The Gad Winning Value Portfolio experienced something in March that I don't recall ever happening in the four years that I have been running this exercise. Every one of the 10 positions declined last month. It isn't catastrophic, but given that the portfolio is well-diversified even with just 10 positions, this is an interesting development.
At the end of March, results stacked up like this:
At the end of the first quarter, the Class of 2015 was down 5.3% vs. a flat return for the S&P 500 and a slight advance for the Wilshire 5000 Index. During March, both the S&P and Wilshire declined about 2%.
Into the end of year, this group of stocks will either vastly outperform the index or continue what has occurred so far. The portfolio has high-quality stocks such as POSCO (PKX), Bank of America (BAC) and Chesapeake Energy (CHK), which continue to see share prices nicked away. Chesapeake is trading near recession levels despite a more liquid, cash-rich balance sheet. POSCO, one of the most efficient steel operations in the world, is trading at less than half book value. But the rest of the year could remain tough for steel makers as Asian manufacturing slows down, taking demand for steel with it.
In addition to Chesapeake, we have a heavy weighting in energy via Murphy (MUR) and Cheniere (LNG). We aren't relying on $90 oil for these securities to do well, but as long as oil remains out of favor, these positions could remain laggards in 2015.
If favorable conditions begin to surface, many of these names could advance by 30% or more. In the meantime, we will remain steadfast and patient, realizing that more pain may be in store before the upside.
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