Stock Trak portfolio performance analysis

Stock Track Analysis

Over the last ten weeks, the S&P 500 has been mirroring the optimistic reports that are coming out on the economy. Part of the reason for this, is the fact that consumer spending has not been as bad as it was over the last year and improvements in key industries (such as the auto sector). Recent evidence of this can be seen with Black Friday sales, as they would rise by .3%. While customer traffic, would increase by 2.2% over one year ago. (Kavilanliz, 2010) This is significant, because these events would have an impact on the S & P. 500, by helping it increase 8.04% during that time. This would have ripple effects on the portfolio that we constructed, as it would increase by 2.52%. ("Account Details," 2010) to fully understand the effect that this would have on the portfolio requires: examining the trades / rational, the results and how they were different from expectations. At which point, we will the study various factors surrounding the project itself to include: the lessons learned, observations, failures and successes. Together, these different elements will provide the greatest insights as to the effectiveness of the overall portfolio management strategy that was utilized.

Rationale Summary

Over the last ten weeks, all of the major indices were rising consistently. The main reason is: third quarter corporate earnings were not as disappointing as most analysts were predicting. This is because the various stimulus measures were slowly beginning to wear off (during the beginning to the middle of the summer). This caused concern that the economy could fall into a secondary double dip recession. At the same time, the Federal Reserve announced that they are going to be purchasing long-term Treasuries. This is all part of an effort, to prevent the economy from facing any kind of secondary effects, from the 2007 to 2009 recession. (Zomburn, 2010) as a result, the economy would continue to show moderate amounts of strength, with consumer spending and various sectors remaining strong. This would have a dramatic impact upon the S&P 500 during that time, by climbing 8.04%.

Positions

The basic strategy that we were utilizing is focused on long-term growth. This was accomplished by selecting various mutual funds, common stocks and one commodity. Even though the results were lagging behind the market averages, the portfolio did provide balance. This is important, because stability is a key ingredient for seeing long-term consistent growth.

When you analyze the various trades in the portfolio, the objectives of: long-term growth and consistent income were the main focus. This can be seen throughout the different positions that were purchased during the ten weeks (as illustrated below).

October 6, 2010

The first trades were completed on October 6th these include: the purchases of Microsoft, the Fidelity Contra Fund, the Fidelity Floating Rate Fund, the Wells Fargo Advanced Discovery Fund, the Matthews India Fund, the Aston Optimum Mid Cap Fund and the Fidelity China Region Fund.

Stocks

Microsoft was selected to provide consistent long-term growth that would parallel the markets. It was expected to keep up with the major market averages and had outperformed the S&P 500 by seeing an increase of 12.7%. ("Transaction History," 2010)

Mutual Funds

The Contra Fund was selected because it could provide above average growth (through investing in large growth companies). It was expected to keep pace with the major market averages. Since the purchase of shares on the October 6th the fund has seen an increase of 9.4%. This is above our expectations. ("Transaction History," 2010)

The Floating Rate Fund was selected because it would diversify the portfolio (through their investment in bonds). At the same time, it would provide above average growth, based on the fact that the fund invests in low quality debt obligations. This was expected to underperform the major market averages, because of many credit markets are still reeling from the implosion in real estate. What makes this fund so advantageous is because they are paying a current yield of 3.2%. At the end of the year, the dividends that are received and the growth of fund will increase the total return. The results from the investment were that it underperformed the market by seeing an increase of 1.33%. That being said, the full effect of this part of the strategy has not been given an opportunity to work (through the consistent dividends that are being received). ("Transaction History," 2010)

The Discovery Fund was selected to provide the portfolio with diversification through its investments in small and medium capitalization companies. It was expected that the fund should outperform the market, given the fact that interest rates are low and the economy has remained stable. The results were an increase of 16.2% (which is above the major market averages). ("Transaction History," 2010)

The Matthews India was selected to provide the portfolio with above average growth through their investments in India. It was anticipated that this would outperform the markets. However, since its purchase shares have seen a decline of: 8.03%. This is below the expectations that we were looking for. ("Transaction History," 2010)

The Aston Optimum Mid Cap Fund was selected to provide the portfolio, with balance and to help offset any growth from other investments in this area. It was expected to outperform the market, given the fact that these investments involve large risks. The results were above our expectations, as the fund would increase by 12.2% during that time. ("Transaction History," 2010)

The Fidelity China Region Fund was designed to provide the portfolio with the tremendous long-term growth in China. It was expected to outperform the market averages, due to the fact that the Chinese economy has continued to remain stable during the recent recession. However, the results were worse what expected as the value would increase by 2.7%. ("Transaction History," 2010)

October 14, 2010

On October 14th new trades took place with the purchase of several more positions to include: Ford, General Electric, Citigroup, Wal Mart, the Madison Mosaic Core Fund, the Fidelity Floating Rate Fund and the Fidelity Contra Fund. Ford was selected because the company has posted the sixth consecutive quarter of profits and they did not take any of the government bailout. It is expected that this position will outperform the market. The results were that stock would see an increase of 20.6%. ("Ford Posts 68% Rise in Third Quarter Income," 2010) ("Transaction History," 2010)

Stocks

General Electric was selected, because of the wide range of businesses that they are involved in. This will ensure that the portfolio will have a significant amount of diversification, among a number of different sectors of the economy. As GE is involved in everything from: broadcasting to the manufacture of jet engines. It is expected that this position would mirror the movements of the S&P 500. The results were that stock would see an increase of 3.9%.( "Transaction History," 2010)

Citigroup was purchased based on the fact, that the company survived the economic implosion and could be at compelling long-term valuations. It is expected that this position should mirror the performance of the major market averages. The results were that the stock would increase more than expected by seeing a return 0f 18.1%. ("Transaction History," 2010)

Wal Mart was selected because it has been seeing consistent earnings during the recession. At the same time, it can help to provide the portfolio with diversification, by ensuring that it can benefit from retail / consumer spending. It is expected that the out position will mirror the major market averages. The results were that the stock has underperformed seeing a decline of 2.3%.( "Transaction History," 2010)

Mutual Funds

The Madison Mosaic Core Fund was selected because it invests in a variety of corporate bond and U.S. Government debt. This will help to provide stability and income to portfolio. It is expected that it will underperform the S&P 500. The results were that the fund is down 3.1% since its purchase. ("Transaction History," 2010)

At the same time, cost averaging would occur in the Fidelity Floating Rate Fund and the Fidelity Contra Fund. This was implemented to help establish an average long-term price and increase the overall amount of income in the portfolio. ("Transaction History," 2010)

October 22, 2010

On October 22, 2010 more purchases were conducted to include: Compuware, Gold futures, Treasury Bonds and Merck.

Stocks

Compuware was selected because it could provide the portfolio with above average growth. The results were that the stock would outperform the average increasing by 16.2%. ("Transaction History," 2010)

Futures

Gold Futures were selected to increase the overall return of the portfolio and to create a hedge against possible uncertainties. It is expected to outperform the major market averages. The results are that Gold is up 10.1%.( "Transaction History," 2010)

Bonds

Treasury Bonds were chosen to provide the portfolio with more stability and growth. It is expected to underperform the market averages. As a result, it has provided a return of 1.7%. ("Transaction History," 2010)

Merck was selected to provide the portfolio with diversification, through the consistent earnings (from the sale of prescription drugs). It is expected that the bond will mirror the performance of the S & P. 500. ("Transaction History," 2010)

November 24, 2010

On November 24th several more new purchases would take place to include: General Motors, Berkshire Hathaway, the Fidelity Immediate Government Fund and the Strategic Advisors Income Fund.

Stocks

General Motors was selected, because it could help to provide the portfolio with above average growth. The results were that that stock would see an increase of 1.4%. ("Transaction History," 2010)

Berkshire Hathaway was purchased to provide the portfolio with stability and diversification. This investment is expected to outperform the major market averages. The results were up .96%.( "Transaction History," 2010)

Mutual Funds

The Fidelity Intermediate Government Fund was selected because of their focus on medium term Treasury investments. This is expected to underperform the market averages. The results were that the position declined by 2.55%. ("Transaction History," 2010)

The Strategic Advisors Income Fund was selected to provide the portfolio with additional income investments (as the fund invests in emerging market debt). This is expected to underperform the major market averages. The results were that the fund would decline by 1.30%. ("Transaction History," 2010)

Summary Analysis

Overall, the S&P 500 has been performing relatively strong. Part of the reason for this is because of favorable earnings and economic numbers (indicating continued economic strength). As a result, this has been having positive effects on the stock market by helping to push the S&P 500 to increase by 8.04% in just ten weeks. This is stronger than our portfolio. One of the main reasons is because cost averaging that occurred in numerous areas. At the same time, the purchase of a number of different long-term stocks is highlighting, how the strategy that is being utilized is focused on delivering consistent returns in the future. This means that the portfolio will underperform the markets, as all of the different positions were purchased within a few weeks of each other. That being said, the investments that were made into common stocks and mutual funds were the strongest performers in the strategy. This is because, they were more focused on the some of the strongest performing sectors in the economy.