Spring is in the air! A lockdown can’t prevent me from using my senses. Birds are whistling and the flowers smell wonderful. Time to do the yearly spring cleaning, don’t you think?
One of the big cleanings that was really due is my portfolio allocation strategy. I thought that it’s a good time to do it now, because a lot has happened since I published my allocation strategy at the beginning of the year. As an example:
- Two Tier-1 stocks cut their dividends within the last week: Royal Dutch Shell and Walt Disney
- I published the Noble 30 ⚔ with 30 European Dividend stocks that have been growing their dividends for a very long time and I want more exposure to them in my portfolio
- The need to reduce my exposure to the Energy sector.
I do such kind of cleaning or “calibration” typically twice a year. As a buy and hold investor, it doesn’t mean that I will never sell. Disney’s sale is an example of that, because it mostly depends on the impact to my initial investment thesis.
Actually, most often changes in my desired portfolio happen due to changes in the fundamentals of a company.
Therefore my approach is rather:
- Buy
- Hold
- Reassess when fundamentals change
- Adjust
- Repeat
However, many of the changes that I’m highlighting today is due to better insights that I have now compared to half a year ago. I simply didn’t know the top ranking 30 European Dividend Growth stocks yet. Off course I generally knew the names and I knew some of them had a really good reputation, but I never had such a clear view on it.
Position changes in my desired portfolio
All being said, I have decided to make the below changes in my desired portfolio. It looks like there are quite a lot of position changes, but the core in Tier-1 and Tier-2 still stands. And rightly so.
The changes look actually quite more than what really happened. One change can simply trigger multiple other changes. Have a look below:
| Ticker | Company Name | Old Position | New Position | Rationale |
|---|---|---|---|---|
| AMS:RDSA | Royal Dutch Shell | Tier-1 | Tier-3 | see blog post |
| DIS | The Walt Disney Company | Tier-1 | Removed | see blog post |
| ETR:MUV2 | Munich Re | Tier-3 | Tier-1 | Top 10 Noble 30 member. Reliable growth. Pandemic resistant |
| EPA:BN | Danone SA | Tier-2 | Tier-1 | Noble 30 member. Consumer Staple. Enough future growth prospects |
| AMS:DSM | DSM | - | Tier-2 | Noble 30 member. Replacement for UTX. Focus on Nutritions. Strong growth ahead. |
| BME:ENG | Enagas SA | Tier-2 | Tier-3 | Lowering my exposure to Energy. |
| CB | Chubb Ltd | - | Tier-2 | Noble 30 member. Stable and growing insurance business. |
| EQNR | Equinor | Tier-3 | Removed | Dividend Cut. Didn't own it yet. |
| KMB | Kimberley-Clark | Tier-3 | Removed | Freeing up space for Noble 30 member. Was very small position. |
| UTX | UTX | Tier-3 | Removed | Just after merger. Different company now. Replaced by DSM. Was very small position |
| CPH:NOVO-B | Novo-Nordisk | - | Tier-3 | Noble 30 member. Strong growing biotech |
| AMS:WKL | Wolters Kluwer | - | Tier-3 | Noble 30 member. Data services company. Diversification in IT postions |
| LON:DGE | Diageo Plc | - | Tier-3 | Noble 30 member. Instead of Disney as Consumer Discretionary |
| PM | Philip Morris | Tier-4 | Removed | Replacing with noble 30 member LON:BATS |
| LON:BATS | Brittish American Tobacco | - | Tier-4 | Noble 30 member. Replacing PM |
| SLB | Schlumberger Ltd | Tier-4 | - | Dividend cut. Reducing Energy exposure. Didn't own it. Why was it on here anyway? |
| ETR:SAP | SAP Se | - | Tier-4 | Noble 30 member. |
| BME:REE | Red Electrica Corporacion SA | - | Tier-4 | Noble 30 member. Utilities |
| EPA:FP | Total SA | - | Tier-4 | Noble 30 member. Some place available after descoping other Energy players. |
The list in its updated form can be found in my allocation strategy.
Actually, it was quite a puzzle again, because I also took some of these other requirements into consideration:
- Try to have maximum two stocks from the same sector in a certain “Tier”. I only failed on this with Consumer Staples in Tier-1 and Healthcare in Tier-3. I’m OK with that, because those are stable and reliable sectors.
- Decrease my exposure to US Dollars and increase my exposure to Euros.
- Strengthen the reliability of my Tier-1 and Tier-2 stocks by reducing the exposure to cyclical companies. I believe I did that, but I could’ve probably done more here. Let’s reassess this in the fall of this year.
The exposure to currencies is now the following:
| USD | 53% |
| EUR | 35% |
| CHF | 7% |
| GBX | 3% |
| DKK | 2% |
Exposure to European currencies has increased from 26% to 47%. I find this a nice balance.
Last but not least, I wanted to mention that I left Starbucks and Nike as Tier-1 and Tier-2 positions in my portfolio. I believe that these companies have proven so far to be the best of the best in their sector during this pandemic. Their brand power is just astonishing. People were waiting in the drive-through in long lines to get their coffee shots while most of us were locked-down in our homes to avoid getting sick. That shows quite some determination (or addiction ;-)) from their customers.
At the same time they have shown to possess very strong digital channels which really dampens the covid-19 impact. Their dividends seem safe as well.
Sector exposure changes
The effect of the above changes has resulted in some positive changes in my exposure to the 11 sectors.
| Sector | Old allocation % | New allocation % | Change |
|---|---|---|---|
| Consumer Discretionary | 10% | 9% | Decreased |
| Consumer Staples | 18% | 20% | Increased |
| Energy | 10% | 6% | Decreased |
| Financials | 3% | 7% | Increased |
| Healthcare | 18% | 20% | Increased |
| Industrials | 10% | 8% | Decreased |
| Information Technology | 15% | 15% | - |
| Materials | 5% | 6% | Increased |
| REITS | 6% | 5% | Decreased |
| Utilities | 5% | 4% | Decreased |
| Telecommunication Services | 0% | 0% | - |
As you can see, my exposure to cyclical sectors reduced by approximately 6%. This is mainly driven by the reduction in the Energy sector. On the other side, Consumer Staples and Healthcare are both 20% now. This is an overall increase in exposure of 4%.
I still haven’t found any interesting stock in the Telecom sector. I have been looking at AT&T in the past several times, but the debt load and their recent acquisition just doesn’t attract me. SwissCom AG is neither interesting enough for me to start a position in.
Final Thoughts
These changes actually don’t lead to a lot of selling on my side. I am still in the first part of the accumulation phase. Therefore it just means that I will purchase less of certain companies (i.e. Energy stocks) and a bit more of others (i.e. Insurance stocks). The few stocks that I will sell are mainly some small US positions that sneaked in over time and as you saw, I will replace them with companies from the Noble 30 list.
All in all, I must say that I am pretty happy with my Spring cleaning. It just smells so good to open the windows again after the winter and feel the air flowing in and refreshing the house.
The same feeling applies to my desired portfolio updates. It just feels like a breeze of fresh air. 🎐
I hope that you enjoyed this post again.
It’s a short one, but I just wanted to share this yearly routine with you. What do you think? Makes sense?
Have you also done some spring-cleaning?
Yours Truly,
European Dividend Growth Investor
I really enjoy reading about your pan-European approach to dividend investing. When it comes to telecom, have you considered French Orange SA?
Hi JamCS,
Thank you 🙏
Good suggestion, Orange didn’t skip my mind. Will have a look at it this weekend 🙂
Hello, I thought that you set the allocations to sectors (in %) before you pick individual stock but now it looks to me that you compute allocations after you assigned selected stocks to the tiers.
Hi Libor, That’s not entirely correct, but I definitely can see why you say that based on this post. Let me clarify a bit further: I wanted to lower the exposure to energy and that meant I had to find something to fill the gap. I never liked banks, but knowing that insurance companies have a reliable business model made me increase the exposure there and bring in Chubb limited. Off course, I was also seeking opportunities to slot in the noble members. I described that in this post. Hence why this is a big puzzle. True that not all… Read more »
Ha contrary to what im doing. Going for risky investments like Oil and REIT 🙂 Boring low yield companies will have to wait for the futute 🙂
An idea for your Utilities sector: ERG spa.
It doesn’t fit your criteria perfectly, but it gets close. So you can also expand your presence in Italy 😉
https://www.erg.eu/en/investor-relations/dividends
Thanks for stopping by and a good recommendation!
I actually looked into ERG the other day and I very much like the business. A focused new energy business which has a lot of potential. It maybe doesn’t fit in this list due to the criteria, but it’s definitely a company that I want to explore further and do some analysis on.
Cheers!