More than eight months since inception, my 2021 Tax Loss Selling Recovery Portfolio is getting a bit long in the tooth. Up about 58% since inception, it fell around 2.5% since the June update, I will be winding it down likely by November and preparing for the 2022 version.
This annual portfolio experiment starts by identifying potentially cheap names that have fallen sharply during the year and might be pushed even lower at the end of this year as investors harvest losses. By way of reminder, screening criteria include the following:
- Down at least 30% year to date
- Forward price-to-earnings (P/E) ratios below 15 in the next two fiscal years
- Minimum market cap of $100 million
The theory is that these names may rebound in the New Year when the selling pressure is off. This annual experiment has provided fairly solid results in the years I've been conducting it, and so far, so good with the 2021 vintage. However, the easy money seems to have been made early this time around
Tranche 1, released last Dec. 1, fell about 7% over the past month and is now up 37% since inception. It continues to outperform both the S&P 500 (up 19%) and Russell 2000 (up 26%). All four names fell over the month, with Walgreen Boots Alliance (WBA) (up 25% since inception) taking the biggest hit, falling 14%. The decline came despite better-than-expected third-quarter earnings. In a fairly non-eventful month Designer Brands (DBI) (up 99%), Xerox (XRX) (up 11%) and Pilgrim's Pride (PPC) (up 13%) each fell about 4%. XRX is now the worst performer in the entire portfolio.
Tranche 2, released last Dec. 4, is up 95% since inception, and although it was about flat for the month it remains the best-performing tranche. It continues to outperform the S&P 500 (up 19%) and Russell 2000 (up 24%). Townsquare Media (TSQ) (up 92%) had a volatile month, falling 15% June 18 on no news, but recovered most of that drop by last Friday. Genesco (GCO) (up 102%) had another positive month and is the second-best overall performer. Falcon Minerals (FLMN) (up 133%) padded its overall lead as best performer by rising about 2%. Wells Fargo (WFC) (up 51%) was down 3% for the month.
Tranche 3, released last Dec. 7, is up 42% since inception and is beating the S&P 500 (up 18%) and Russell 2000 (up 21%), though it decline about 2% since the last update. AerCap Holdings (AER) (up 20%) fell about 9% for the month as it awaits a July 26 decision from European Union (EU) regulators about its planned $30 billion purchase of GE Capital's jet leasing business. Sally Beauty Holdings (SBH) (up 71%) padded its lead as the best performer in this tranche, rising 5% for the month. Phillips 66 Partners (PSXP) (up 44%) and GIII Apparel (GIII) (up 31%) each gave back about 3% for the month.
Next year's portfolio could be interesting, and not in a good way, if this early read is any indication.