Tuesday, November 27, 2007

Portfolio by Sector

I try to look at the portfolio from a 40,000 foot point of view graphically about once a month - my last view was back on October 23rd, and you can see the breakdown here.

Last month I wrote this

at this time I am trying to think ahead a year to a slowing global economy and which sectors will be the least affected by it. A case could be made that global infrastructure and agriculture will be the 2 stalwarts, the former due to enormous backlogs and the latter due to "once you let the genie out of the bottle of rural -> urban migration it's not going back". Oil is a toss up - while slowing economies will slow the demand, I still think finding new supply is getting tougher AND global urbanization is going to dwarf any economic slowdowns effect on oil in the mid to long term. With that said, you could see a lot more volatility in that sector. The same could be said for mining. At this time, the technology stocks I am in, feel quite 'isolated' from any major issues even in a global slowdown. I can see a future with the US in recession (or at best flat growth) and western Europe not too far off from it as they have major speculative housing booms as well (see Spain). So I am trying to position for the long run to match these macro views.

So far pretty much on target, although as we found out nothing is safe in a panic; its all just degrees of pain. Some sectors have more, some have less. My mid term outlook (i.e. 2008 or so) is no different than what I wrote above. And I've tried to move the portfolio in that direction

Major difference then vs now
Oil related (then) 17.9% (now) 7.2%
Agriculture (then) 12.4% (now) 15.9%
Short exposure is up quite a bit (4%) but that changes daily
India (then) 7.2% (now) 4.0%
Other Foreign (then) 4.5% (now) 8.5%
Retail (then) 1.2% (now) 4.6%

So I've reduced direct crude exposure, mostly through selling all my deep sea oil drillers (although I still like the group fundamentally), and after today's sale of CGG Veritas (CGV), I just own my 3 oil service stocks I've held since day 1 in the portfolio - CLB, NOV, FTI. In fact about half this 7.2% crude exposure is a bet against it, through refining stocks (who would benefit from lower crude pricing). Agriculture has gone up with the addition of Agco (AG), and heavier exposure to fertilizer which I contend has great winds at its back, and earnings prowess. India had spiked after I did the last analysis so I cut back that country. In "Other Foreign" I've added some new names like Mechel (MTL) in Russia coal/iron and Millicom International Cellular (MICC) - hence the increase. I've also added exposure to Brazil with homebuilder Gafisa (GFA) and an index, replacing some far East exposure such as Hong Kong and Singapore. Thus far although these markets are NOT supposed to be correlated they all essentially go up and down together as one 'BRIC' country is no different from another - apparently the same speculators are in all these countries.

In retail I added a lot of Crocs (CROX) exposure after its implosion and just added some Best Buy (BBY) yesterday. While the financial exposure is the same - back then it was mostly Mastercard (MA) and Blackrock (BLK) - now I've categorized the 2 consulting firms I added today - Huron (HURN) and FTI (FCN) as 'financial', so its a broader mix of companies. I've completely exited the small position in mining and cut back industrials with the sale of Cummins Engine (CMI). I also added 2 currency hedges with the Canadian dollar and a silver company - we shall see how that works out.

I am going to continue to run screens (when/if?) we rally such as [98 Stocks that Returned >5% in the past 30 days] and continue to look and focus on stocks holding their technical support levels. While these might not return as much as the stocks totally washed out, they should provide some stability in what I contend will be a tougher market in 2008.

Two notes:
(1) I break up foreign holdings into (a) China (b) Indian (c) Other and
(2) I did break up energy into (a) Crude related i.e. deep sea oil drilling, oil service, refining, seismic, etc (b) Coal and (c) Solar as the latter two are not directly related to crude oil.

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