, and our need for a relationship with Him. Jesus story is about hope, and there is always hope and opportunity on the horizon, regardless of the situation. Having a clear perspective and firm foundation to guide where I am going, will always afford me an ability to succeed.


2020 Performance

55% Return for 2020


For 2020, my performance was up 55%. To remind readers, I am baselining from 2018, and the current portfolio under management was built in 2020, with the inception date being January 2020. What I will likely do over time, is establish a separate baseline consistent with the inception date as it will uniquely track the current portfolio over time.


The reason why 2018 is the current baseline, is because the value of investment has only increased from this level. As I have explained in The Foundation blog, I have been managing portfolios since 2012, however, life circumstances have led to shifting uses of gains over time. Since 2018, the focus for the portfolio has been solely on long-term growth and performance.


Baseline Annualized Performance

If investors were to have initially invested $10,000 (a general number used as a reference point) at the beginning of 2018, the annualized average return (each year's return 2018, 2019, and 2020) would have been at 20.3%.


20.3% Annualized Return since 2018


During 2018 and 2019, little to no additional capital was added to the portfolio. During 2020, more capital was added, primarily through Roth-IRA contributions for multiple years. This is the primary reason as to why I simply cannot use my own values over time to calculate annualized performance. As new capital comes into the portfolio, my cost basis changes during that year, but is not reflective from past years.


2018 clearly had a very negative impact on performance, however, the past two years have strongly reversed this course. As a reminder, my key goal is to average an annualized return at or greater than 20%. So far, this is tracking well.


Benchmark Analysis

My goal in this section is to achieve two things. First, I will do a comparison against my benchmarks, and second, I will highlight key high-performing products that investors may consider in the event they are interested in a professionally managed approach, versus building their own portfolios, and/or picking select stocks.


24,000 Professionally Managed Investment Options Averaged an 8.1% Return in 2020


Including all share classes, I track around 24,000 different investment options that investors may choose to select from, if they prefer to have their investment portfolio professionally managed. The average return for 2020 of all of these options was 8.1%, or a 46.8 percentage point gap from my portfolio's 2020 performance, at 55%.


Taken another way, nearly 25% of all professionally managed products performed worse than 1% during 2020, while approximately 92% performed lower than 28% in 2020, which means that my portfolio performed twice as good or better, than 92% of these 24,000 investment options. Only 2% of these investment options performed 50% or better, while my portfolio held a 98.5% percentile raking (meaning I outperformed 98.5% of all of these investment options).


What Won Out in 2020?

There were clear winners in 2020. This included Crypto indices and Bitcoin, leveraged Exchange-Traded Notes (ETNs), and Exchange-Traded Funds (ETFs) and a variety of Mutual Funds targeting technology, clean energy, and to a lesser extent, China environmental and targeted healthcare industries.


Performance for these investment options ranged from 50% to as high as 380% for 2020. The top performers by their investment classification were as follows:

  • ETN - MicroSectors FANG+ Index 3X Leveraged ETN (FNGU) - 380%

  • ETF - Invesco Solar ETF (TAN) - 234%

  • Mutual Fund - American Beacon ARK Transformational Innovation Fund (ADNIX) - 147%

It should be noted that the American Beacon mutual fund is a derivative of the ARK ETF Trust managed by Cathie Wood, with the top ETF in that trust performing nearly 180%.


Another important theme that was key to investment performance in 2020 was strong exposure to FANGMAT (Facebook, Amazon, Netflix, Google, Microsoft, Apple, Tesla), especially Tesla. In some instances, investment options entire performance was driven by Tesla, which achieved a 743% return in 2020. As shown in the ETN above, top levered ETNs were also exposed to FANG.


Lastly, an important consideration is the number of holdings in ETNs, ETFs, and mutual funds. Many of the top performers tended to hold from 35 to 55 companies within their investment vehicles.


Top ETNs:

Top ETFs:

Just below 1,400 ETFs Averaged a 7.2% Return in 2020


My portfolio beat out 95.4% of these ETFs.


Top Mutual Funds:

Just above 13,500 Mutual Funds Averaged an 11.6% Return in 2020


The 13,500 Mutual Funds were organized to exclude bond, cash, commodity, and lower growth blend categories as to more appropriately get at equity and/or growth funds. My portfolio beat out 98.1% of these Mutual Funds.


Portfolio Drivers

The portfolio ended the year with 54 holdings, which is right towards the upper end of some of the top performing funds as mentioned above. Top ten holdings performed very well, and all throughout the holdings, positive performance was very robust.


Some positions were pared down as we closed 2020, notably, Special Purpose Acquisition Companies (SPACs) and higher risk companies with less visibility on their near-term expectations.


Fine-Tuning for 2021

For 2021, additional moves were made immediately on the first trading day. This included reducing the portfolio to 42 holdings. The key logic behind this is related to eliminating weaker high-growth companies from a Revenue perspective, as well as those companies with less visibility on their overall potential.


For SPAC warrants, five are continuing to be held. Once targets are announced and mergers track towards completion, considerations will be made as to whether warrants are transferred to common shares.


There are multiple Initial Public Offerings (IPOs) on the horizon for 2021 that are very intriguing as well. The key moving forward will be to optimally manage existing holdings, which are anticipated to afford continued robust growth, while at the same time assessing newer opportunities to add to the portfolio, aside from IPOs.


As part of this reshuffling, I am assessing leading ETNs, ETFs, and Mutual Funds to see how these fund/investment managers have been making similar decisions. Cathie Wood is a great ETF manager that I expect to do very well over time. For reference Bill Ackman's Pershing Square returned just below 70% for 2020 after a nearly 60% return in 2019. There are many big-time hedge fund managers that do not publicly provide their performance historically, so it isn't easy to benchmark everything. However, if I can reach the top 50 or so investment options out of the 24,000, I will likely be in the top level across the board including hedge fund managers.


Summary

2020 was a very strong year for performance for the portfolio, essentially getting me to my annualized goal of 20% per year. Five to 10 years from now, I will likely track a new baseline beginning with 2020 as the portfolio under management's inception date was in January 2020.


I have built up my cash position now approaching 30% of the portfolio, not accounting for more capital that can be brought in via Roth-IRA contributions. I don't know when, but we will likely get a minimum 5-10% correction at some point this year, which is where I will look to average existing holdings.


The portfolio is leaner and I firmly believe that this will be one of the key adjustments to allow me to seek stronger performance against all benchmarks and hedge fund managers. 55% was great, but there is always room for improvement.







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