The Flagship Dividend Fund

Welcome back to this month's edition of the Flagship Dividend Portfolio!

As we told you for the last four months, if you have been following along with the Moby Flagship Quantitative Dividend Portfolio, you should have continued to outperform the market while receiving over a 4% annual dividend.

If you're new to this strategy, the way it works is that we use AI & algorithms to build and manage a portfolio for you.

We have several different portfolios, but for this portfolio, the goal of it is to produce strong & stable returns over the long term with passive income via dividends. 

And when we see that not only is it delivering on that goal, but it's also outperforming the benchmark, we're truly excited to be able to help you achieve financial freedom.

Looking at the numbers more closely we see that (with the effect of dividends) the portfolio has had a 1-month performance of 15.93%!

Let us first say, wow! That's what we like to see. 16% performance in one month is unbelievable.

But let's be realistic here, you shouldn't expect this type of performance on a month-to-month basis. The market has returned about 10% per year, on average, for the last century.

And the goal of this portfolio is to outperform the market while taking on less risk. But at 19x the performance of the market (at an annualized rate) -- that type of consistent outperformance is likely impossible for our level of risk.

Having said all of this, we're very happy with the 1-month performance of 16% 😀 

But let's get more granular and look at the performance breakdown of each stock within the portfolio 👇 

Performance:

This month, it was hard for us to miss, as every single name in the portfolio produced strong returns.

The average return was 14% which was well above the market return of 7%. Therefore, our takeaway is that our stock selection is what gave us 100% of our outperformance over the market this month. And the good returns by the market just acted as tailwinds to our strong performance.

However, when double-clicking into each stock, we see a trend beginning to emerge that stands out. And the trend we're seeing is that financials rallied hard since our last re-balance.

While energy has continued to do well (energy is up 61% this year and is the best-performing sector in the S&P 500), it looks like financials are starting to surge past it.

The reason we believe that is because when we look at stocks like GS & JPM, we see they were the two best-performing names in the portfolio whereas while XOM, VLO, & COP did well, they did lag financials by a pretty serious margin.

So is this a blip or is there a new leader emerging before us? Let's discuss 👇 

Financials Vs. Energy:

• Financial Stocks: First off, lumping stocks together as financials is actually a pretty serious offense. Yes, banks are more closely related to insurance companies than any other sector, but each business is also quite unique. For example, in a recession, a bank would likely see revenue drop as loan growth slows down. Whereas with an insurance company, we may actually see a spike, as people realize they need to start preparing for adverse situations. In any case, we're starting to see the deviation -- most clearly displayed above. So, with that context let's look at JPM & GS vs HBAN & PNC.

  • JPM & GS have very diversified business models but a large chunk of their business is from asset management & investment banking activities. In the case of asset management, the last year has been tough because the way these companies make money is by charging a fee of their assets under management. Well, when those assets get chopped in half due to market conditions, the fees those assets generate also get chopped in half. And in the case of investment banking, did you see any companies go public in 2022? Truth is, the IPO market was the quietest it has been in the last decade. However, 2023 looks relatively promising -- with markets expected to rebound and companies to start going public. This bodes very well for companies like JPM & GS and is likely why their stocks did so well relative to other financial stocks.

  • HBAN & PNC are tried and true businesses. But unlike JPM & GS, they rely mostly on retail banking for their revenue stream. And the outlook for those sectors is poor, to say the least. Even if rates actually come down at some point next year, the housing market typically lags the stock market, therefore financials like JPM & GS will do better before HBAN & PNC truly rebound.

• But our tirade on the differences aside -- it does appear as if there's a changing of the guard. That's because while energy prices have sustained, most of the increased profitability is largely priced in at this point. Looking at XOM & COP, they're both trading at all-time highs -- which is great, but means their future upside is starting to appear limited. However, with stocks like JPM & GS, they'd likely need to increase another ~25% to even reclaim their all-time highs -- let alone capture new ones. Long story short, while energy is likely to continue with its strong performance, financials are likely to outperform from this point on. But in any case, we've diversified our portfolio and will be able to mitigate the risks.

So now that we've discussed the performance, let's finally get into the trades we made this month!

Model Changes:

• Old Portfolio:

• New Portfolio: