Spring cleaning my (desired) portfolio

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:

1. Buy
2. Hold
3. Reassess when fundamentals change
4. Adjust
5. 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:

1. 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.
2. Decrease my exposure to US Dollars and increase my exposure to Euros.
3. 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. 🎐

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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