It’s Been A Wild Year… Here’s How We Did In 2020
Wow, does that feel strange…
I just dated the latest issue of my High-Yield Investing newsletter January, 2021. Is 2020 finally over? Normally, it feels a little bittersweet to see another year come to an end. But in this case, most are probably saying good riddance.
Still, while 2020 won’t be fondly remembered, it was a fairly productive year for our High Yield Investing portfolio. Volatile, yes. But also productive. Before we officially flip the calendar, let’s take just a few minutes for a quick recap.
From a big-picture perspective, the headlines looked great. “S&P 500 advances 17% to reach a new record high”.
But that performance was driven largely by the tech sector, particularly companies benefitting from the stay-at-home economy. Fortunately, we joined in on this rally through our stake in BlackRock Science & Technology Trust II (Nasdaq: BSTZ) – which has already gained 40% since it was recommended three months ago.
Unfortunately, this narrow rally failed to lift other parts of the market. The utilities, real estate, financial, and energy sectors all suffered negative returns in 2020. What do these groups have in common? Well, they tend to be among the market’s most generous dividend payers. Hence, this is where equity income investors do most of their fishing.
The Russell 1000 Value Index — home to reliable portfolio anchors such as Walt Disney, Verizon, and Bank of America — eked out a meager gain of 1.2% for the year. The popular Vanguard Dividend ETF (NYSE: VYM), which has over $30 billion in assets, is on track to finish up 0.2%.
By comparison, our performance in this shaky, low-yield environment looks pretty good.
It wasn’t easy, as we fought against stiff headwinds. Our energy storage and pipeline holding performed poorly in 2020 with the pandemic biting into oil consumption. And it was equally hard on leisure/entertainment and retail real estate. Our leisure-REIT detracted from returns, and I was forced to jettison holdings like Washington Prime (WPG) and Six Flags (NYSE: SIX).
After exiting just six positions in 2019, we parted ways with nearly 20 holdings in 2020. That’s the most turnover in the 16-year history of High-Yield Investing. But in many ways, 2020 was a tumultuous year unlike any other.
Fortunately, those losses were offset by positive returns from holdings such as CoreSite Realty (NYSE: COR), Brookfield Infrastructure (NYSE: BIP), and NextEra Energy Partners (NYSE: NEP) — all posted double-digit gains.
But that’s not the main reason why High-Yield Investing outperformed its benchmark as well as yield-oriented funds such as VIG.
The Key To Our Success
The key to success was coolly assessing the market’s indiscriminate pandemic selloff back in March and April and taking advantage. While others panicked and dumped everything, we filled the shopping cart – following Buffett’s sage advice to be greedy when others are fearful.
For starters, I doubled-down on several unfairly punished holdings that were poised to spring back. Case in point, I bought 200 more shares of Archrock at around $2 each – they have since quadrupled to nearly $9. That brings us to a total return of more than 50%.
I also added 12 new recommendations to the portfolio between March and May. And I’m happy to report that all 12 are in the green.
We already cashed out profits on several of these. Corning (NYSE: GLW) netted a 29.1% gain. Paychex (Nasdaq: PAYX) returned 39.7%. Bank OZK (NYSE: OZK) earned 49.8%.
We are still invested in others. We bought another energy storage stock, a student housing-focused REIT, and a real estate title processing firm – all at or near the bottom. They’re currently up between 48.5% and 80.7%.
Along the way, the portfolio has collected over $8,000 in dividends and interest over the past 12 months. And those proceeds are being systematically deployed into new holdings like last month’s new addition – which has already delivered a gain of 13.7%.
After sinking below $80,000 in March, the High-Yield Investing portfolio has rallied to a current value of $124,700. That’s a strong rebound of 55% — with key dividend-paying sectors continuing to lag.
Just imagine the potential when these groups are finally back in favor…
There are a few key takeaways from this year. For one, we’ve seen just how important it is to remain nimble in a volatile market. But even more important is the need for clear thinking and the will to act whenever the world seems like it’s in chaos.
I’m confident we’ll look back in a couple of years and be glad we acted the way we did with our portfolio during the height of the Covid pandemic. In fact, we’re already seeing the results…
In the meantime, I’ve already got my eye on several attractive income-boosting candidates that could blossom in 2021. And I’d like to invite you along for the ride…